Tuesday, April 30, 2013

Balanced Government Budgets: When It Makes Sense…And When It Doesn’t

Pakatan Rakyat has promised to balance the government budget…eventually. Barisan Nasional has committed to balancing the budget by 2020. Given the government debt situation and whether you believe in political manifestos, it all sounds good, right?

Problem is, I find it hard to fully justify this as a policy objective.

A Question Of Sampling

I’m not an expert in sample design, but I think I’m qualified to comment on this (excerpt):

Opposition manipulated Umcedel study, claims prof

An academician has accused the opposition of manipulating the Universiti Malaya's Centre for Democracy and Elections' (Umcedel) finding that voters see opposition leader Anwar Ibrahim as more prime ministerial than incumbent Mohd Najib Abdul Razak.

Prof Zainal Kling (right), the Tun Abdul Ghafar Baba fellow at the Universiti Pendidikan Sultan Idris, said this in a national news agency Bernama report yesterday, rebutting the study's conclusion a day after it was announced to the press and academia...

Thursday, April 25, 2013

February 2013 Employment Report

I’ve been a busy beaver these last few days, conducting training and doing presentations, which explains the lack of posts. Not that there’s much news to pick from.

However, the employment report for February came out on Monday, and the unemployment rate is back down (‘000):


Friday, April 19, 2013

Forecasting The 2020 High Income Threshold

This is going to be a technical post – feel free to skip to the end if you’re not comfortable with the math.

There’s apparently some question of why the ETP has a target of USD15,000 in per capita GNI by 2020, and how it was derived.

Scepticism over the target has always struck me as a little strange because of the uncertainty of forecasting over such a long horizon, and the desire for pseudo-precision involved in assuming such targets are meant to be operative. I mean – if you manage to get to USD14,999, does that mean we’ve failed? How about USD15,001? Would USD15,002 be significantly better?

Thursday, April 18, 2013

March 2013 Consumer Prices

Inflation in Malaysia remains well below the norm as consumer prices in March edged up a bit by 1.6% (log annual and monthly changes):


Much of it was driven – at least on an annual basis – from higher transportation costs, as non-food and transport prices edged downwards.

The Gold Bubble: End Game In Sight?

This week’s collapse in the price of gold was no more than I expected, and no less than I feared. I’ve never bought into the rationalisation of gold as an inflation hedge, or gold as a good investment.

My biggest worry with gold was that, as in the Genneva case last year, ordinary Malaysian investors were going to be caught in a bursting asset bubble, holding assets worth considerably less than they paid for. So far, that worry is slowly being realised – based on the current price, if you had bought gold anytime in Ringgit terms over the last two and a half years or so, you would’ve likely have lost money:


You’d still be in the black if you’d bought before that, but for how much longer is an open question.

Friday, April 12, 2013

February 2013 Industrial Production

I’ve been skipping a lot of data releases this month because work, and because of course with the elections a month away, there are more important topics to look at.

Nevertheless, the economy waits for no man, and this development is interesting enough to warrant a look (log annual and monthly changes; seasonally adjusted):


Wednesday, April 10, 2013

Political Manifestos And Government Waste

Here’s a thought:

Let’s imagine, just for the sake of argument, that you’re a voter in an election campaign – just hypothetically speaking of course.

One party issues a manifesto. It has a lot of bright ideas which you like, but there are some parts which aren’t very appealing to you, and you don’t know how much of the manifesto proposals are going to be implemented. You’d rather not vote for a party that puts forward policies which you don’t agree with.

Then the next party also issues its manifesto, which also has many ideas you like and are in fact similar to the first party’s. Unfortunately, there are a few proposals which you don’t like very much either, but these are quite different from the first. Nor are you sure that all these promises will be fulfilled.

Tuesday, April 9, 2013

Penurunan Harga Kereta Disokong Analisa Ekonomi, Tetapi Peningkatan Subsidi Petrol Tidak

[This is a translation of a previous post that originally appeared in English, on request of a reader (original post here). I’m NOT going to take such requests very often, because translating some of the technical language from English to Bahasa is painfully laborious, and because for the sake of coherence this is not a direct translation. Feel free to send in requests anyway, but NO promises. A big thank you to my wife for a bang up job of editing my original translated text]

Salah satu topik yang hangat baru-baru ini ialah harga kereta yang mahal di Malaysia, satu isu yang telah diutarakan dalam Manifesto Pilihanraya Pakatan Rakyat. Seperti yang kita sedia maklum, industri kereta nasional telah lama dilindungi daripada persaingan asing melalui pengenaan duti eksais ke atas semua kereta impot samada yang dipasang diluar atau dalam Negara.

Walaupun dasar memperlindungi industri tempatan daripada saingan asing ada buruk-baiknya, perlindungan ini mempunyai kesan jelas pada harga kereta impot di Malaysia berbanding negara-negara lain. Sebagai contoh, Honda Civic di Malaysia harganya bermula dari kira-kira RM120k kepada lebih RM130k. Kereta yang sama boleh dibeli diantara USD18k (atau RM54k)dan USD28k (atau RM84k) di Amerika Syarikat. Pada kadar pertukaran Ringgit semasa, perbezaan harga ini adalah antara kira-kira 50% hingga 110% lebih tinggi di Malaysia daripada di AS. Walaupun mengambil kira perbezaan dalam harga jualan kepada pengguna (variasi enjin, insurans, aksesori, tahap trim dll), jurang perbezaannya masih lebih besar daripada yang berpatutan. Di rantau ini, hanya Singapura mempunyai harga kereta yang lebih tinggi.

Monday, April 8, 2013

Time For Independent Fiscal Assessment

I don’t see any of the papers or online media picking this up yet (maybe tomorrow?), so I will (quoted in full):

Academics call upon Barisan and Pakatan to declare policy positions on national finance and debt

Recent financial crises have visited economic calamity upon ordinary citizens in the countries of the East and West alike. Experience tells us that there can be no complacency about a nation's financial state.

Concerns voiced in various reports and the media call for special attention to Malaysia's finances and their management. These concerns are:

Friday, April 5, 2013

Japan’s Monetary Experiment

The BoJ has embarked on a radical new adventure:

BOJ shocks with new base money target, boosts asset buying

TOKYO: The Bank of Japan shocked markets on Thursday with a radical overhaul of its policymaking, adopting a new balance sheet target and pledging to double its government bond holdings in two years as it seeks to end nearly two decades of deflation.

At new Governor Haruhiko Kuroda's first policy-setting meeting, the central bank shifted its monetary policy target to the monetary base from the overnight call rate, which is set at a range of zero to 0.1 percent.

The unexpected scope of the changes Kuroda pushed through drove the yen lower and knocked the 10-year bond yield to its lowest in a decade.

Thursday, April 4, 2013

The Failure Of Democracy

The title is sheer hyperbole and sensationalist, but this is really a book review and a rather appropriate one given the news yesterday.

Now that I’ve got your attention, let me begin first by saying that democracy and democratic institutions are far superior to other forms of social organisation. The principle of one person one vote, while honoured as much in the breach as in the observance, encapsulates the desire for all peoples for self-determination and the pursuit of life, liberty and happiness.

Democracy has flourished and has helped underpin the development of global trade, the advance of technology and the free working of markets, that has brought about an increase in human welfare that is both unique and unprecedented in human history.

That doesn’t mean it’s perfect however, but then, nothing is.

Tuesday, April 2, 2013

Somebody FINALLY Writes A Decent Paper On The Middle Income Trap

I’ve been meaning to cover this since it landed in my inbox last week, but hadn’t found the time. But this new IMF working paper gets a big thumbs up from me (abstract):

Growth Slowdowns and the Middle-Income Trap
Aiyar, Shekhar and Duval, Romain; Puy, Damien; Wu, Yiqun & Zhang, Longmei

Summary: The “middle-income trap” is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels and failing to graduate into the ranks of high-income countries. In this study we examine the middle-income trap as a special case of growth slowdowns, which are identified as large sudden and sustained deviations from the growth path predicted by a basic conditional convergence framework. We then examine their determinants by means of probit regressions, looking into the role of institutions, demography, infrastructure, the macroeconomic environment, output structure and trade structure. Two variants of Bayesian Model Averaging are used as robustness checks. The results—including some that indeed speak to the special status of middle-income countries—are then used to derive policy implications, with a particular focus on Asian economies.

Torturing The Data Until It Confesses

I don’t get it. Why do people think that nominal figures at any given point in time mean anything? Actually I do get it – it’s called money illusion. And perhaps a dollop of the concept of “natural” prices (though that’s another thought for another day).

Case in point (excerpt; emphasis added):

Why Is Genius PM Najib Delaying 13th General Election?

…Since he’s toast any way you look at it, why not spend the remaining precious time maximizing contracts allocation to his cronies? Well, actually Najib is a genius primarily because he managed to increase the country’s debt to RM502 billion last year, the highest in history and reaching 54% of GDP. In short Najib doubled the debt in 4-year what Badawi managed to do in 8-year, an impressive milestone indeed. If that is not a sign of genius, I don’t know what is (*grin*). It’s critical to build his war chest, just in case he miraculously gets to keep his premiership. If somehow he managed that, his next battle in UMNO election needs billions of dollars to secure the presidency seat…

The graphic accompanying the piece shows the increase in government debt since 1990 – don’t bother checking, the numbers are all correct. The interpretation, however, is not.