My Crystal Ball

Some thoughts...

2009-04-14T08:56:00.000-07:00

The Affluent Society by John Kenneth Galbraith is highly provacative, forcing us to re-examine the basic tenets of traditional economic theory.

Some thoughts:

1. On how our real wage has not increased with our rise in productivity, I suppose it could be due to the fact that there are now (usually) two working members in a family. When there's only one working member, the sole breadwinner will have to fight harder for wage increase because there is more at stake. Without his salary, his entire family will starve.

Now, however, with two working members in the family, the burden is more evenly spread out. The husband can accept a decline in real wages more meekly simply because the wife supplements some of the household income. If he doesn't accept the wage stagnation, he may well be fired as there are other workers out there willing to work for less amount(again, because of the burden spread)

2. Malthusian catastrophe--in the past, the Malthusian catastrophe did not come to pass because of the discovery of the New World, where there is new land for cultivation of crops. Hence, the surplus food removes the spectre of Malthusian horror.

Now, however, it seems that Malthusian horror is pressing down on us again. Population is pressing on the earth's resources, and yet, because it is largely invisible and does not concern our immediate needs(food, shelter, clothing), we do not care. This time, there won't be another New World for us to exploit new resources. If we do not act now, the Malthusian horror can indeed come to pass.

3.Perhaps the most widely-quoted of Joseph Schumpeter's works--"In all cases...recovery came of itself...But this is not all: our analysis leads us to believe that recovery is soundo nly if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression undone and adds, to an undigested remnant of maladjustment, new maladjustments of its own."

Reminds me of the current crisis. Inefficient banks and businesses are bailed out by the government in an attempt to alleviate the crisis, and it rankles that failed businesses are allowed to survive, with no new businesses to take over their place. Sometimes, I wonder if it is the collapse of Lehman Brothers that precipitated the sharp downfall in the markets, or is it simply the indecisiveness of the authority. If the authority has simply made a decision not to bail out anymore companies and stick to what it says, all companies will have to face up to reality and stop hoping for bailouts. Speculation may even decrease and while this medicine is bitter and hard to swallow, I wonder if it will be better in the long run.

3. This quote is a gem--"Apart from the universities where its practice has the standing of a scholarly right, the art of genteel and elaborately concealed idleness may well reach its highest development in the upper executive reaches of the modern corporation."

4. Sometimes, I feel that people go into arguments with closed minds, and that makes the whole argument pointless. The whole point of the argument is to convince your opponent, but if both participants have already obstinately closed their minds off to any ideas besides their own, then what's the purpose of argumentation? On the other hand, if you go into an argument and end up being convinced by the other party, you may be accused of being weak-minded. Thus, the result is that you argue not to prove a point. There is more at stake. You argue not to lose face.

5.Even though wants are contrived for things of least urgency(ie. wants are manufactured for goods produced through advertisements), some things may actually have a greater purpose. Energy efficiency is an example. People may not want an energy-efficient product until much influence from advertisements, but using energy-efficient products are actually beneficial to the society.

6.The sales tax is suggested as a way to increase government revenue, which will help reduce poverty through investment in better education facilities. Hence, more poor children will be able to break out of the poverty cycle when they grow up.

There is something fundamentally wrong with this logic. It focuses on the future, but not on the present. If the poor are already struggling to make ends meet, how can we place additional burdens on them when the rest of the society is relatively affluent? Because we are affluent, we are now supposed to be able to afford basic human rights and amenities for all in the society. It cannot be that we ignore the poverty problem simply because the poverty class is now a minority.

Bond

2009-04-13T03:17:00.000-07:00

http://www.channelnewsasia.com/stories/singaporelocalnews/view/422001/1/.html

I dunno, but 3 officers released from their bonds does not mean 3 medical officers released from their bonds.

What are the numbers for MOs?

Parallels

2009-04-08T07:57:00.000-07:00

http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-side-of-dubai-1664368.html

I see alot of parallels between Dubai and Singapore

And then – suddenly – Mohammed thwacked into the limits of Sheikh Mohammed's tolerance. Horrified by the "system of slavery" his country was being built on, he spoke out to Human Rights Watch and the BBC. "So I was hauled in by the secret police and told: shut up, or you will lose you job, and your children will be unemployable," he says. "But how could I be silent?"
He was stripped of his lawyer's licence and his passport – becoming yet another person imprisoned in this country. "I have been blacklisted and so have my children. The newspapers are not allowed to write about me."

He looks around at the shiny floors and Western tourists and says: "What we see now didn't occur in our wildest dreams. We never thought we could be such a success, a trendsetter, a model for other Arab countries. The people of Dubai are mighty proud of their city, and rightly so. And yet..." He shakes his head. "In our hearts, we fear we have built a modern city but we are losing it to all these expats."

Stuck

2009-04-06T20:27:00.000-07:00

Recently I read The Return of Depression Economics by Paul Krugman. Enlightening.

Turns out that in deciding an economic policy, one practically always has to give up something for the other. For example, IMF has usually recommended fiscal austerity(raising interest rates, raising taxes) during an impending crisis, even though according to traditional economic theory, this will deepen the recession in the country. Reason for fiscal austerity is simply to try and bring confidence back into the markets and prevent a "hyperdevaluation" of the country's currency.

However, even if the country were to devalue its currency in order to export its way out of the recession, everything may not go according to script. For example, many companies may have dollar debts, hence with the weakening of the currency, their debts would simply explode and trigger a panic, causing massive financial distress.

Interesting.

Dream

2009-04-06T19:48:00.000-07:00

Had a very peculiar dream yesterday...

There is a need for me to go somewhere deep under the sea. For what purpose exactly I have already forgotten. It's supposed to be a secret place, a cavernous hall-like palace that I must somehow navigate to and across. Anyway, it is an imperative that I reach the place.

I, together with two Somebodys(I cannot remember who), have discovered how to reach it. The place is secret, hidden from view, unplotted on any map, but we have discovered the method to reach there. Supposedly in the sea, there is a dolphin, with a whale always swimming behind it. They are the means for us to achieve our objective. By hooking the dolphin(fishing rod style), the other two can cast their ropes and catch hold of the whale. Thus, with the restraints, these two sea mammals will drag us all the way to the secret place.

We reached the place. It is huge, spacious, with many platforms leading in a spiral to the very top. But the platforms are unevenly spaced, and there are things to collect before we can reach the top. Thus, in this game-like arena, we have to jump from platform to platform, collect stuff before reaching the top. Should I miscue and miss a platform, I will fall all the way down. But in the dream I have wings, and when I miss a platform, I can spread them out and float gently to the nearest platform. This way, I finally collect all the necessary equipment and reach the top.

And there I stayed. For many many years.

I returned to the mainland after many years. I went to visit the person who has sent me there. He was surprised to see me. Unguarded, he allowed me to go near him, wanting to know what happened in the secret place. I see myself moving close to him. I see myself, with eyes full of sorrow, telling him I finally recognised pure evil for what it is, and that I see it in him. I see a knife flashed in my hand, and I see myself stabbing him. Again and again.

And then I woke up.

Collusion?

2009-04-04T03:20:00.000-07:00

Surfing in 2010: 10-30% cheaper?

With StarHub establishing the OpCo and SingTel part of the consortium operating the physical infrastructure, is there room for collusion?

No, because IDA has mandated “they have to offer the same prices to everyone”, stressed Mr Liew. “They will not be able to provide prejudice to their own company or collaborate with another company to give lower prices.”

This is weird. When “they have to offer the same prices to everyone”, doesn't it mean that they can keep prices artificially high? And doesn't that mean collusion?

The 10 highest paid politicians in the world

2009-04-02T01:58:00.000-07:00

The 10 highest paid politicians in the world

Wahahahaha!

Gifted

2009-04-01T03:14:00.000-07:00

The Myth of Meritocracy

This article is quite thought-provoking and reminds me of the book Fooled by Randomness by Nicholas Nissam Taleb(Highly recommended read by the way)

Let's look at what the writer says of the GEP system:
"It is a program administered towards primary school children deemed gifted by the ministry of education. How do they find these gifted children? They administer a Maths and English test to all primary school children to weed them out from the 'normals'."

Just looking at this short paragraph already gives one misgivings about the entire credibility of the GEP test. A Maths and English test? I am not going to complain about the Maths test. But an English test? It goes without saying that generally, children who use English at home will tend to be more comfortable with English, and hence will tend to do better in English. Well, what about the poor Chinese/Malay boy who spoke a different tongue at home? Granted, he is weak in English, but Lord knows he can pack a wallop with the extent of his vocabulary in the other tongue.

So in this case, who exactly is gifted? Does this mean the mind of the English-toting child is more nimble, more flexible, and hence more gifted? Does this mean the Mandarin-speaking and Malay-speaking kids both does not measure up to the English-speaking kid, despite their significantly stronger knowledge in other languages? The approach to selecting gifted students are fundamentally flawed to begin with.

In the second place, it appears that many "gifted" students are "gifted" more due to chance than anything else. After all, many questions in the tests consist of multiple-choice questions. Assume that some children of average intellect manages to achieve the passing grade, due to trial and error. In other words, they got into the GEP system more through luck, and not ability.

But the reward is disproportionately large for these lucky fellows. Even though they may not do as well in the PSLE(double lucky is harder after all), some leeway is given and they can still get to good schools as they are GEPpers. Let's assume that the school these students go to is RI. Once in the GEP system, they will get the extra resources, extra curriculum, from secondary 1 to secondary 4 in RI. The reward doesn't end there. Because of the recently implemented through train programme, they can now proceed directly to RJ, another premier tertiary education institution, where they can once again enjoy all the extra resources and enrichment programmes that comes along with it. In the end, when they finally graduate from the junior college and enrol for universities, they can boast of great credentials, exemplified by attendance of great premier schools stretching all the way from secondary to junior college. Most likely, because of these great credentials, he will once again be able to enrol in a prestigious uni, maintaining his enviable track record. The benefits keep adding on.

Now let's turn our attention to the poor fellows who failed the GEP streaming test. After PSLE, assuming these students did reasonably well, they will be posted to good schools, or even RI, though without the extra resources that comes with being a GEP. But this time, disregarding external factors, the cut-off point will be adhered to stringently as compared to GEP students. Then, because of the less materials and less curriculum, their knowledge will not be as extensive as that of the GEPers. They will probably achieve less in their four years of study as compared to their peers in the GEP system. After 4 years, if they fail to get into a school with the through train programme, they will still need to get through the O-Levels streaming test. Thus, for a person of average ability to obtain a place in a good tertiary institution without putting in any effort, he has to be thrice lucky. Kids who have already passed the very first GEP test in primary school will not have their "luck" continously tested again and again. If the person is not thrice lucky to get into a premier tertiary institution, by the time he graduates, he will have a less stellar record with attendance of average academies for most of his educational life. As a result, his performance might be seen as "not consistent", and if because of this he is unable to enroll in a good university, even his work prospects may be affected.

So what's the benefits on the chance event you pass the GEP system?
1)Even if your PSLE is not that spectacular, you can probably get into a good school.
2)Because you are GEP, you will enjoy extra resources and extra curriculum. You learn more in 4 years of secondary school.
3)Because schools that offer the GEP system usually also have through train programmes, you need not take the O-Levels and run the risk of flunking the test. You can proceed straight to a premier institute.
4)You can enjoy all the resources offered by the premier institute.
5)Because you have a record of attending good schools all your life, the impression is that you have "consistent" performance and you can probably enroll in a good uni.
6)With a good uni, you have better-placed alumni to help you in your work prospects in the future.

One chance event and the benefits will keep piling up. It's a winner's take-all scenario out there.

(Note: I am not suggesting a whole revamp of the GEP testing system where students will be placed through unending tests to weed out the luck factor. It will bring unnecessary stress to all students, gifted and non-gifted alike.)

Foreign Talent

2009-04-01T02:41:00.000-07:00

Why the matrix will not tolerate total creativity

I found this article via singaporedaily. One part disturbs me and it doesn't seem to bode well for Singapore and Singaporeans. It seems to suggest that with the advent of globalisation, the government is using "foreign talents" to replace "local talents"

"Creative people have a familiar trait - challenging authority...Due to the perceived “lack” of creative talents, the matrix decided that the best move is to hire some foreign talents...if these foreigners prove pesky for its liking, they can always be deported."

Ok, if creative people like to challenge authority, and the government wants complete control, it's a given that the government will not provide an environment for creativity to flourish. Hence, to fulfil the 'demand' for creativity, they import foreign talents.

There is something seriously wrong with this approach.

Foreign talents are different from local talents. They have different allegiances, different priorities. Their first calling will be to their homeland, NOT Singapore. Furthermore, they have less to fear from the local authorities, as when worst comes to worst, they will just return to their own country. There is a place, a home for them to return to no matter what they do. They live in Singapore, yes, but only temporarily.

Supposing they find something wrong with Singapore, when push comes to shove, would they fight so hard for the long-term interests of the country? Would they risk everything to fight against a local policy? Why? After all, policies that is detrimental to Singapore's well-being might very well be at no cost to the foreign expat's future, for he does not intend to stay for long. To put it in a harsher light, he might even benefit from policies that will negatively affect the country, as incentives are not properly aligned.

Meanwhile, if we hold onto the misconception that our "local talents" can be replaced by "foreign talents", we will be heading for trouble. There will be no one to speak up for the common good of the country, to fight for the long-term interests of the country. Our country will slowly be reduced to an empty shell, a traveller's city. A country needs local talents, for it is only someone that has a long-term stake in the country that he is willing to fight for the country's long-term interests.

For local talents to flourish, the government must relax the regulations, remove the climate of fear, allow citizens to challenge the norms openly and boldly. Simply replacing "local" creativity with "foreign" creativity does not attack the root of the problem. It cures the symptoms but neglects the cause. The cracks in society must be repaired immediately, not simply removed by coating it with a new layer of paint.

What causes Investment

2009-03-07T08:24:00.000-08:00

Just finished reading Greenspan's Fraud by Ravi Batra.

Made me view investments in economy differently. In JC, the typical way to increase investments in the economy is simply to lower the corporate tax, and businesses, with the extra profits, can then increase investments. Supply will then increase, bringing a price decline and offsetting inflation. However, in the book, it is said that corporate tax cuts do not affect investments all that much, as in the face of declining sales, even a decline in corporate tax will not be incentive for companies to increase investments. In fact, the only incentive that allows companies to increase their investments is only when they face increasing sales.

This in turn made me think more on the Jobs Credit Scheme. JCS is meant to save jobs, but in the face of declining aggregate demand, why would companies still want to hire workers in the first place. Furthermore, JCS is more geared towards business companies, where it is equivalent to a corporate tax cut by putting more money in the hands of companies. If companies are unwilling to invest(employ more workers, create more products, etc.) because of the declining sales brought by the slump in aggregate demand, the JCS will not be effective in preventing job losses at all.

Why I Said Yes

2009-02-20T21:45:00.000-08:00

From mrbrown:

President: Why I Said Yes

Sums up everything about the front page article...

Btw, isn't it good to be president in sg? Even if you unlock the reserves, using "It’s for the Government in power to determine what needs to be done.I'm not an Executive President." absovles you of all responsibility if things don't work out.

Interest Rates and Money Supply

2009-02-14T07:07:00.000-08:00

In school, I was taught that the government can only control one of the following: Interest Rates or Money Supply.

If the government is to fix the interest rate, it has to let the money supply expand or contract as the market demands. Similarly, if the government is to fix the money supply, it has to let the interest rate swing freely.

What are the differences between the two policies?

For one, by fixing money supply, it will definitely encourage speculation as interest rates are allowed to swing freely. Bond prices, instead of remaining relatively stable as will be the case if the government chose to fix interest rate, will fluctuate wildly in accordance with the changes in interest rates. Bonds will gain greater prominence as a speculation instrument.

But the interesting questions are 1)Which policy will encourage the economy to grow faster, 2)Which policy will help to moderate booms or busts in the economy and 3)What are the effects of each policy during a boom and during a bust?

Reserves

2009-02-14T06:32:00.000-08:00

From Todayonline 110209,

Yesterday, the Government disclosed the
extent of the decline in Temasek’s investment
portfolio in an eight-month period: A slump of
31 per cent to $127 billion at end-November,
from $185 billion at end-March last year.

It has emerged that Temasek lost about 31% of its investment portfolio due to the financial crisis, which is about $58 billion. Compared to other indices such as MSCI Singapore and MSCI Asia ex-Japan, which fell 44 and 45 percent respectively, I would say Temasek did relatively well, if it is just another fund out there.

But Temasek is not just any other fund. First, like what other bloggers have noted, Temasek does not just invest in equities alone. It invests in several other sectors, and thus comparison with the indices are inappropriate to begin with.

Second, the money it uses are the people's money. They are there to be used "for a rainy day", like what SM Goh Chok Tong said. If that is the case, why is so much exposed to sectors which will be hardest hit in a crisis? What is the point of investing in assets that will bear the full brunt of crises when you specifically intend to only use the funds in the face of crises?

Finally, even if Temasek beats the market, I still have a bone to pick. I thought we pay our ministers world class salaries because they claimed they are world class talents? In that case, how come they cannot see the crisis coming and take appropriate measures? Why are they like the common analyst who failed to foresee the extent of the damage to the economy, instead of the exceptional few who took steps to prepare themselves for the coming plunge in the market? This episode just proves that people like Warren Buffet, George Soros, John Paulson, and Peter Schiff are the real world class talents. Next time our ministers boast about their credentials I think we can just regard it as mere fluff.

Kindle

2009-02-08T07:48:00.000-08:00

Is Kindle replacing traditional books?

Personally, I still prefer the allure of having something solid to flip through when I read. But if Kindle is ever to become my main medium for reading, it won't be because I prefer to read text on the device rather than traditional books. It will instead be due solely to convenience's sake:

1. Capability to read even in the dark. This is useful, not only in the case of blackouts but especially when you are sharing room with other people who want to sleep.

2. Many books in one device. There always approaches a time when we are near-but-not-so-near to the ending of a book, and we are stuck in a dilemma on which book to bring for an extended trip. The almost-finished one, with the risk of finishing too soon and nothing to entertain for the rest of the trip, or the brand new one, forgoing the building excitement and anticipation in the other book? With Kindle, two books can be stored in one device, hence I can have my cake and eat it too.

3. Lightweight, easy to carry around. This is one major advantage over traditional books. Let's say this book is interesting, but it's bulky and heavy and not-so-nice to bring everywhere with you. The only time when you can read is back at home. Kindle will enable me to bring whatever reading material I desire with me, allowing me to read anything anywhere, anytime.

4. Search? I don't know whether Kindle has a search feature, but if it has, that is a plus point. There are times when I'm reading a book and it draws on previously-mentioned info which I had forgotten/neglected. When this happens, Kindle will trump the traditional book, as there is no longer any need for me to futilely flip through the stack of previous pages just to locate the elusive data. Ctrl-F will solve everything.

5. Buy books online? I also don't know whether Kindle has an Amazon shopping function, but if it has, it can save a whole lot of hassle. Instead of going to the local bookstore, or waiting for the ordered book to arrive through mail, I can achieve instantaneous gratification with the purchase of an eBook.

Temasek

2009-02-07T03:28:00.000-08:00

So Ho Ching has finally stepped down.

http://in.reuters.com/article/innovationNews/idINTRE5152VT20090206
http://www.bloomberg.com/apps/news?pid=20601087&sid=am4yMINfiRLI&refer=home

Well, even if "Temasek Chairman S. Dhanabalan said Ho's decision to step down was not linked to performance, and it was too early to determine if investments made in the last two years would lose out in the long-term", I still think otherwise.

An excerpt from the Bloomberg article:
"Along with China Development Bank Corp., Temasek paid 3.6 billion euros ($4.6 billion) in 2007 for a 5.2 percent stake in Barclays and added another 4.5 billion pounds in June at about half the price. Barclays’ share price plunged nearly 66 percent since June."

Assuming other investments are similar to the Barclays' deal, share prices have to triple just for Temasek to break even.

Even if Temasek focuses on long-term returns, to bet on current share prices to beat 300% is still difficult. And one more thing to take note is that most of its investments are in large cap companies, which are unlikely to grow at spectacular rates.

Rational Irrationality

2009-01-31T07:30:00.000-08:00

Recently I finished the book "Manias, Panics and Crashes" by Charles P. Kindleberger.

A bit out of the league for me. Half of what he says I don't understand, and he analyse each crisis as if the reader already has some background knowledge(which I don't).

Nonetheless, there is a particular piece that caught my attention regarding the economics of a free market.

"...individual actors all act rationally but in combination produce an irrational result, such as standing to get a better view as spectators of sport, or, more dramatically, running for the exit in a theater fire."

Quite interesting. Seems to be in direct contrast to the invisible hand at work.

Minsky was also introduced, with the theory that crises are always caused by an external event.

Another point is that easy credit is almost always a precursoer to crises. Which is what is happening now.

Speaking of irrationality, I really have no idea why the STI and Nikkei rose so dramatically just because it is the start of the (Chinese) new year. I mean, over the festive period, more and more bad news on unemployment, export figures and retrenchment are bubbling up yet stocks climbed rapidly when the market opened.

I dunno, perhaps it's due to orders that are not executed before the market closed on the previous working day? Or maybe too many people placed orders over the weekend when they thought the market at the close seemed to be attractively priced.

Lending

2009-01-24T16:44:00.000-08:00

From Mr Wang:

"...What does this mean? Well, in a nutshell, Ecuador doesn't have much money. We know why. Ecuador sells oil, and oil prices have collapsed, so Ecuador is broke. So Ecuador decided not to pay its creditors.

Next, you need to find a reason not to pay. So you set up an official presidential commission and have it recommend that Ecuador should refuse to pay interest on USD $4 billion of its debt. Need some moral justification? Well, just accuse the banks of making irresponsible profits out of these deals. But didn't Ecuador's own government approve of these deals in the first place? Oh. Well then, let's just choose a few government officials and make accusations against them too. Simple as that.

So in the past few months, this is the repeating story of my working life. As mentioned earlier, I'm not involved in the Ecuador matter at all, but I am looking at many cases where the client is broadly just doing the same thing - in other words, anything and everything it can to try to wriggle out of a deal gone bad. That includes employing tactics which are dishonest and unethical, and sometimes frivolous to the point of being baffling."

From Manias, Panics and Crashes (after it was revealed that an employee, Yasuo Hamanaka, of Sumitomo Corporation lost $2.6 billion in copper derivatives trading instead of the $1.8 billion reported):

"On June 3, 1999, it[Sumitomo Corporation] announced suits against the Union Bank of Switzerland for $230 million and the Chase Manhattan Bank for $532 million, having already sued J.P. Morgan & Company. The suits against Chase Manhattan and Morgan were for almost $1 billion and for lending to Hamanaka when they knew he lacked the authority to commit the company"

I understand the rationale for the such laws, to make banks more accountable in their risk assessment and lending practices. Yet, I still feel it to be quite disturbing that not only does the lender has to run the risk of default by lending capital to you, he also has to take the risk that he may get sued for lending the capital to you.

Whenever a scandal or crisis erupts(like now), you, as the lender, may very well suffer a double whammy. Not only will you fail to recoup the loan, you may even stand to lose more as companies slap you with lawsuits. The borrower, on the other hand, may default on his loan, and at the same time, win money from the lawsuits.

Disturbing.

Tweaking the Statistics

2009-01-24T07:19:00.000-08:00

I've been thinking about our Budget

"We start from a position of low unemployment, the lowest in Asia
last year. The resident unemployment rate was 3.3% in September. However,
given the severe economic recession, we have to expect many more jobs to
be at risk this year."--from Budget Speech 09

"IN what an expert called a “doomsday prediction”, two economists say Singapore may lose 300,000 jobs by next year, of which two-thirds would belong to foreigners."--Today, Wed, Jan 21, 09

"...an Employment Pass is tied to a specific employer. If the expat loses his job, the EP becomes invalid and the expat has to leave Singapore more or less immediately (7 days, to be precise). His family has to leave with him too."--Mr Wang

When you add all these excerpts together, looks like the government will still have something to show despite the financial crisis. At least, unemployment rate should not rise too high. In the first place, if, like what the analysts at Credit Suisse forecast, most jobs will be lost by foreigners, who, like what Mr Wang notes, "has t leave Singapore more or less immediately" once they lose their jobs, the unemployment rate should remain more or less constant. The Budget will further ensure this by subsidizing the wages of local employees, thus preventing loss of jobs by Singaporeans.

Not to run down the Budget or anything but if December's headline should read--"Unemployment rate remains low despite economic downturn.", AND the media once again spin it as another great accomplishment by our elite government, it is probably due to the change in statistics. Statistically, unemployment rate may get affected less, when retrenched personnel are immediately packaged out of the country. But one point to take note is that the low unemployment rate means Singaporean workers have been able to retain their jobs, which means that the Budget has worked, to the government's credit. It does not mean that we will have the same number of jobs then as we have now, and that from now until then, few people have lost their jobs.

Unemployment rate as an indicator of economy should thus be taken with a pinch of salt. Performance of the economy by looking at the GDP and net exports should be of more relevance when considering how Singapore as a whole has fared through the crisis.

Misled

2009-01-23T10:15:00.000-08:00

Found this video on George Soros, back in 2006 via Diary of a Singapore Mind

The last part of what he says is quite interesting. About how we don't care whether we are being misled...we just care about success. I think that applies to a lot of things in life.

Keeping Consumption Down and Picking Winners

2009-01-23T09:58:00.000-08:00

From WSJ, Jan 22, 2009

Singapore's Limits
It's time to rethink the corporatist model.

It's not often that a Singaporean official concedes the limits of the city-state's economic engineering. But the downturn is proving so severe that the Finance Minister said in yesterday's budget speech that the government's stimulus package "will not get us out of the recession," but rather "help avert an even sharper downturn."

That ought to be a wake-up call for Singapore, where government built a modern metropolis by hoarding its citizens' capital, plowing those savings into designated industries and opening itself up to foreign trade. Yesterday's S$20.5 billion ($13.7 billion) package -- a whopping 8% of GDP -- looks like past stimulus plans: a broad mix of supply-side measures to help businesses, public-sector spending and cash handouts to stave off social discontent. What it doesn't acknowledge is that Singapore's growth model itself needs rethinking.

The export-led economy is falling on its face. Minister Tharman Shanmugaratnam predicts the city-state is "likely to experience" the deepest recession in its history. The government will tap its reserves to help pay for the stimulus package. Growth contracted 16.9% in the fourth quarter last year. The Ministry of Trade and Industry has revised down GDP forecasts twice this month already, and expects the city-state's growth to contract 2% to 5% this year. The pain is now leaking into the domestic economy as consumers retrench.

Singapore's economy would be more resilient if it were better balanced. Consumption composes only about 40% of GDP -- far less than other developed Asian economies, nearer to 55%. Yesterday's budget doesn't do much to change long-term incentives to consume. The government announced a 20% income-tax rebate for one year, but no permanent cuts. Nor did it cut the 7% goods and services tax. Singaporean workers and businesses invest a total of 34.5% of wages into the state pension fund, but receive less than a 2% return from the government. That's a measly payout compared to what private funds return over long investment periods.
The government could unleash more productive, sustainable growth by trimming back its public sector and allowing the economy to diversify on its own. Cutting the corporate tax to 17% from 18%, as it announced yesterday, will help attract investment. But the city-state's bureaucrats have a habit of trying to pick winners, which sometimes works and sometimes doesn't. In recent years the bets have been on financial services, biotechnology and gambling. Yesterday's budget contained special tax incentives for the fund-management industry. Better to let private actors make those decisions based on market forces.

Mr. Tharman said yesterday that "no one knows how prolonged or deep this recession is going to be" and he pledged further measures to help if needed. The best help for Singaporeans would be expanded, permanent opportunities to work, save and invest with more of their own money, rather than relying on government to do it for them.

Two points.
1) "Consumption composes only about 40% of GDP -- far less than other developed Asian economies, nearer to 55%."

very true. and what's more,

"Singaporean workers and businesses invest a total of 34.5% of wages into the state pension fund, but receive less than a 2% return from the government. That's a measly payout compared to what private funds return over long investment periods. "

2)"...the city-state's bureaucrats have a habit of trying to pick winners, which sometimes works and sometimes doesn't. In recent years the bets have been on financial services, biotechnology and gambling."

On financial services, perhaps Sg might succeed, because of its tough secrecy laws and relatively stable political climate. Tax haven, ya know?

On biotech, my take is that the local foundation is not strong enough. We rely too much on foreign talent, who can simply pack up and leave for greener pastures when opportunity arrives. Can we sustain this front purely with our locals? (No offence to locals, but in stuff like biotech which requires plenty research, it is always good to have the experience. I just don't think we have built up that kind of experience in our local environment yet.)

On gambling, I kind of doubt that it would take off and be the wild success that everyone is hoping for. Our Marina Bay Sands Resort is set to open this year, likely in the middle of recession. Are there still going to be big gamblers when so many of the rich are already licking their wounds in the aftermath of the financial crisis? The IR may not be another Crazy Horse, but it may very well not turn out to be a money-spinning machine either.

Creative Destruction

2009-01-02T08:50:00.000-08:00

I just read this article from wayangparty, criticizing our local media with its biased nation-building agenda. Basically, writer Eugene Yeo accused journalist Chua Mui Hoong of once again writing a feel-good article with entirely baseless conclusions. In effect, it is just a piece of propaganda and just serves to show how deplorable the state of media is in Singapore.

Well, I've never read the original Straits Times article, but it appears that Chua Mui Hoong claimed that “the traits that helped it(Singapore) get to where it is today are precisely the same traits that will get it back on a firm footing in the current crisis.”

Eugene Yeo begs to differ, saying "The traits of our parents and grandfathers which propel Singapore from a Third to First World country today - namely thrift, industriousness, stoicism and tenacity to endure hardships are not reproducible in a younger generation brought up in the midst of material comfort."

My take is that even if we have the traits of our parents and grandparents, it is still not enough to emerge from this financial crisis stronger than ever. Okay, maybe with those traits we can pull through this, but to pull ahead of our competitors?

The main reason is because this time, it is the global economy in crisis. We simply cannot export ourselves out of the crisis when worldwide demand for our products have taken a significant slump. Even if we have "thriftness, industriousness, stoicism and tenacity", willing to work hard and accept low wages, it merely results in perhaps our exports being cheaper. It might help, but not much. It certainly would not place us in a leading position once the global economy starts to recover.

I feel the most important trait to place us in a good position to ride out the crisis would be creativity. Those of us who did economics will be familiar(or at least heard of) Joseph Schumpeter's Creative Destruction principle. To borrow a phrase from Sudden Debt, during a recession "the response should have been a strong flow of investment in new industries (creation) to replace those damaged by the downturn (destruction)".

This can only be done when there are entrepreneurs abound in the economy. I have already listed my views on the state of entrepreneurship in Singapore. This crisis will prove Singapore's entrepreneurial environment once and for all. If creativity really does thrive in Singapore, new innovative businesses will be set up amidst all the gloom and doom and will strengthen Singapore's standing in the international arena once we have ridden out the crisis.

Tough Times Ahead...(Part 2)

2008-12-26T21:18:00.000-08:00

Forgot to mention...

4.The tourism sector is not exactly very rosy either. In recent years, Singapore has been spending much to boost its standing as a tourism venue, what with projects like the F1 Night Race, construction of the Singapore Flyer and the integrated resorts. With this recession, tourism revenue will definitely decrease in the coming years as travel is a luxury good that is very price elastic. This means when people have more money, they will tend to travel more, but in this recession where everyone is cash-strapped, they will cut down on unnecessary expenses like visiting other countries. In just one or two more years, the integrated resorts will be up. If the economy has not recovered, one major concern is that the IRs have to continue operating at a loss.

Oh? And the money spent on all these projects? It will probably take a whole lot longer to recoup them back.

http://in.reuters.com/article/asiaCompanyAndMarkets/idINSIN25444820081226

5.Singapore prides itself on its shipping and airline industry. However, the global economic crisis also has implications for the two sectors. For the airline industry, whether SIA can still remain profitable is still an unknown factor. Despite the fall in demand for travel, the lower oil prices can probably help to cushion the impact. For PSA, not too sure about the impact on them, but it's likely that they are also affected to quite a signifcant extent as global demand for shipping has fallen tremendously. I derived this from the Baltic Dry Index.

From Wikipedia:

The index provides "an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis, the index covers Handymax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain"

The BDI has fallen by more than 90% since 21 May 2008, taking just slightly over half a year to reach its present level.

This might not be entirely accurate, but my view is that if prices for shipping had fallen to such a low level, this indicates a dramatic decline in demand for shipping. Decline in global demand for shipping means less busy port for Singapore. And less busy port means less business for PSA.

A Silver Lining

2008-12-25T19:15:00.000-08:00

Following my bearish outlook, I would like to add that there is one silver lining at least.

Despite the gloomy economic forecast for the next few years, it is possible that Singapore may emerge from the crisis stronger in financial services.

http://uk.reuters.com/article/newsOne/idUKTRE4BD01K20081214?sp=true

Quote:"The sun-drenched Asian city-state, with the highest density of millionaires in the world, is seeing wealth management prosper as the U.S. and Europe grapple with the worst slump in a generation."

Two things struck me.

First is obviously the amount of money that is going to flow into our financial services sector, due to implementation of EU Savings Tax Directive across the European countries.

Second is we have "the highest density of millionaires in the world". Wow! And I've always thought countries like Monaco are places where the millionaires live.

Tough Times Ahead...

2008-12-25T07:26:00.000-08:00

I am very bearish on Singapore's economy in this financial crisis. Why? Below is the list of reasons.

1)Singapore's economy is heavily reliant on exports. Manufacturing accounts for a quarter of the economy, "with the export-to-GDP ratio at more than 180%, compared with an Asia average of 60-70 percent"(See here for more details). As worldwide demand falls due to the recession, our exports will surely suffer a steep decline.

2)MNCs have a very strong presence in our economy. As such, retrenchment may come suddenly and swiftly, leaving no time for workers to prepare themselves. Such decisions are made by the top management, whose headquarters are often based overseas and where our local government cannot intervene. Unemployment can increase dramatically as such companies slash jobs in an effort to cut costs. Our local unions and the government does not wield any power over the MNCs after all. Today has an article on this.

3)One of the pillars of growth in the Singapore economy is the biotechnology sector.

From Wikipedia:

Singapore is aggressively promoting and developing its biotechnology industry. Hundred of millions of dollars were invested into the sector to build up infrastructure, fund research and development and to recruit top international scientists to Singapore. Leading drug makers, such as GlaxoSmithKline (GSK), Pfizer and Merck & Co, have set up plants in Singapore. On 8 June 2006, GSK announced that it is investing another S$300 million to build another plant to produce pediatric vaccines, its first such facility in Asia. Pharmaceuticals now account for more than 16% of the country's manufacturing production.

This pillar of economic growth is still in its nascent stage, with the government investing heavy amounts of capital in it. Yet, the biotechnology sector seems destined to be heavily battered by the recession. Biotechnology will thrive in a bull market, as people have excess cash to invest in R&D, taking on higher risks in the hope of raking in future gains. But in a bear market, I doubt if investors are willing to part with their ever-more precious money on a venture that may give nil returns if research proves unsuccessful. Biotechnology firms may thus face insufficient funding for further growth and may have to file for bankruptcy. In fact, U.S. companies are already lobbying Congress for more aid.

I'm not the only one with such views. See here, here and here, all of them articles by international newspapers.

And this grim outlook is not taking into account our very own subprime crisis in the making, as explained by Mr Wang.

(Interested parties looking for additional information on HDB may proceed to:

1.http://www.youtube.com/watch?v=GjbXNH0RRoA

2.http://www.youtube.com/watch?v=VlqFl3rMLdg

for Leong Sze Hian's more in depth analysis of the HDB pricing policies.)

Dear Economist

2008-12-24T10:15:00.000-08:00

Recently I finished reading The Undercover Economist by Tim Harford(an excellent book, by the way).

There is a slight introduction on the author, where I learned that he also writes the "Dear Economist" column in the Financial Times Magazine, "in which he draws upon the latest economic theories to provide tongue-in-cheek answers to readers' personal dilemmas."

Sounds interesting, so I googled for samples of the article. He didn't let me down. Here is one of his articles.

Dear Economist,My young son came home from school and asked me: “Mummy, what’s a credit crunch?” How can I explain this to a five-year-old?Ms LG, London
Dear Ms LG,
Once upon a time, there was a blameless girl called Consumerella, who didn’t have enough money to buy all the lovely things she wanted. She went to her Fairy Godmother, who called a man called Rumpelstiltskin who lived on Wall Street and claimed to be able to spin straw into gold. Rumpelstiltskin sent the Fairy Godmother the recipe for this magic spell. It was written in tiny, tiny writing, so she did not read it but hoped the Sorcerers’ Exchange Commission had checked it.
The Fairy Godmother carried away armfuls of glistening straw-derivative at a bargain price. Emboldened by the deal, she lent Consumerella – who had a big party to go to – 125 per cent of the money she needed. Consumerella bought a bling-bedizened gown, a palace and a Mercedes – and spent the rest on champagne. The first payment was due at midnight.
At midnight, Consumerella missed the first payment on her loan. (The result of overindulgence, although some blamed the pronouncements of the Toastmaster, a man called Peston.) Consumerella’s credit rating turned into a pumpkin and Rumpelstiltskin’s spell was broken. He and the Fairy Godmother discovered that their vaults were not full of gold, but ordinary straw.
All seemed lost until Santa Claus and his helpers, men with implausible fairy-tale names such as Darling and Bernanke, began handing out presents. It was only in January that Consumerella’s credit card statement arrived and she discovered that Santa Claus had paid for the gifts by taking out a loan in her name. They all lived miserably ever after. The End.

More can be found here.

Entrepreneur

2008-12-20T20:28:00.000-08:00

What defines an entrepreneur? Creativity, confidence and risk-taking are all but a few traits of the entrepreneur.

In Singapore, an entrepreneurial environment is sorely lacking. Compared with other developed countries, entrepreneurship has yet to really taken off in Singapore.

Why? Because the Singapore government is systematically killing the traits requried for the entrepreneur to grow and flourish.

This article provides an interesting read about how schooling has destroyed creativity and confidence is lacking. Reminds me of what Princeton economist Alan Binder said in The Flat World:"In the future, how we educate our children may prove to be more important than how much we educate them." Singapore, notorious for its rote-learning and content-based education system, still has a lot to learn. To learn how to learn.

Coming back to the topic, I can futher add on to the lack of entrepreneurship in Singapore. To be an entrepreneur, risk-taking is a must. Nine out of ten businesses fail, and to set up a new business, one must have the guts, the tenacity, the determination to see it through. Unfortunately, risk-taking is a trait that is very scarce in risk-averse Singapore. I feel that one reason is because of the lack of a social safety net in place.

When there is a social safety net in place, the environment should be more conducive for start-up businesses. After all, if you fail, it's easier to stand up and start all over again. You would not be staking everything on your business; you would still have some money for your family, enough money to pay for your electricity bills; you would not be left destitute and poor, unable to afford even three meals a day. The government's stand is that welfare benefits will encourage a dependency mindset, encouraging unemployment. But, it should also take note it may be precisely becasue of the lack of welfare benefits that Singaporeans has lost its mindset to be independent, to have the guts to invent and innovate. The stakes are simply too high. One failure, and you might take forever to stand up again.

There is one more great impediment to cultivating the spirit of entrepreneurship in Singapore, and this great honour goes to the ever-present SAF. For two years, every male citizen is sold into the SAF, where their software is re-written several times over, with risk-averse behaviour embedded into their brains. All are taught to follow the system, follow the hierarchy. One toe out of line and you will get charged, and with that, your future will probably be over. All males are cowed into submissiveness, conformation (they use standardization in the SAF) becomes a norm, differences are frowned upon and punished.

After two years, they emerge from their cocooned environment to face a society that is politically and culturally oppressive. Political dissidents being slapped with lawsuits are not an uncommon occurrence, and all media has to go through the censorship board. The climate of fear prevails, and everyone continues to keep their head down and focus on the work on hand, never thinking, never wondering what they want, what they can have, and what they can become.

In this environment, how can entrepreneurship flourish? In fact, perhaps the most important factor in cultivating entrepreneurship is freedom. Freedom to think, to do what we want, with no restraints and no thoughts of the consequence. In Singapore, the school with its monolithic system takes away our freedom; the lack of a social safety net places heavy restraints to hold us down while we try to fly, denying us our freedom; SAF pummels all aspiring entrepreneurs into conformity, brutally snatching away all shreds of freedom which we desperately try to grasp.

Thus, it is no surprise that entrepreneurship does not thrive. In an increasingly competitive world, without a strong entrepreneur presence, Singapore will always play second fiddle to bigger economies.

Connect and Collaborate

2008-12-20T07:48:00.001-08:00

Thomas L. Friedman in The Flat World emphasizes and re-emphasizes: in today's world, we must adopt a connect and collaborate system instead of the traditional command and control. Yet our leaders in Singapore are slow to implement, or even realise this. For the past few years, there has been rising discontent among the populace due to a series of unpopular policies, where the government is perceived to have lost touch with the ground. A series of ERP hikes, public transport hikes, electricity prices hikes, and then the ministers' insistence that they deserve high salaries: all has been force-fed into the citizen. In cyberspace, vitriol and abuse is not uncommon, with many labelling politicians as "elitists" and "living in their ivory towers".

I have a theory why our leaders are so apathetic to citizens' concerns.

Because we have the SAF. Every male citizen is sold into National Slavery at the age of 19 and for 2 years, are inducted with the concept of COMMAND and CONTROL.

Don't want to listen? Good. I CHARGE YOU.
Don't want to obey? Good. I CHARGE YOU.
Don't want to follow instructions? Good. I CHARGE YOU.

We can certainly blame a lot of things on the SAF.

Many of the ministers in the government are former SAF officers. Their word is the authority back then, so why should it be any different now? In the SAF, only Command and Control is recognised as a sign of a good leader. Connect and Collaborate simply does not exist.

Scarcity

2008-12-07T09:45:00.000-08:00

In my first post, let us talk about the underlying principle in economics--Scarce resources used to satisfy unlimited wants.

Because resources are limited and our wants are unlimited, we are forced to make a rational decision to maximise our satisfaction. Hence, for every decision we make, there is an opportunity cost involved, which is the real cost in terms of the next best alternative.

Let us not turn to the local scene.

It is common knowledge that many of the government-linked companies or statutory boards invest overseas. For example, we know that Singapore Power invests extensively in countries like Australia. The profits earned by the company is not being returned to the citizens, but instead, leaked out of the economy to provide capital for overseas company.

I am personally not too happy about this. I would understand if a company want to invest overseas because of better returns, but in cases of companies like Singapore Power, they are granted a monopoly on our electricity prices precisely because they are supposed to provide the prices at a low level to benefit the residents. Unfortunately, the company itself does not have such altruistic motives. They want to make profits, and the profits they had earned had gone to investments in countries like Australia to earn even more profits instead of going back to the residents in Singapore. After all, that is how they manage to earn billion-dollar profits. The government owns the company, and the government is doing nothing about it, because everybody wants profits.

However, as was mentioned, with all decisions come the opportunity costs. In this case, I would broaden the scope of opportunity cost to contain not just purely a monetary value, but also potential loss of goodwill from consumers aka citizens.

The above diagram is a Production Possibility Curve(PPC). PPC shows the maximum combination of goods that one can attain given scare resources. PPC illustrates the theory of scarcity in two ways.
1. Each point on the curve represents the maximum possible combination of goods attainable given scarce resources.
2. Points outside of the curve are unattainable due to scarcity of resources.

In the diagram, I have labeled the two axes, one as citizens' goodwill, the other as profits. By focusing single-mindedly on profits, the government has neglected the needs of Singaporeans. Right now, the point we are at now is dangerously close to the lower axis.

Focus more on profits and risk losing votes come the next election. Bring prices down, lose some profits, and gain citizens' goodwill. Shouldn't be too hard to understand.