Friday, September 19, 2014

BNM Watch: OPR On Hold

It was a coin toss and tails it is (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….

…For Malaysia, economic activity has been supported by the continued growth in domestic demand and exports…While private investment activity is projected to remain robust, private consumption is expected to moderate…The prospects are for the Malaysian economy to remain on a steady growth path.

Inflation is expected to remain relatively stable for the remainder of the year. Going into next year, inflation is projected to edge higher and is expected to be above its long-term average due to domestic cost factors….

The current stance of monetary policy remains supportive of growth…Further adjustment to the degree of monetary accommodation may be taken depending on how new information will affect the assessment on the balance of risks….

Thursday, September 18, 2014

BNM Watch: MPC Preview

First off, I have NO idea what BNM is going to do today. I have decided opinions on what they SHOULD do, but there’s a striking divergence of opinion in the market about this.

So here’s the situation – the MPC decided in July that with growth looking robust, it’s time to normalise interest rates and head off the risk of “financial imbalances”, which could mean anything from excessive borrowing by firms and households, or an imbalance in net foreign asset holdings, or pretty much anything really. I didn’t agree with the decision then, and I still don’t.

August 2014 Consumer Prices

Prices in August took another blip upwards (log annual and monthly changes; 2000=100):


Wednesday, September 17, 2014

The Colour Of Inequality

[Full disclosure: Dr Muhammed is a good friend of mine, so the following commentary should be taken as unbalanced and totally biased. You have been warned]

There’s a new book coming out this weekend on income and wealth inequality in Malaysia, at MPH:


Monday, September 15, 2014

Wages and Productivity

DS Wahid on the share of wages in GDP (excerpt):

Govt planning to push wages-GDP ratio to 40%

KUALA LUMPUR: The Government is planning to increase the ratio of wages to Gross Domestic Product (GDP) from 33.6% last year to 40% in the long term.

Minister in the Prime Minister’s De­p­artment Datuk Seri Abdul Wahid Omar said this would be done gradually.

“This is because any wage increase must be supported by increase in productivity,” he said after attending a media appreciation ceremony with the Statistics Department yesterday…

Friday, September 12, 2014

Thursday, September 11, 2014

Explaining Household Income

DS Wahid’s announcement over the preliminary results of the 2014 Household Income Survey (HIS) has created a minor furore (excerpt):

RM5,900 average household income? Lies, damned lies, and statistics, says MP

KUALA LUMPUR, Sept 9 ― The federal minister's claim that Malaysian households make an average of RM5,900 monthly is a farce that does not represent the actual earning capacity of most Malaysians, an opposition lawmaker said today.

DAP's Bukit Mertajam MP Steven Sim said the figure is a result of creative use of statistics in the 2014 Household income Survey (HIS) preliminary report to paint a “dishonest” picture of increased prosperity among the people….

…On Sunday, Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar was quoted by national news wire Bernama as saying that the average household income in the country has risen to over RM5,900 a month, a significant increase from the RM5,000 monthly average recorded in the 2012 HIS.

Sim stressed that the figure does not make sense when the government itself admitted that 80 per cent of Malaysian households had benefitted from the Bantuan Rakyat 1Malaysia (BR1M) cash aid programme, whose recipients must earn less than RM3,000 a month.

He added that government statistics also showed that 82.5 per cent of Malaysians below the age of 30 earn less than RM3,000 a month as at September last year….

…Sim stressed that the median household income in Malaysia ― which stood at RM3,626 in the 2012 HIS ― gives a clearer idea of how much Malaysian households actually earn as it differentiates between low and high income earners….

Tuesday, September 9, 2014

A Ticking Time Bomb

I was at EPF’s International Seminar yesterday, and one of the presenters showcased this video:

Thursday, August 28, 2014

The Mythmaking and Storytelling Of Economics

Noah Smith (@Noahpinion on Twitter) waxes lyrical on the culture of economics (excerpt):

Economics Isn't Science or Literature

…Economists use many of the same tools as scientists and engineers -- matrix algebra, multiple regression, control theory. But they don’t use them in the same way. In economics -- especially macroeconomics -- the goal is often to persuade other people of your point of view. As Federal Reserve economist Kartik Athreya writes in his 2013 book “Big Ideas in Macroeconomics”:

“My view is that a part of what we do is "organized storytelling, in which we use extremely systematic tools of data analysis and reasoning, sometimes along with more extra-economic means, to persuade others of the usefulness of our assumptions and, hence, of our conclusions...This is perhaps not how one might describe "hard sciences[.]”

Wednesday, August 27, 2014

Trade-Offs, Opportunity Costs and Unintended Consequences; Or There’s No Such Thing as a Free Lunch

I had a long conversation with an old friend of mine this weekend, and although I’m not about to disclose what we were talking about (yet!), it brought to mind how fundamentally different economists think to the way other people think.

Economists are always thinking in terms of trade-offs – you can’t do something without affecting something else. In a proverbial world of scarce resources and unlimited wants, every action has some form of reaction, even if these don’t conform precisely to Newton’s Third Law of motion. In Milton Friedman’s evocative language, “There’s No Such Thing as a Free Lunch”.

This is especially true of the policy-space. Every change in policy has both costs and benefits, though some of those costs or benefits might not be readily apparent. Replacing SST with GST for instance, or going forward with the TPPA – there are pros and cons, winners and losers in each decision, and the cost-benefit analysis is not always as clear as people think. Take for example the ever contentious issue of petrol and diesel subsidies – most people don’t see (or won’t see) the flip side of artificially cheap energy.

So we come to this (excerpt):

Economics for the masses

…are economists actually able to win hearts and change minds? Or is economics merely used to justify and reinforce pre-existing beliefs?

A new paper* from political scientists at Duke University suggests that economists can influence public opinion, but only on technical policy issues. They are less effective when it comes to politically contentious questions….

…So how did the dismal profession stack up? First the bad news. Despite the expert consensus, the majority of respondents, excluding those that were uncertain, disagreed with economists on every issue….Wheras [sic] this distrust was equally spread amongst most demographic groups, the authors found that right-wing respondents were significantly less likely to trust economists.

There were, however, some more positive findings. When they were informed of the consensus position of economists, respondents were more likely to agree with them. However, the size of this effect varied according to the nature of the policy issue. Members of the public were more likely to agree with economists when quizzed on technical issues, such as the gold standard or forecasts for tax revenue. But on politically charged topics, for example trade with China or the merits of immigration, the economists’ consensus was far less likely to sway public opinion. Not only that, but when the respondents were informed that their own views did not match those held by most economists, their level of trust in them decreased markedly. This was not the case with the more technical issues – even when they disagreed with economists their trust was unaffected. It seems that on hot-button issues, the public uses economists to validate prejudices, and loses faith in them when they fail to do so.

Confirmation bias is alive and well. One wonders how many bloggers and social media activists are wasting time and doing nothing more than preaching to the converted, present self included.

Friday, August 22, 2014

Calculating Real Interest Rates

One of the reasons analysts have been quoting as being behind BNM’s increase of the OPR last month was negative real interest rates.

What is that? Essentially, it’s the rate of interest on any particular deposit or debt instrument, less then rate of inflation.

The intuition behind this simple: what you’re trying to get at is a measure of the real purchasing power behind a deposit or investment. If you have a positive real interest rate, you can buy more goods and services when the deposit is withdrawn or the debt matures than you did at the start. If you have negative real interest rates, you can get less. A negative real interest rates means that you could be gaining more money, but the amount of goods and services you can buy could be less than when you started.

July 2014 Consumer Price Index: Nothing To See Here, Move Along

Wednesday’s inflation report saw the CPI rising by 3.2% (log annual and monthly changes; 2000=100):