WEDNESDAY, 27 MARCH 2013
Malaysia's Spend,Spend,Spend Economy-Implications
I am no expert on economics having only learnt the
fundamentals at undergraduate level from Lipsey
and again 20 years later in my MBA.
I remember learning Keynesian theory and the
Multiplier Effect.
I recall the great depression in 1929 in the USA and
its effects caused by a lack of propensity to spend an
economy out of trouble
So the US learns from the lesson in 1929 and has since
then always been a spendthrift economy.To spur the
economy the government borrows heavily and pumps
money into the system to keep it afloat.The money comes
from external borrowings from first Japan,now China and
elsewhere in the form of bonds.
The US government spends more than it earns and covers
the shortfall by borrowing (not printing money) and is virtually
bankrupt and heavily in debt.Creditors do not hassle the US
to repay loans simply because doing so is like shooting their
own feet,bankrupting the big spender will cause a Domino
effect and a world recession affecting everybody.Which means
to say that the US and the rest of the world are actually living
beyond their means and heavily in debt.But there is a subtle
difference between the practice of overspending in the US and
in Third World countries,the public money spent is used on
productive people ie. people who use the money to reinvest
in the economy and create jobs and a Multiplier effect.It is not
like in the Third World where money is generously awarded
to people to enrich them so that they can enjoy a wasteful and
lavish lifestyle or indulge in money laundering and syphon off the
money elsewhere and giving nothing back to society.
What about the former giant Japan brought down to its knees
by the US in the 90s by trade restrictions and revaluation of the yen?
Japan is not a Third World country and neither is it a spendthrift
economy and has a high savings rate unlike the US.It spends itself
out of trouble by using internal funds from savings of its people and
does not borrow externally as it has deep pockets.Like in the US
money is diverted to businesses and industries that compete in the
global stage,if these companies go bust competitors from other
countries will be rubbing their hands with glee.Japan forces its people
to tighten their belt and "invest" their hard earned savings to oil its
multinationals so that they can compete globally and earn foreign
exchange to feed the country,as Japan has no natural resources unlike
the US and is heavily dependent on foreign trade to survive and prosper.
What about China with its high percentage of money launderers?Well
China is similar to Japan in some ways, it has deep pockets,high
savings, the people are productive,if not over-productive and public
funds are prudently invested and government officers look down the
barrel of a gun.Most important of all China like the US and Japan has
a strong private sector driving the economy and is less dependent on the
government.
Having learnt the examples in countries like USA,Japan or China lets
now look at an example of a tiny Third World country populated by
very unproductive people .
It people are not very rich but like most Asians the people have high
savings.Its government nearly went bust the last time they borrowed
heavily from external sources,and nearly collapsed again the last time
when it was too dependent on foreign trade and foreign capital.So to
stimulate the economy the government taps into the people's savings
by borrowing from them as in Japan, and unlike the US the creditors,
namely the citizens are unlikely to foreclose their own government.
What is the government investing the savings in,multinationals as in
Japan or rescuing powerful global corporations as in the US?
It seems unlikely as the money appears to be dumped into Government
Linked Companies enjoying monopolies and protection keeping people
in employment with very comfortable jobs with high salaries and endless
holidays.Then some are distributed to party members and relatives to
start projects at exorbitant prices that never take off, money diverted
elsewhere etc.,certainly not to deserving innovators .
The government is aware of what it is doing and keeps pumping
money to retain jobs and to ensure the select well connected
individuals remain rich and powerful.It did attempt to encourage the
private sector to fulfil this role,but no businessman would want to
invest in money to provide lifetime employment,enrich lazy and
unproductive business partners only interested in seeking rents and
easy money.Of course it can be done if the businessman is offered
lucrative monopolies but then again there would be public outcry.
That explains why the government has to assume the role it is now
taking.It tries to reduce resentment by giving some small change in the
form of handouts to the average citizen to spend,not invest.
What does all these mean to the average citizen living on his meagre
salary? Imagine having your tax money and savings pumped into
companies that do not earn returns but only serve to keep compliant
people employed with good perks.
Or public funds allocated to family members or party members to
embark on projects which never see the light of day,where money is
syphoned off and spent and then the project abandoned,and
government asked to bail out the failed venture.
All that money wasted could have built thousands of affordable
housing ,hospitals or public transport systems.
I would say,asking people like that to run an economy is like
employing monkeys to look after your banana plantation.
What does the future hold now that the government is heavily in
debt? At some time it has to repay and how is it going to secure the
money it wasted? By taxes of course and by bleeding the ordinary
citizen whilst the the rich and protected section continue to laugh
all the way to the bank.What about our savings,already deployed
to invest in the Government's ventures? Well once the savings is
deployed it means that there are no more funds available in case a
national emergency or crisis arises and the government will have to
source elsewhere as in the past.
The situation is very simple, imagine yourself having a spouse that
loves to spend and waste money on luxuries,gambling,clubbing
whatever, he or she spends much more than earned,is heavily in
debt,has no savings and is no good in business or whose career is in
jeopardy.This spendthrift spouse occasionally throws some small
change to his or her dependants.
Would you see a good future with a spouse like that, and what are
the children going to live on in future,sell your sons and daughters?
I see it as irresponsible parenting,translating to an irresponsible
and incompetent government supported by an even more irresponsible
self serving people who cannot see the big picture.Opportunists and bums
who only want to enrich themselves at other peoples' expense and not
giving back anything to society.
The government's efforts to sustain annual 5 % growth in the economy
since 1997 is attributed more to putting money into peoples' pockets
by means of offering easy credit in the form of 10 year car loans or 35
year old housing loans, encouraging citizens to be burdened by debt
and long term commitments like in Western countries,not efforts to develop
the structure of the economy or improve productivity.This culture reflects
the culture of the people running the country,living beyond their means
using other peoples' money.
I have nightmares of what it would it be like when all these crooks
regain power.I do not need the loose change from these crooks but like
all prudent people elsewhere,I want to see tax-money and people's
savings used prudently and productively.
Why is there so much support for the system? Well, it is purely
Capitalist in that the powers favour business interests to fuel the economy.
The powers think it is better to preserve the long standing alliance of
politicians,businessmen, civil servants and probably rascals and the
underworld to keep their bank accounts healthy.At the same time this
group of people become the core strength of this Feudalism having all the
money and power to influence society, including twisting the Legal System.
Like "Lu tolong gua, gua tolong lu",the culture of Arab Horse Traders.
Some form of merit system must be put in place in lieu of the practice
of people comfortable with one another rubbing one another's backs
and circulating hard earned other peoples' money within closed and
comfortable circles.
How to manage the economy? On the supply side provide easy credit to
associates,preferably Monopoly enterprises to guarantee and protect them .
On the demand side provide easy payments for consumers to keep them in
business? Easy?Even better without having to come out with any cash!
There are already so many examples of failures in Europe.
Boleh? The Possibilities are Endless!
