Wednesday, October 30, 2013

Teaching Economics: More Diversity Please

Students at Manchester University want more than dogma (excerpt):

Economics students aim to tear up free-market syllabus
Undergraduates at Manchester University propose overhaul of orthodox teachings to embrace alternative theories

Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins.

Why RPGT Won’t Make Much Difference

One of the measures taken in Budget 2014 is a hike in RPGT, effective January 1, 2014:

Disposal Current Companies Individuals Non_citizens
Within 2 years 15%      
Within 3 years 10% 30% 30% 30%
in the 4th year 10% 20% 20% 30%
in the 5th year 10% 15% 15% 30%
in the 6th and subsequent years 0% 5% 0% 5%

The idea is to limit speculative activity by imposing an additional charge on profits made on disposal of property assets.

Tuesday, October 29, 2013

Budget 2014: Highlights and Lowlights

Well, its in the books now – metaphorically speaking that is, because it technically still has to pass Parliament.

First a look at the headline figures:

  1. Growth is expected to be between 4.5%-5.0% this year, and 5.0%-5.5% next year.
  2. Government operating expenditure is slated to increase 0.7% to RM217.6b, while development expenditure is expected to rise/fall to RM46.5b/RM44.5b depending on whether you believe the speech or the 2013-2014 Economic Report.
  3. Government revenue is forecast to increase 1.7% to RM224.1b

Monday, October 28, 2013

September 2013 Consumer Prices

I’m going to be late with my 2014 Budget assessment because of work deadlines on other things. Even this post will be a bare bones look at September’s increase on consumer prices, as interesting as it is (log annual and monthly changes; 2000=100):


Friday, October 25, 2013

Live Blogging Budget 2014 [UPDATED]

As usual, I’m going to try live-blogging the budget announcement, commenting on things as and when they are announced. The PM is scheduled to start his speech at 4.00pm, so I’ll begin around then.

[Refresh the page for updates]

  1. PM is in the House, and we’re off in a few minutes
  2. Wasting time til markets close, as usual
  3. I don’t think the KLCI hitting an all time high really proves anything
  4. Forecast 2014 GNI per capita RM34k
  5. Forecast 2020 GNI per capita to beat USD15k target (told ya so)
  6. RM217.6 billion for opex, RM44.5 billion for development – pretty flat over 2013
  7. Budget deficit forecast for next year at 3.5%, right on track
  8. GDP forecast for 2014 is 5%-5.5% – not ambitious
  9. Talking about rail and oil & gas investment – looks like no postponement of RAPID
  10. Logistics masterplan – given our trade openness, this probably should have been done much earlier. Still we’re 29th in the world
  11. Tourist development fund offering subsidised interest rates
  12. RM1.8b for high speed broadband
  13. 10% matching government contribution for voluntary EPF contributions – good move
  14. Private retirement scheme – RM500 one-off incentive for those between 20-30
  15. 12 minutes to market close, and the bigger news items
  16. RM2.4 billion in subsidy and incentive for padi beras and fisheries
  17. Further incentives for agriculture R&D through Biotech Corp
  18. New plan for entrepreneur development to be developed by new dept under MoF
  19. Malaysian Global and Innovation Centre (MAGIC) to boost R&D and innovation (one-step centre) with seed capital of RM50 million
  20. Dunno about that – why would this be more effective than what we’ve done before?
  21. RM120 million for SME development
  22. Here it comes
  23. Committee to investigate government waste identified in the A-G report
  24. Government to switch to outcome based budgeting (I think this has been part of the GTP targets)
  25. MoF, MITI and Health Ministries to be pioneers
  26. No need to file tax return if salary deductions are enough to cover tax liability
  27. Subsidies to be restructured and better targeted
  28. Comprehensive database covering welfare
  29. SST to be abolished (haha)
  30. GST is here!!!!!
  31. Low inflation is the best time for implementation (that makes sense)
  32. GST to be effective April 1 2015
  33. GST rate at 6%
  34. Public goods and services exempted
  35. So is property
  36. One-off RM300 for BR1M recipeints
  37. 1%-3% income tax cut; RM4k households will no longer pay income tax
  38. Income tax bands to be adjusted. Maximum tax rate only applies for incomes over RM400k, instead of RM100k  as now (effective 2015)
  39. For companies; 1% cut in corporate tax (effective 2016)
  40. Income tax for cooperatives also cut
  41. ICT accelerated allowance from 2015
  42. GST related investment, GST related training and others to be given tax relief
  43. Enforcement of profiteering act to be raised
  44. Markets are going to be REALLY happy
  45. After all that, everything else is going to be a bit of an anticlimax
  46. Details of GST will be available eventually through Customs – bookmark this link
  47. Flexible work arrangement to be introduced for women
  48. RM100 school assistance program to be continued
  49. Book vouchers also to continue (RM250)
  50. Lots of investment to ensure LRT, MRT, and Komuter are easier to use
  51. RM4.1b for rural development
  52. Nothing much on housing so far
  53. Lots of smaller allocations now – health, crime, flood mitigation etc
  54. 2.6 million Malaysians above age of 30 have diabetes – sugar subsidy to be cut. Yes!!!
  55. I still think we should tax sugar…and petrol.
  56. RM2.2 billion for women’s development
  57. This is the last time I try following TV, Twitter, and Whatsapp while blogging!
  58. RM441 million for the assisting the disabled
  59. Indian community to be assisted with RM100 million for education, mainly for pre-school; RM50 million for Indian entrepreneurs (Not nearly enough I think)
  60. Now for housing
  61. RPGT to be reviewed. RPGT raised to 30% for 1-3 years, 20% for 4 years, 15% for 5 years
  62. Floor for foreigners raised from RM500k to RM1 million
  63. DIBS is banned!!
  64. 200k new affordable houses to be built in 2014
  65. Incentives for private sector developers to build affordable houses (RM30k per house)
  66. Standards being given for low cost and medium cost houses
  67. Lots of other smaller measures for housing
  68. For middle income taxpayers – tax savings up to RM480
  69. Wrapping up now…finally
  70. One thing more…for the civil service, salary scales to be adjusted?
  71. And one more thing…BR1M goes to 3.0, increased from RM500 to RM650
  72. For single person households, RM250 to RM300
  73. BR1M insurance scheme to be extended to all households members who qualify (worth RM50-100)
  74. RM3000-4000, BR1M will be given RM450, plus RM50 insurance coverage
  75. Allocation of RM4.4 billion for BR1M 3.0 all told
  76. Pensioners to receive RM250
  77. Civil servants to receive half month bonus, with minimum of RM500
  78. All over bar the shouting now

And that’s a wrap. I’ll be looking more closely at the aggregate figures later tonight, hopefully with something coherent to say about it.

Thursday, October 24, 2013

How To Spin With Statistics: Compare And Contrast

From Jesse Colombo to the Dallas Fed (excerpt):

Asia Recalls 1997 Crisis as Investors Await Fed Tapering

The 2007–09 global financial crisis triggered unprecedented central bank policy intervention in the U.S. and elsewhere. The Federal Reserve, after cutting short-term interest rates to near zero, embarked upon three rounds of unconventional monetary policy known as quantitative easing, or QE. These measures involve the purchase of long-term securities and aim to stimulate the economy by lowering long-term borrowing costs…

2014 Alternative Budget

It’s now out, you can download it here.

Quick impressions:

  1. It’s taken them a while, but this is a much better produced document, with considerably less annoying political rhetoric. I confess, last year’s alternative budget document read so much like the Communist Manifesto that it took a bit of effort to be objective about it.
  2. The numbers are much more realistic – the revenue forecast for instance properly takes into account economic growth, and expenditure savings look reasonable given the proposed savings measures. Not that I necessarily agree with the cuts, but the estimates are reasonable. There’s unfortunately no breakdown of expenditure, but that means less chances of needlessly tripping up over messy details (yes, I’m the charitable type). I can’t imagine civil servants would be terribly happy though, especially over the proposed caps on household debt.
  3. Most of the measures also look pretty reasonable (e.g. a graduated increase in the minimum wage, no more demands for a big jump immediately), though implementation and especially effectiveness will always be an issue. To be fair, that would be true for the government as well.

Shiller On Debt

Newly minted Nobel Laureate Robert Shiller is on Project Syndicate talking about the debt to GDP ratio (excerpt):

Debt and Delusion

NEW HAVEN – Economists like to talk about thresholds that, if crossed, spell trouble. Usually there is an element of truth in what they say. But the public often overreacts to such talk.

Consider, for example, the debt-to-GDP ratio, much in the news nowadays in Europe and the United States…Could it be that people think that a country becomes insolvent when its debt exceeds 100% of GDP?

Big Macs, Price Differentials, and Single Currency Areas

I fortuitously came across this while looking at something else:

What does the Big Mac say about Euro Area adjustment?

The Big Mac Index offers some quick insights into the state of currencies around the globe by comparing the price of Big Macs across countries. Of course, the Big Mac index was never intended as a precise gauge of currency misalignment, as the Economist has just reminded us in its latest update. According to them, it is just about making PPP and other difficult exchange rate concepts more digestible.

Well, in the euro area, we have the euro to be able to simply compare prices across the euro area. So how have Burger prices moved recently? Are prices in the euro area adjusting? Should we be pessimists or optimists on the adjustment challenge in the euro area? Since July 2011, the Economist has also been collecting the individual prices of Big Macs in major euro area countries...

Wednesday, October 23, 2013


Quoting David Beckworth quoting Barry Ritholtz (excerpt):

Why Counterfactual Thinking Is Important

I recently made the case that many observers are not thinking properly about the Fed's Quantitative Easing (QE) programs. Using the analogy of George Bailey's life in the film It's a Wonderful Life, I argued that the critics who question the efficacy of the QE programs are doing the wrong counterfactual. Today, Barry Ritholtz makes the same point:

August 2013 Employment

Employment in August rose by 173k (‘000):


Some of the increase was due to a lot more people looking for work and finding it (log annual changes):


Monday, October 21, 2013

An FTA Is Always Good For Trade

Hafiz Noor Shams on FTAs, external trade, and the TPPA (excerpt):

[2713] Is Bantah TPPA right about FTA causing trade balance to deteriorate?

One claim made by Bantah belong to the latter categories is that free trade agreements will hurt a country’s trade balance. This is based on their assumption that free traders claim that FTA will increase trade balance.

But, “free trade” itself says nothing about trade balance. “Free trade” has an agnostic a priori assumption on trade balance. In fact, if one trades, somebody has to have a surplus and somebody has to have deficit at any particular point of time. To say free trade/FTA increases trade balance ignores the fact there are at least two sides trading. “Free trade” does not make that argument that Bantah opposes. Bantah is opposing a straw man here.

The traditional argument is that free trade increases total trade (not trade balance). That means the sum of exports and imports for a country increases (not the net of the two, which is net exports). Bantah misunderstands this.

My thots? What he said…

I have no qualms over TPPA with respect to trade. The whole issue in my mind revolves around the non-trade provisions. Even for many of those, I can find economic or cost-benefit justifications that make sense for all parties.

Some however, are indefensible, and those are the real stumbling blocks.  But trade isn’t one of them.

Thursday, October 17, 2013

How To Spin With Statistics

Here’s a model article for all budding analysts and pundits out there (excerpt):

Malaise Is Ahead For Malaysia's Bubble Economy

I recently wrote about how Indonesia’s economy has devolved into a classic credit and asset bubble-driven growth story, and its neighbor Malaysia is on the same path along with most other Southeast Asian economies, which are part of the overall emerging markets bubble that I have been warning about in the last couple of years.

Forex Fallacy

[This post is loooong. For those without patience, you can skip to the end without missing too much]

Tong Kooi Ong talks forex policy and promptly makes a meal of it:

How the middle class is subsidizing the Corporate Elites and why it has to stop

There is a feeling that Malaysia’s middle class are generally not a happy lot. Many moan about the rising cost of living, education and healthcare, their relatively low wages and rising debt as they borrow more to buy homes and cars…

…A major problem lies in the weak ringgit, which results in different purchasing power for the two “middle classes”…

Friday, October 11, 2013

August 2013 Industrial Production

Too good to last? The IPI has come back down to earth (log annual and monthly changes; seasonally adjusted):



Thursday, October 10, 2013

Emigration And Affirmative Action [UPDATED]

Everyone knows that reporting in the mainstream media is biased. Unfortunately, they’re not the only ones (excerpt):

Malaysia’s got talent, but they’re being driven away, mostly to Singapore – world economic report

The huge presence of foreign workers in Malaysia has led to static wages, according to the WEF report.

Affirmative action policies and an overreliance on cheap foreign labour have led to Malaysia's best and brightest leaving to find greener pastures, particularly in Singapore, according to a new report released by the World Economic Forum.

Wednesday, October 9, 2013

Capital Gains Tax As An Alternative To GST

I’d really like to see a capital gains tax (CGT) in Malaysia. But as much as I support such a tax, CGT is simply not a good alternative for GST.

Here’s why (USD millions):


Tuesday, October 8, 2013

My Dreams Have Come True

Financial literacy is finally making it into the official school curriculum (excerpt):

Financial education to be introduced in school soon

KUALA LUMPUR: Financial education will be incorporated into the school curriculum in stages from next year.

Bank Negara assistant governor Abu Hassan Alshari Yahaya said the central bank, in a collaboration with the Education Ministry, would introduce it to Year 3 students next year and secondary school students from 2017.

“Part of the financial education elements have been introduced this year in Bahasa Malaysia and Maths subjects, ahead of the targeted date,” he said during the launch of the Financial Literacy Month yesterday.

Abu Hassan said financial education needed to be inculcated continuously from a young age to adulthood to help instill discipline and increase their financial management skills.

He said the curriculum would cover money management, planning, savings and investments, credit and debt management and insurance.

Abu Hassan said that parents should not rely only on the school curriculum for their children to be prudent with their finances as they should share the responsibility...

I have hardly anything to add to what he said, save to note that adult financial literacy skills are on average pretty abysmal the world over. I don’t know of any other country that has made this move (sound off in the comments if you know any), so Malaysia might actually be one of the first.

Family Planning And High Income Households

When it comes to investing in children, quality and quantity matter (abstract):

Fifty Years of Family Planning: New Evidence on the Long-Run Effects of Increasing Access to Contraception
Martha J. Bailey

This paper assembles new evidence on some of the longer-term consequences of U.S. family planning policies, defined in this paper as those increasing legal or financial access to modern contraceptives. The analysis leverages two large policy changes that occurred during the 1960s and 1970s: first, the interaction of the birth control pill’s introduction with Comstock-era restrictions on the sale of contraceptives and the repeal of these laws after Griswold v. Connecticut in 1965; and second, the expansion of federal funding for local family planning programs from 1964 to 1973. Building on previous research that demonstrates both policies’ effects on fertility rates, I find suggestive evidence that individuals’ access to contraceptives increased their children’s college completion, labor force participation, wages, and family incomes decades later.

One of the lesser known characteristics of the Asian Tiger economies is that they generally started supporting family planning policies in the 1970s. Malaysia by contrast went the other way – after complete neglect of the link between family size and economic welfare until the 1980s, we ended up implementing a policy to increase the population to 70 million.

Monday, October 7, 2013

The Network Costs Of Affordable Housing

A friend told me a story the other day, about how his son when first starting out in working life lived in a shoebox apartment and his kids had to study under park lamps, because the apartment complex was too noisy from all the neighbours watching TV.

Just because you can afford to own a home, doesn’t make it a suitable place for bringing up children…or for addressing urban poverty or multi-generational inequality (excerpt):

Housing versus Habitat

...Consider low-income housing. Most developing countries, and many rich ones, define their housing deficit according to the number of families living in units deemed socially unacceptable…

Friday, October 4, 2013

August 2013 External Trade

Well, well, well…(log annual and monthly changes; seasonally adjusted):


For what’s seems like the first time in the longest time, the external trade picture looks bullish. Exports climbed 11.7% in log terms for August, while imports 13.6%. Just as significantly, monthly growth stayed positive as well.

Thursday, October 3, 2013

A Tale Of Three Rs [UPDATED]

[I’ve changed the notation to make sure there’s no confusion between the expectations operator and the exchange rate. Reminder to self: Stop making tyro mistakes. Thanks to Prof Wong for pointing this out]

I must admit I was wrong about this. I thought that of the three Rs – Ringgit, Rupiah, & Rupee – the Ringgit was fairly safe. It turns out that this isn’t precisely the case. But I’m getting ahead of myself.

One of the issues coming from the potential tapering of the Federal Reserve’s QE3 program is the outflow of capital from emerging markets, helped by concerns over growth and economic fundamentals. Markets that are seen as vulnerable, i.e. featuring budget and current account deficits, would suffer the most. In addition, countries with high foreign liabilities such as ownership in corporate securities like stocks and bonds, are also seen as potential candidates for a damaging “sudden-stop” outflow episode, a’la the 1997-98 Asian Financial Crisis.

Wednesday, October 2, 2013

Public Waste And Public Choice

These are cover your eyes awful:

  1. RM2 billion in dubious security services
  2. RM3,800 wall clocks
  3. RM600,000 in unused footwear
  4. RM550,000 in unverifiable claims
  5. Lost cars!
  6. RM8 million in double subsidies
  7. RM16 million in uncollected performance bonds

Not much can paper over the amount of waste that goes on in government. The only one that I can understand is item 2, which was part of a lowest bid contract awarded by open tender. That’s fairly typical of tenders conducted even in the private sector – contractors hide their profit margins any way they can. But the rest look more like cases of inefficiency, incompetence and outright corruption.

Making Money

I love this – the modern history of money in 315 words:

“…On a desert island gold is worthless. Food gets you through times of no gold much better than gold gets you through times of no food. If it comes to that, gold is worthless in a goldmine, too. The medium of exchange in a gold mine is the pickax.

Hmm. Moist stared at the bill. What does it need to make it worth ten thousand dollars? The seal and signature of Cosmo, that’s what. Everyone knows he’s good for it. Good for nothing but money, the bastard.