Wednesday, June 27, 2012

Documenting Income Inequality: Malaysian Household Incomes 1970-2009

[Warning: this post is very-long and graphics-intensive]

We had an interesting debate going on in the comments to this post regarding inequality, but very specifically on racial inequality in Malaysia. I’d been meaning to post on the data underlying my arguments in that debate, so here it is even though a couple of months late.

It’s been a central pillar of public policy since 1970 to embed affirmative action in the economy along many dimensions, from education to corporate ownership to public procurement. What success any of these policies have had, has to be tempered with the inefficiencies caused by tampering with market forces. There’s certainly a case to be made on both sides of the fence, but much of these tend to descend into emotional and value laden arguments, and not really economic ones.

Monday, June 25, 2012

Peak Performance, NFL Style

I can’t embed the video, so you’ll have to hit this link to view it.

How many of our athletes, much less our companies, would go to this extent? Of course, in the NFL the stakes are high – revenues this year are expected to hit US$9.5 billion.  When the returns are enormous, it’s worth examining every competitive advantage no matter how small.

But I think the underlying message has some value as well, and is more generally applicable – measure, measure, measure, execute, then measure again. This goes back to the beginnings of operational research in WWII and the heart of Japanese Kaizen. You can only improve if you know what you’re doing. As a society, we need to become more comfortable with statistics, with measuring things and establishing benchmarks. There’s a danger in overly obsessing over numbers, but that doesn’t mean they have no value.

May 2012 Consumer Prices

The latest report on the CPI from DOS released last week shows the first uptick in the general price level since last year (log annual and monthly changes; 2000=100):


Friday, June 22, 2012

April 2012 Employment Update

The latest employment numbers from DOS shows the economy shedding about 15k jobs in April:


With both labour force and employment growth slowing, the unemployment rate has increased somewhat to about 3.0%:


There’s little more to add to that, apart from noting that we’re still looking at unemployment well below the NAIRU, if BNM is to be believed. That continues to suggest that monetary policy is unlikely to be loosened this year, especially since inflation is also on the decline.

Technical Notes:

April 2012 Employment report from the Department of Statistics (warning: pdf link)

Thursday, June 21, 2012

May 2012 Forex Update

With all the recent movement in the Ringgit, it’s probably about time to look at where it really stands on an aggregate and disaggregated basis. I’m approaching this a little differently this time, and I’m going to focus on differences in the nominal and real indexes rather than the exchange rates themselves.

The real effective exchange rate (REER) suggests MYR weakness to be more apparent than real:


Monday, June 18, 2012

Dodging A Bullet

The Greek election results are almost in:

Greece Steps Back From the Brink

Greece isn’t ready to call Europe’s bluff. If early indications from the polls are correct, the top vote-getter in Sunday’s parliamentary elections was the pro-euro New Democracy Party–not the leftist Syriza coalition, which campaigned on a platform of rejecting Europe’s conditions for bailout assistance.

That’s good news for the rest of Europe–and indeed the rest of the world, which would be harmed by a chaotic exit of Greece from the 17-nation euro currency zone.

New York University economist Nicholas Economides, who was in Greece for the elections, said in a telephone interview that “if things go the way it looks like now, the Europeans should breathe a sigh of relief.”

Bloomberg News reported that according to final exit polls, center-right New Democracy had narrowly edged out Syriza, with Pasok, the center-left party, which is also pro-euro, coming in third. It appeared New Democracy and Pasok would have enough seats to win an outright majority in parliament if they formed a coalition government.

I’m not going to go “hurrah!” just yet though. If Europe and Greece have dodged a bullet, there’s plenty more on the way. Fundamentally nothing has changed, except the buying of a little more time. The contradictions underlying European monetary union remain unresolved – wide productivity differentials, huge budget gaps, and a central bank unable and unwilling to rise to the occasion.

Even the bailout of Spanish banks last week, which was far more critical from the point of view of preserving the Eurozone, hasn’t restored market confidence – Spanish government bond yields have hit another all time high.

It’s going to be a hot, tense summer.

Friday, June 15, 2012

The End of Cash

Interesting video on BBC magazine:

Life in a cashless society

Author David Wolman says cash is dirty, expensive and should just be pushed off the cliff.

He describes his new book, "The End of Money: Counterfeiters, Preachers, Techies, Dreamers- And The Coming Cashless Society," as a eulogy to these rectangular slips of paper and little metal disks.

But while writing the book, and going without cash for a year, Wolman found that the future of money is about much more than just dollars and cents.

The link goes to a short video (the Beeb makes it hard for others to embed their video). It’s not exactly world breaking news – Japan has had a mobile payment system based on phones for something like a decade now, and cashless payments are popular in Africa (Kenya alone has 20 million users). But it looks like the movement is gaining critical mass.

Thursday, June 14, 2012

Incomes, Governance And The Middle Class

A new working paper from the World Bank looks at the impact of the middle class on public policies (abstract; emphasis added):

Do middle classes bring institutional reforms?
Author: Loayza, Norman; Rigolini, Jamele; Llorente, Gonzalo;

Summary: The paper examines the link between poverty, the middle class and institutional outcomes using a new cross-country panel dataset on the distribution of income and expenditure. It uses an econometric methodology to gauge whether a larger middle class has a causal effect on policy and institutional outcomes in three areas: social policy in health and education, market-oriented economic structure and quality of governance. The analysis find that when the middle class becomes larger (measured as the proportion of people earning more than US$10 a day), social policy on health and education becomes more progressive, and the quality of governance (democratic participation and official corruption) also improves. This trend does not occur at the expense of economic freedom, as a larger middle class also leads to more market-oriented economic policy on trade and finance. These beneficial effects of a larger middle class appear to be more robust than the impact of lower poverty, lower inequality or higher gross domestic product per capita. That may be linked to the evolution of the middle class: they are more enlightened, more likely to take political actions and have a stronger voice. They also share preferences and values for policy and institutional reforms, as well as higher stakes in property rights and wealth accumulation.

I don’t think this paper will stop the debate over which comes first – the chicken, or the egg? Or in this case, democracy and governance, or incomes? But it’s more firmly on the side of incomes and income distribution coming first, or to be more precise, to demonstrate that incomes and income distribution do have a causal effect on policies and governance.

From Penang To London

A lovely essay by Danny Quah (excerpt; emphasis added):

OFA – Be a little foolish, be a little different

When I left Penang for university in the US, I also left Penang Free School before the school year ended. I felt I did so without disrupting much the life of the School: I wasn’t editor of the School magazine. I wasn’t Break Monitor, Class Monitor, Traffic Warden, House Prefect, or School Prefect...

…At PFS I hadn’t failed at everything. But I wasn’t a remarkable student at PFS. In the eyes of people in charge, I was in the middle of the pack. That felt about right to me as that’s where most people are, generally. Where I’d not done well at School, I figured perhaps those things didn’t matter.

Tuesday, June 12, 2012

1Q2012 Government Debt Update

With the fiscal deficit still with us, government debt continued to increase in 1Q2012 (RM millions):


Gross issuance reached RM24.7 billion, with redemptions totalling RM9.3 billion. As a result, net government debt increased by RM15.5 billion in 1Q2012, a marginal increase over 4Q2011, and total debt reached RM470.8 billion.

1Q 2012 Federal Government Budget Update

The 1Q2012 numbers for the government’s accounts were published along with the April 2012 Monthly Statistical Bulletin from BNM. There’s some good and bad points, but the general tenor is that there’s been some improvement in the government’s overall fiscal position (RM millions):


Monday, June 11, 2012

April 2012 Industrial Production

Today’s report on Malaysia’s industrial production in April underscores the weak start to the second quarter from slowing external trade (log annual and monthly changes; seasonally adjusted):


Larry Summers On Public Investment And Debt

Larry Summers has a reputation. He was a key figure in the deregulation of US finance in the late 1990s, as Treasury Secretary under the Clinton administration, that ultimately led to the banking crisis of 2007-2008. As President of Harvard, he was accused of sexism, conflict of interest, and carried responsibility for the university’s nearly US$2 billion in losses from derivatives trading. Professionally, he’s known as being acerbic and dismissive towards others – arrogant is one of the kinder words used. His academic work tends towards supporting free market, Republican views, despite serving two Democratic presidents.

Wednesday, June 6, 2012

April 2012 External Trade

Today’s external trade report from Matrade suggests that all the weirdness from the beginning of the year has finally settled down and we’re finally seeing some true trends. Unfortunately, the trend doesn’t look very good (log annual and monthly changes; seasonally adjusted):


April 2012 Monetary Conditions [Updated]

Well, I’m back from my break, recharged but thoroughly unrested Smile

But on to last week’s monetary data release from BNM. I haven’t done one of these for a while, as (1) little substantive has changed; and (2) while I’ve been updating the data, I’ve lacked the time to publish a review in a timely manner. Old news is stale news as they say.

Nevertheless, things are heating up (metaphorically) in a monetary sense. With Europe back in the news, China showing signs of a slowdown, and US recovery losing steam, it’s back to global risk aversion again. And that means global capital outflows into US treasuries (notice that gold hasn’t budged).

We’re only seeing a few signs of this locally though, as money supply growth is pretty stable (log annual and monthly changes; seasonally adjusted):


Friday, June 1, 2012

China’s Impact On Malaysia

I’ll be going on leave for a short break during these school holidays, so there won’t be any further posts until the middle of next week. In the meantime, I’m making a note on a briefing held yesterday by the World Bank on China’s long term prospects and the consequences for Malaysia.

Since it was a closed door session and the their report on China was the subject of some controversy, we’re not supposed to talk about the China portion of the presentation. Suffice to say that the report and its recommendations are freely available through the World Bank’s website (link here). My only comment on this is to repeat what we were told – in detail, the report broadly mirrors the proposals of our own New Economic Model.

Economic Development A’la McDonalds

I promised to write a post on a Bloomberg article I read a couple of days ago, but was too busy to get down to it (you’ll see why in the next post).

But this article – really about the working paper its based on – is pretty fascinating (extract):

The Big Mac Theory of Development

It’s a question richer people have about their poorer neighbors: Why are they poor? Is it circumstances, or is it some kind of moral or intellectual failing? Is it that they never had a chance to cross from the wrong side to the right side of the tracks, or that they never had the motivation to cross? The subject colors thinking about international development as well. Is poverty in Africa and Asia the result of something about individual Kenyans or Pakistanis, or is it instead something about Kenya or Pakistan? Is it about the people, or the place?

A new paper by Princeton Economist Orley Ashenfelter for the National Bureau of Economic Research sheds some light on this debate. It compares the wages earned by staff working at McDonald’s (MCD) franchises around the world. Ashenfelter studies what McDonald’s employees earn against the cost of a Big Mac in their local franchise. The Big Mac is a standard product, and the way it’s made worldwide is highly standardized. The skill level involved in making it (such as it is) is the same everywhere. And yet, depending on where they live, crew members from all parts of the world earn dramatically different amounts in terms of Big Macs per hour…