Monday, December 14, 2009

Economics @ Home © Volume 1 Issue 16

Methods of Madness - Part 2

In Part 1, we talked about the first role of the Lean and Mean Machine, which is to publish a newsletter that serves as a public resource for the eager minds from all walks of life. To add further to the goal of the newsletter, if you refer to the panel on the right, you will see the following:

Your everyday dose of Economic thought conditioning that emphasizes accessibility, honesty and accountability. Economics @ Home seeks to address our everyday problems with brutal honesty that is aligned with a sense of humility with aspirations of achieving the greater good.

It may first appear to be fancy and extravagant, but I have revised the wording several times to make the vision as concise and accurate as possible. Economics @ Home is an avenue for thought conditioning, which means that it provides, sometimes unique view on issues to provoke thoughts and emotions that encourage us to see the bigger picture as well as think outside the box.

Furthermore, as you can see, Economics @ Home is meant to be accessible to any person who has sufficiently competent literacy. The views expressed here honest opinions, albeit sometimes controversial, but with no hidden agenda and I am willing to be held accountable for all the opinions expressed here.

But what is Economics @ Home about? All this talk about the greater good, but what does it really do? Well, as a human being, I can certainly say that I face myriads of problems every single day of my life. Some of these problems are more difficult to tackle than others. I also believe that some of the problems that I face happen to be very much in common with the problems that are faced by many other people.

So, armed with an economist's analytical mind, I hope to address these issues with logic, reason, and perhaps with some evidence in hopes of making other people's lives just a little bit better, even if it is through humor, rather than actual solutions. That said, with all the huff and puff about making the world a better place, I strive to maintain whatever ounce of humility I can muster so as to not suffer from any delusions of grandiose (pronounced gran-dua for those who seek to accumulate style points when speaking, or to impress your lady friends by sounding slightly more romantic by busting out a funky French word or two).

In closing, we have covered all the fuss about Economics @ Home and hopefully I have sufficiently enticed you to regularly revisit this site. If you are not yet convinced, don't worry, as there will be more sneak previews on the better things that will come in Volume 2 of Economics @ Home.

It will be an honor if you could share your ideas with me. For those of you who are a little bit shy to contribute, may you indulge me by clicking on the advertisement on the far right to keep this project sufficiently funded. You may say that so far, other than employing the abilities of the author, everything else is "free". In some ways that is true. Discounting the internet fees that I currently subsidize, there are many other projects that are simultaneously ongoing with the publishing of this newsletter which I will continue to elaborate on in the Part 3 of this series of my Methods of Madness.

Nonetheless, it is not the monetary issues that matter but every click will be a morale booster for me to keep churning out what I hope to be significantly novel ideas to discuss in future issues.

Tuesday, December 08, 2009

Economics @ Home © Volume 1 Issue 15

Methods of Madness – Part 1

I owe all you faithful readers a proper explanation for my lapse in regularity in publishing a supposedly weekly newsletter. While creating a timeline in our planning is important to help us prioritize, it is of even more immense necessity that we keep to the timeline.

Publishing a newsletter is a serious issue, and I assure you that I have never taken this lightly. It is with very deep regret that I have fallen behind and failed to keep my promises. Every week that I fail to publish Economics @ Home is a broken promise to myself and more importantly, to all my readers.

One of the obvious reasons or excuses that I can give you is because of the lack of time. Nonetheless, it is a common fact that everyone has 24 hours in a day (a very good approximation). So, how can I say I lack time when I have just as much time as everyone else on this planet? My failure was in my inability to use that time effectively towards publishing. While I had intense work commitments, I am fairly certain that there could have been circumstances that I could squeeze out a few hours to do my publishing.

So for that, I regret, but will stop short of an apology. The reason is that I believe apologies mean nothing when there is no actual remorse. It is not the case that I have no remorse. I strongly believe in walking the talk and thus, I will end this folly with my sincere expression of regret and move on to strive my hardest in making it up to all you readers.

I first start by explaining the role of the Lean and Mean Machine so that you can perhaps understand why this newsletter exists in the first place and why I will take it extremely seriously. The Lean and Mean Machine Pte Ltd was set up a few months ago with three main roles. The first and most prominent role, as of today, is to publish a newsletter that is fit for public consumption. The goals of the newsletter are:

[1] to create an awareness regarding the importance of economics in our everyday lives;
[2] to analyze everyday happenings from an economics standpoint to provide what are hopefully better solutions;
[3] to maximize the potential of everyone through the sharing of experiences and knowledge.

Then the next obvious question would be, why these goals? The first role of the Lean and Mean Machine is just a part of a grand scheme of objectives. The ultimate goal of the Lean and Mean Machine is to establish an educational institution that enables and assists people who are willing to try, to maximize their potential. You could call it, a university of life. This idea stems from my experience as an Asian student. This experience has led me through an educational journey that was focused heavily on academic concentration that was meant to help me find a comfortable, high-paying job, with good benefits.

While these are noble and well-meaning objectives, it is probably more relevant for societies of the past, when knowledge and information transfers at a much slower rate. In our world today, because information, knowledge and experience can be passed on rapidly, more opportunities are available for people to be successful. Because of the abundance of opportunities, people are less restricted by their social origin to be all they can be. Imagine, the social constrictions for a peasant in the 800 BC who wanted to be a court official. With limited access to books, internet and everything else that even a seven year-old has access to these days, how does one move up the social and economic ladder? Thus, with so many obstacles, obtaining a high-paying job with benefits would be like a dream come true.

However, that does not apply in the world today. Social and economic mobility is commonplace. We hear more and more rags to riches stories these days. Thus, it is the goal of the Lean and Mean Machine to perhaps be a tiny pebble in people’s building blocks in their path towards greatness. The great ambition of the Lean and Mean Machine is to start a university that inspires people towards maximizing their potential as human beings as opposed to your typical university that awards you a shiny piece of paper that certifies your specialty in the field of Arts, Sciences or whatever you trained yourself to be good at.

Thus, Economics @ Home is a a means to an end, rather, a modest vehicle at the starting point of a long journey of aspirations. Economics @ Home should be seen as a well of knowledge and experience for all students of life, hoping to contribute their part in making this world a better place.

This concludes Part 1 of the Lean and Mean Machines Methods of Madness. I will elaborate further on the other roles and functions as well as projects of the Lean and Mean Machine towards achieving this grand scheme.

Monday, December 07, 2009

Economics @ Home © Volume 1 Issue 14


Those of you who frequent this site should know two very obvious things. First, my posts have been less frequent of late. Second, the layout and the look has changed tremendously.

There are several reasons for this change. As 2009 is drawing to a close, I am looking to end Volume 1 of Economics @ Home. With the new year, Volume 2 will begin with, hopefully, a vengeance.

Also, I am testing out this new look for the new year. I will also be changing my site name to So far, nothing is ready yet. Please don't get overexcited. The reason for the name change is so that I don't mix business with pleasure. A Walk to Remember will be reverted back to its old use, which is for personal blogging.

Economics @ Home will start anew on 1 Jan 2010. Why the need for such a change? On one hand, many things have changed in my life, and changed significantly they have. I have been working on several other projects as well, and this will be discussed further on another more auspicious day. Nonetheless, with so much going on, I have found it much harder to post regularly.

I read somewhere that the reason for the lack of performance is usually not because of the lack of motivation. Usually, it is due to the inability to remove the obstacles that are in the way. 24 hours a day can sometimes be too little. But now, I have readjusted my path and hopefully I will be able to sidestep whatever obstacles that I was facing before.

Going forward, there may be a few changes to Economics @ Home other than the outlook and the volume number. What started out to be an ambitious weekly newsletter has proved to be somewhat unrealistic at this point in time with my work commitments. If the earning potential of Economics @ Home has the ability to keep me fed, there would be no doubt that I will focus more energy on it instead. However, this is clearly not the case, and so, my work commitments still come first. So, for 2010, I intend to reduce the frequency of the posts to once every fortnight, still on Sunday. This comes as a very difficult decision because my honour, pride, and everything good is at stake when I lower my standards for myself. Trust me, it is still my goal to produce a weekly newsletter. I am in the midst of searching for a part-time author to fill in the gaps when I run into time hurdles. If you are interested in applying for he co-author position, please drop a comment or your contact in my C-box and I will get back to you as soon as I can.

I also intend to continue updating the Lean and Mean Machine. To keep the long story short, the Lean and Mean Machine is still very much alive. It has been somewhat dormant for the past two months because its sole client, i.e. me, temporarily ceased to use the services of L&M, so there was zero monetary activity for the company.

There has also been no change in terms of the stock portfolio of the company. You can bet that I will release a full disclosure for the year ending 31 Dec 2009 by the end of January. Hopefully I can get it done sooner, but of course, I like my margins of safety.

So with that said, I urge you readers to stay patient, and look forward to the new issues of Economics @ Home in Volume 2. Remember that the site will change from 1 Jan 2010. You will only be able to access the old issues from the new site.

More sneak previews will be provided as I finalize some of the finer details of the launch of Volume 2. Until then, I thank you for your continued support and I hope that you continue to follow Economics @ Home.

Sunday, November 22, 2009

Economics @ Home © Volume 1 Issue 13

More is Better

One of the most fundamental assumptions in micro-economics is that having more of a good is always better than less of it, of course assuming that the utility is positive. I mean, who would ever want more of a bad thing, unless they are sadistic or insane, which actually, to them, the utility may or may not be positive. Who knows?

Today, I hope to discuss how this theory of "more is better" is witnessed and applied in our everyday lives, and hopefully, attempt to understand why. One of the most glaring examples of people thinking "more is better" is the rampant occurences of affairs. It is not the case that people want more partners. While having many partners actually has the attractive notion of variety, the amount of trouble that one has to go through to keep one relationship or the other secret may actually offset that very benefit. So, why do people have affairs? How does this tie in to the concept of more is better, if it is not to have more partners?

I read an interesting theory once, that "Men are animals. We always want what we can't have." Wanting what we can't have is basically saying we always want more than what we have. Of course, here, "men" refers to mankind, which inclues both genders, and anything in between. I hope I did not leave out anyone. Herein lies the premise of why more is better.

First, let us think about the theory for a bit more. "We always want what we can't have". While this may seem like the important part of the quote, I beg to differ. I believe the first part is definitely a lot more important, and hence that is why I am saving it for last. The statement implies that when someone has an affair, there is something that they can't get from their current partner. While it is easy to imagine one to be sexually frustrated, believe it or not, there are actually other reasons that people have affairs. For example, it could be something as simple as the husband or wife feels unappreciated at home for everything that he or she does. It could be things like doing the dishes after dinner, taking out the trash, or simply listening to the other person complain on and on about how crazy their day is while having a super tough day on his/her own. The moment we feel unappreciated is the moment we are at our weakest. Usually the cruelty of fate always has a way of finding us when we are at our weakest. We tend to meet someone else whom we happen to make a connection with, and suddenly feel that someone actually understands, and feel somewhat appreciated again. Because of this moment of weakness, we succumb to these temptations of external affection and procede on to have what we term as an affair. All because we couldn't have what we used to have or want (and perhaps lost it, or was taken for granted).

As promised, we shall now discuss the first part of the quote. "Men are animals." Now, one might feel disgusted at being referred to as a beast of the animal kingdom. It is known that what separates us from animals is the ability to think rationally. What this means is the capability to give reason and justify our actions. Of course, being able to justify one's actions does not automatically give one the right to determine what is morally right or wrong. Nonetheless, it is sufficient to separate mankind from animals.

Such abilities usually come with huge responsibilities. The most important of these responsibilities is to use the ability and the next most important one would be to use it wisely. Going back to the topic of having an affair, we all know that animals have a great knack for following their instincts. The assertion that animals have no ability to think may be offensive to some people, so I shall not venture down that road. It suffices to say that most of the time, animals follow their instincts and these instincts usually tell them that more is better. It is built into the nature of animals to ensure survival of the species. So because of this instinct to acquire that which is not ours, men (or women) seek affairs. We seek in others what we cannot find in ourselves, and our partners, in this case. That is why people say, "Opposites attract". Thus, to animals, having affairs is OK. We never snigger at an animal that has multiple partners but we scowl at people who have affairs. What is the big difference?

We then come back to this notion of the ability to reason. Because we were given the ability to reason, we are able to evaluate the costs and benefits of our actions, and consequently, able to choose our actions. Believe it or not, we have the ability to choose whether to have an affair or not. This ability to choose allows us to practice self-restraint and to postpone immediate gratification for future gains. It allows us to tell ourselves that while an affair is all fun and good, in the long run, the benefits of an affair may not seem all that feasible. While more is certainly better in the short run, the outcome of our actions are not so clear when it comes to issues in the longer term.

So, the next time you are faced with an opportunity to acquire more of something, please exercize some of that reasoning capability so that you do not regret your animalistic urges.

Sunday, October 11, 2009

Economics @ Home © Volume 1 Issue 12

Fear and success

These two concepts seem like complete opposites and normally, we would never even think of them as being related. However, in this issue, I would like to perhaps show you that they are a lot closer than you think.

Typically, fear is associated with negativity, and success, otherwise. That is why we tend to think of them as opposites. So to facilitate today's argument, let us first try to let our mind grasp what we can about this emotion called fear. As we know, emotions are matters of the heart, and is often a difficult concept for the mind to digest. Nonetheless, for any argument to be meaningful and hopefully rational, it should probably include contributions of the mind. Fear is an intuitive and familiar concept, so to give synonyms of fear would be totally unproductive. However, I will give an example of how fear is often thought to be the nemesis of success to provide some context to the issue.

The most common feelings of fear is in the form of fear of disappointment. Someone once told me that when one has very high expectations of oneself, it is inevitable to fear disappointment. So to avoid disappointment, one should therefore not try. Now, why is disappointment bad? Obviously I am not going to try to argue that disappointment is not a bad thing. However, one can easily imagine being of ripe age and sitting back and wondering if one could have lived life differently and perhaps achieved more. It would probably dawn upon you that you did not achieve what you set out to do and probably die disappointed.

While this is all sad and demoralizing, there is another way to think about this. Imagine that despite your fear of disappointment, you persevered long and hard and never gave up. Perhaps you might not have achieved what you set out to do. Nonetheless on your deathbed, there will be almost no room to think about "what if I tried harder, could I have achieved more?". This argument tends to suggest that we should put aside our fears and go forward with no abandon. This tends to give us a negative conotation to the feeling of fear.

I believe that it is actually quite the opposite. When we feel fear, it means is that we are close. Imagine studying for your final exam. You have spent hours and hours trying to wrap your mind around the dynamics of electron spin (How does one even tell if electrons are actually spinning?). Then days or hours before the exam, we have this feeling of nervousness and fear. What if we fail or don't do well? Ever wondered why we feel that way? One can easily cite the more obvious reason of the desire for success. Obviously everyone wants to do well. But we wonder how some of our friends keep so calm about the whole thing? We often feel envious of such people. We can't help but wonder, do they want to succeed less than we do? The answer is no. Who would want to fail? The cause of the difference in reaction is the difference in the amount we have invested in towards our pursuit of success. I would like to share a different line of thought that one can take. The reason we feel the fear of failure is because we have invested too much. We have studied for too long and too hard. It is as if we have already ran 9.75 miles of a 10 mile race. Would you give up if you were that close to success?

This is the exact same reason we see grown men cry on ESPN. I am talking about the likes of NFL linebackers, real macho men (as opposed to the pussies like Cristiano Ronaldo who cries about being given a love tap). The reason they feel this fear is because they are just that close to sucess.

So I hope that the next time you encounter any doubts towards your ability to achieve what you desire, remember how much you have invested. When you know how much you have put in, there is simply no turning back. They only way is forward. Let your fear drive you towards sucess.

Sunday, October 04, 2009

Economics @ Home © Volume 1 Issue 11

Output and Growth - Part 4 (Final Part)

In the previous three issues, we have talked about the importance of output and growth, and underlined the two main ways to expand output, i.e. through increase in efficiency and growth of resources. In the last issue, we explored the detriments of leakages which sets a prelude to the goal of the final part of this series. In this issue, we will explore ways to grow our resource base on a macro and micro level.

As mentioned in the previous issue, the key to growth is savings because savings lead to investment, which consequently leads to growth in capacity. What do you think of when you think about "savings"? At the macro level, savings is basically derived from the realized government budget surplus at the end of each financial year. You can think of savings as a form of retained profits. Of course, the role of the government is not to maximize profits (that would actually defeat the purpose of having a government as a market regulator), the government is however responsible towards economic growth. While this may be achieved through growth in efficiency, the government is also responsible in incentivizing growth in capacity.

In the previous issue, I talked about investing in infrastructure and human capital. While all these are part of the budget, I feel that it is important to maintain a slight surplus for investment purposes to grow the government's "savings". Think of Singapore's Temasek Group, a specialized investment machine that has the sole purpose of growing the size of funds. As many wise men have aptly expounded, the goals of politics and economics will never converge in the short run, simply because politics focuses on the short term while economic growth is a long run goal. Nonetheless, this only stresses the importance of a stable government (which has been miraculously achieved by Singapore) so that it can focus on the long run of the nation without having to please the voters in the short run so that it gets reinstated at the next election.

I do however maintain that foreign exchange reserves are not classified as excess funds because these funds are usually invested in liquid assets because their purpose is for emergency usage. It is intuitive that we should save money for emergency purposes but any educated person should know that postponing current consumption for future gains is not an unfamiliar concept.

However, as I exhibited in the previous issue, dumping your funds in fixed deposits (FD) is merely a slow but sure way of getting poorer. Where else can we put our funds?

Although more and more people are becoming aware of investing their money in the stock market, many are still wary of its risks. People are afraid of the unknown and are even more lazy to learn about the stock market. I am not here to allay your fear of the stock market, but merely to explore some alternatives that might actually generate some real positive returns. I will tackle these investment vehicles in the order of least practical to the most practical in my own point of view. I take no responsibility for the performance of these investments because most of them require some amount of knowledge and skill as well as a lot of hard work. After all, there is no such thing as a free lunch. I cannot and will not advise anyone to just dump your money in any of these vehicles and hope that they generate luxurious returns because that is not possible and it is also illegal for me to induce purchases in some of these investments because I do not have an investment advisor license.

1. Fixed Deposits

I cannot mention enough how useless these instruments are in terms of growing your funds. The era of high interest rates are gone. With expected inflation to be low in the coming years, there is very little chance for interest rates to be scaled upwards. Even so, on average, fixed deposit interest rates merely track inflation over the long run. In fact, the yield spread could even be used as a predictor of expected inflation. That exemplifies how strong the correlation is. So, there is no way of beating inflation if you place your funds in fixed deposits. However, it is important to note that these investments are basically risk-free.

2. Amanah Saham Bonds (and other Amanah Saham stuff)

I feel these funds are more for entertainment value than for anything else. Even, the ones that guarantee 5% returns for the next however many years still have very little potential to beat inflation. Nonetheless, these instruments are slightly better than fixed deposits, which is why many people are willing to spend hours waiting in line at the banks to subscribe to these funds. An even funnier fund is the one that invests in equities. It promises to track the KLCI. There is almost no skill in that because any person with a trading account can basically allocate his funds equally throughout the KLCI counters and you would basically get the same performance, but without incurring management fees.

3. Property Investments

This one is pretty debatable. While it may generate potentially high returns, I feel it is not practical for beginner investors like you and me because of three reasons. First, its initial capital outlay is extremely high. The down payment to purchase property is very high, which may tie up our funds to invest in other opportunities as and when they emerge. Second, property investment is extremely illiquid. This ties in closely to the first reason because it is extremely difficult to dispose off these investments when we want to realize our gains or purchase other opportunities that we deem to be better. Third, in most cases, we have to incur guaranteed costs while our incoming cash flow is unpredictable. That is to say, we have to pay monthly instalments on our loan while we may have difficulty renting out the property, assuming that the property is already completed.

4. Unit Trusts (Equity funds, to be specific)

This category is huge. There are tons of different types of unit trusts. However, I will focus mainly on equity funds because the rest are just a combination of 1, 2 and equities. First of all, let me explain what a unit trust is. Basically, it is a collection of funds from investors with a particular set of investment objectives placed in the hands of a fund manager to invest according to those objectives. Equity funds is a unit trust fund that invests predominantly in equities (stocks, if you're unfamiliar with the term equities). One of the main attractions of equity funds is that the potential returns tend to be higher. Nonetheless, this is debatable because the performance of the fund greatly depends on the abilities of the fund manager. So, due diligence is still needed when selecting a fund to invest in. Like I have preached before, there's no such thing as a free lunch.

Why do I feel that this is more practical than the previous three investment vehicles? First, the concept of unit trust allows one to invest with very small capital. Minimum initial investments are around RM1000. Second, if we can find an able fund manager, we can ride on the "expertise" of the fund manager to obtain better than average returns. Typically, decent performing unit trusts average about 8% per annum in the long run. That is far higher than your long run FD rate. As to why the returns are so high, it is because the funds are invested in equities, which are companies listed in the stock market, which (hopefully) run a good business to churn a good profit that allows high returns on investments.

The drawback of unit trusts is, however, the management fees that you have to pay the fund manager. While this is not a fee that you have to fork out money and pay regularly, but it will be deducted from the fund based on the performance of the fund manager. Usually, this fee tends to be rather high. In addition to that, there is a commission that needs to be paid to the agents of unit trusts for marketing the unit trusts for the company. These fees can sometimes eat into the returns of our investments. Nonetheless, unit trusts tend to outperform plain deposits in the long run.

5. Equities

This is the most interesting and possibly the most promising investment vehicle of all. While diving into share investment without any knowledge is risky, knowing what you are doing reduces most of the riskiness involved. It is true that the risks of investments are there, but due diligence to ensure a high margin of safety minimizes the risks involved. Ben Graham, the guru of value investing said "Investing is most intelligent when it is most business-like". This sentence sums up what investing is all about.

Imagine yourself starting a business. Think of a list of criteria of how you want your business to be. These are the criteria that you should be looking for in the companies that you invest in. I do not condone speculation and will never do so. I am an advocate of value investing and the idea of value investing is simple. It is like paying RM5 for something that is worth RM10. If this does not attract you, then it will never attract you at all.

While the idea is simple, the work is hard. Most people would preach the risk-return trade-off in investing by saying that in search of higher returns, we must take more risks. This is totally untrue. What I know to be definitely true is that in search of higher returns, we must do more work. The key phrase of this issue is "due diligence".

I am in no position to teach anyone about value investing at this point. What I can suggest is to read widely regarding value investing. Books like "The Intelligent Investor" and "Security Analysis" by Benjamin Graham are vital. Think of reading as an investment in your personal growth. That is how you grow your personal resource base as well.

As a final note, you should note that one of the most important things in investing is that there is no formula for it. There is no one true way to grow your money. There are many ways to grow your resources. Some are able to grow it at a faster rate, some at a more conservative rate. One thing for sure is that nothing comes for free. Effort is essential.

After a possibly arduous journey over four issues, it is useful to go through the important things to take from this mini-series. We talked about what output is and the importance of maximizing output. We also talked about the two ways to maximize our output, via efficiency and growing our resource base. In this final issue, we explored the ways in which we can grow our personal resources. I would like to end by reiterating the recurring message throughout this series, which is "money does not grow on trees". So I urge you to invest in yourself if you seek to maximize our output and growth.

Wednesday, September 30, 2009

The Lean and Mean Machine Pte Ltd Monthly Income Statement September 2009

The second monthly income statement comes as a shock even to myself. As I monitor it almost daily, even I wondered if the Lean and Mean Machine could manage to scrape through with a profit for this month and fortunately it has.

I have made additional investments as you can see from the investment fees. Next month, when I disclose the quarterly balance sheet, you will have a better idea of what the company's portfolio size is as well as its rough performance.

Compared to the previous month, the food expenditure increased from RM582 to RM697. This is totally unacceptable as it exceeds the monthly budgeted amount of RM160 per week, which translates to RM686 for the 30 days of this month. More discipline is definitely needed to curb this excessive dining spree.

Fuel expenditure has maintained within the region of RM160, but this is still on the high side. Hopefully fuel expenditure can be reduced in coming months to push the cost down further.

You will see several new items in this month's income statement. First, the water bill is at RM27, the handphone bill is at a whopping RM170. This is because it includes the previous month's handphone bill.

Because of all these excessive unrecorded expenditure from the previous month, the net profit margin has tumbled to a meagre 2.83%. Thus, the NAV per share still managed inch up slightly.

The Lean and Mean Machine Pte Ltd Copyright © 2009

Income Statement

September 2009


Interest Income


Dividend Income


Net gain on quoted disposal of investments




Less: Operating Expenses



House rent








Electricity Bill


Handphone Bill


Internet Bill


Water Bill




Investment Fees




Profit before tax


Income tax expense


Profit after tax


Net Income


Basic Earnings Per Share


Net Profit Margin


Return on Equity




Sunday, September 27, 2009

Economics @ Home © Volume 1 Issue 10

Output and Growth - Part 3

Dividing the topic of output and growth into several parts was not the initial intention. Ordinarily, I would have preferred to leave a topic to one part alone. However, as I began typing, I realized that there was actually more content than I thought. I also understand that it is difficult to finish a long article in one reading. In this third part, I will exhibit how leakages are detrimental to growth prospects of our resources at the macro and micro level.

Conventional economics suggest that growth comes from investment, and investment is a result of savings. Investment is a very broad term and the things that come to mind when we think about investment are things like stocks and capital expenditure. To be very specific, investment is the postponement of current consumption for future gains. A typical individual would save a portion of his income, usually in the bank and earn the interest offered on deposits until he needs the money. What began as perhaps RM1000 in savings could grow to RM1030 after a year with a 3% growth rate and RM1060.90 after two years. If he had not postpone his consumption, then he can only purchase up to RM1000 worth of products. The idea of growing resources seems easy enough.

People who have studied Keynesian theory would surely recognize that the multiplier of national income is a function of marginal propensity to save. The key here is to achieve maximum growth rate. Is 3% a high growth rate? Before we explore how to achieve high growth rates, we should first take a look at some examples of how growth can be achieved (or lost).

Malaysia was once known as one of the Asian Tiger economies. This is a very misleading statement. Upon a closer look at the underlying factors leading to growth in national income, we will realize that while it is true that our national income did grow at a rapid rate, we have failed terribly at growing our resources. As luck would have it, our country was bestowed riches in the form of natural resources. We are net exporters of crude oil, palm oil and rubber. As technology inevitably advances, we were able to harvest these resources more efficiently and in larger amounts. This has thus increased our national income or as we call it, output.

As mentioned before, growth is a function of investment. While Malaysia happily constructed mega projects all over the country and allowed its proceeds to "leak" through the system in terms of corruption and handouts, we forgot to save. Our country's meek attempts at investment included projects like the Multimedia Super Corridor and the poor excuse of an international airport that is in the middle of the jungle. Other excuses of investments include the billions of dollars spent on the Port Klang Free Zone (PKFZ) and attempts to increase the value-added-ness of our country's output.

I will just throw it out there that a country like India, which has one of the highest poverty rates in the world (at 50%), has a much larger network of fibre optics per square area than our country. While Malaysia has never stopped talking about high speed internet, our broadband champion, Streamyx, has yet to be able to provide consistent service even with its copper cables. When are we going to migrate to fibre optics and if we do, will it be just as inefficient? I wonder if such inefficiencies would have been minimized if there wasn't protectionism in the telecommunications industry.

While infrastructure is one way of investing, human capital is another great area to invest in. Singapore is a success story for human capital investment. Other than handouts to unqualified students, our government has also "invested" in the best technology for a select group of schools that were conveniently renamed as "smart schools". Brand new high-end computer equipment were bestowed upon these schools, funds were granted to construct labs to house these equipment and endless scholarships were awarded to the inadequate to study in these schools. When can we learn that there is no way that we can become world champions in golf, tennis or soccer by using Tiger Woods's clubs, Roger Federer's rackets, or Lionel Messi's boots in their respective sports? Giving a caveman a computer is not going to create an IT expert.

What's worse is that not only are the high-end equipment under-utilized, but they were also procured from "government contractors" who had to "bid" to supply these equipment to the schools. Of course the definition of bidding is debatable, especially in a country which refuses to keep up with the times in teaching English effectively. Goodness knows that these equipment were obtained at exorbitant prices that are way above the market price. A simple inquiry to any school will let you know that the schools are not allowed by the Ministry of Education to purchase computers from other contractors except the ones appointed by the government in the name of standardization. And I thought that the concept of buying wholesale would entail discounts that are derived from bargaining power. The obvious flaw in this system is the lack of competition.

These leakages are too common in the government bureaucracy. Not only have our resources been misallocated in terms of investment, but most of our savings are foregone via these leakages. Not only has our country failed to invest efficiently but also simply failed to save. Thus, that is why I say it is misleading to call Malaysia an Asian Tiger. We are perhaps a complacent sloth that failed to forage and store food for the winter. We have grown fat and content by exhibiting income growth without growing our resource base. We merely consumed more by producing more efficiently. How high can you build your tower if you do not build a wide base?

To apply these concepts at the micro-level, I will focus only on income for the time being. While saving our money in terms of fixed deposits (FD) is a sure way to grow income, it is probably obvious to you by now that 3% is meagre. Taking into account average expected inflation of 5%, your real returns from FD would be negative. FD is a sure way of getting poor slowly but surely. This is an example of fund misallocation.

In worse cases, we ourselves spend unnecessarily in unproductive goods and services and forego growth completely. Not all these expenditures are deliberate. Just this month, I spent RM200 on my examination fees and other smaller amounts for car-servicing etc. While these expenditures are "necessary", they function as leakages because I will not be able to invest them for future gains. The money is lost forever. Compounded at about 5% per annum, RM200 would become RM325 in just ten years, a growth of almost 63%.

While these leakages are unavoidable, we can choose to minimize those that are. For example, unnecessary shopping and fine dining. I am not forbidding myself from the occasional indulgence, but what I am saying is that skipping one or two of these expenditures per month can grow your resources quickly if invested in the right places.

As a final word, this issue of Economics @ Home dwelt upon the "do-nots" of saving and investing. What may seem like an unproductive activity is intended to create an awareness of the detriments of leakages. We often condemn the leakages that result from the government's misallocations, but also tend to overlook our own leakages. It is important to build a strong self-awareness when it comes to allocating our resources. Next week, as a conclusion, I will try to be more productive in exploring the possible ways in which we can grow our output/income more efficiently.

Sunday, September 20, 2009

Economics @ Home © Volume 1 Issue 9

Output and Growth - Part 2

Last week, we discussed what output means for an economy and for an individual and also the importance of maximizing output. To recap, the output for an economy is a measure of income for all the participants in the economy, and I do not have to elaborate on the importance of income to you.

Things are a bit more complicated when it comes to estimating output for an individual. While the literal meaning of output implies that a product or a service that is provided, the value of the goods produced would seem intangible and difficult to estimate. However, it is sufficient to say that the salary paid to that person for his services is the value of his output, so says conventional economic theory.

Carrying this assumption with us, it is then obvious that not only do we want to maximize output, but also to grow the amount of output. There are two ways to grow output and I briefly touched one of the methods in last week's issue.

Efficiency is key to maximize output with a set of given resources. For an economy, its resources include money, natural resources, human capital and some other things that may or may not exist. It is easy to see that our country is far from being efficient. A quick look in any newspaper would make us sick to the bone with respect to how our hard-earned money is being wasted everyday. I am referring to taxpayers money that is spent on great big white elephants. I will spare you the torture of reliving the horrors of how our blood, sweat and tears are being wasted. Corruption is still rampant. Rent-seeking is the chief wealth-building activity of the rich bumiputeras in this country. To add to our pains, we are told that this is the evidence that the NEP is working.

Pointing out inefficiencies is easy. Explaining why these inefficiencies exist could even be entertaining, but most definitely unproductive. I will only get all emotional about how poorly the government is allocating resources. Keynes was right that in the short run, market failure is inevitable, thus justifying government intervention. In Malaysia, government intervention leads to poorer efficiencies than if we had let market forces steer our course with its possible failures. This part, Keynes was wrong. He assumed that all governments could allocate resources rationally and efficiently for the greater good. If only...

So to maintain my efficiency and not dwell on fruitless efforts, perhaps I can share some light on how we can improve efficiency and hope that someone who knows someone who knows someone will read this and shares it with someone who knows someone who might actually have the guts and intelligence to implement it. I say guts because some of the problems that need to be tackled are so deeply rooted within our society that any change would be severely unpopular and cost the government even more votes in future elections.

Anyone who has had a brief encounter with economics, even at the secondary school level can tell you that efficiency is derived from competition. Only one word, "competition". When we learn about perfectly competitive markets, we learn that every supplier in the market is a price taker. That is to say, the suppliers have no pricing power and can only sell their goods at the current market price. To put it in context, let us begin by examining students. If all students understood that there was no such thing as a free lunch, don't you think they would work hard? What is this free lunch that I am talking about? Well, for starters, easily available university entrance via matriculation courses and the quota system for scholarships for students who are immensely less deserving than others. If bumiputera students keep getting handouts, what is their incentive to become effective?

The buck doesn't stop there. When the students graduate from universities, because of the poor foundation that was caused by the handouts given by the government, they cannot find jobs in the private sector. So what does the government do with all the unqualified and unemployed graduates? Create jobs for them in the public sector. MORE handouts! This inevitably leads to the promotion of these graduates to decision-making positions and what happens when someone unqualified is placed in a position of power? Well, if you can't decide what is good or bad, what do you do? Pick one that you think works out the best for yourself. So what is best for the decision-maker is how much money he can pocket through whatever he has to decide on.

So now, some of the good and beneficial projects do not get approved because some unqualified jackass was given a place in university and subsequently a decision-making job only knows how to evaluate project based on how much rent he is going to receive for approving the project.

In short, not all the best students are given the necessary support, not all the best graduates are trained to do the important jobs that require making tough decisions and not all the best ideas are utilized. This is clear evidence of sheer inefficiency. Competitive markets will leave no room for pretenders. If you do not have the best abilities, services, ideas, products, or grades, you are redundant and will be subsequently substituted. Competition is an automated system to encourage effectiveness.

Extrapolating the idea of perfectly competitive markets to the individual at a micro-level entails the same conclusions. However, advocating this dog-eat-dog culture surely isn't perfect. This is where Keynes comes in. Markets do fail in the short run. Competing for oneself sometimes ignores the bigger picture of positive and negative externalities. This is why Keynes calls for government intervention. Or else, who would build the roads and the street lamps? Education would be extremely costly. Smoking and drinking would be rampant without regulation. Is that what we want? So of course, competition has to include common sense, bearing in mind the greater good. This is how effectiveness is achieved, building on each others' achievements to climb greater heights.

Next week, I will deal with the other factor of output growth, which is via growing our resources. Briefly, output is a product of resources and efficiency. While we have dealt with how to improve efficiency, so we will move on to the less intuitive idea of growing resources in order to multiply output growth. In short, we hope to build a bigger base so that we can build higher. We will explore how we can widen our base next week.

Sunday, September 13, 2009

Economics @ Home © Volume 1 Issue 8

Output and Growth - Part 1

Output and economic growth is one of the longest standing issues in economics. The two innocent concepts seem simple enough. The words mean exactly what you think they mean, or is it? While we can grasp their English meanings intuitively, I would like to formalize our thinking about output and growth and explain why these concepts are important to us in a macro and more importantly, in a micro scale.

In conventional economics, output is usually related to Gross Domestic Product (GDP), or some other derived variant like real GDP, real GDP per capita, GNI, PPP-adjusted GDP and the list goes on. I am not going to go too much into detail on how these figures are calculated but it suffices to say that they are an estimate of how much goods (and services) are produced by an economy. It can also measure the income of an economy as people get paid for what they produce. This seems to make more sense and easier to grasp as a concept because it is somewhat difficult to quantify the value of certain goods and especially services produced.

Just with this definition alone, you can probably see why output is important to us. It is a measure of our income and last I checked, our income was our source of sustenance. Of course, we must remember that we are currently thinking about output in terms of a macro-economic scale. Knowing what output is seems innocent enough, but knowing how this output comes about is another monster altogether.

As I said, I will spare you the gore, but it is vital that I go through what is important when it comes to output. First of all, we have to agree that it is in our best interest to maximize output. It is all well and good to talk about how we should be environmental friendly and talk about conservation of resources but that only alludes to the point that I am getting to. Because of the goal of output maximizing, it is then vital to optimally allocate our resources. That is to say, minimize waste and maximize productive output with a predetermined allocated amount of resources. We must allocate our resources efficiently.

A simple comparison between Malaysia and Singapore will make the difference between the effectiveness of resources allocation glaring. In a previous issue of Economics @ Home, I explained that Singapore's national income per capita (a measure of output) has grown to more than triple that of Malaysia's within the span of 30 years. That was already assuming that both countries started with the same base. Why and how did this happen? Singapore's small size did help, but not because they had nowhere else to spend its money, but because it spent it in the right places. Singapore did not try to build the tallest buildings in the world. It wasn't enough for Malaysia to build one, but TWO tallest buildings, which are already forgotten. If only "Entrapment" was a super big hit. Maybe more people would have said, "Hey!!! Those are the twin towers!!". That was never to be, at least not in this parallel universe.

Going back to the point of resource allocation. If you looked at the export data of Malaysia and Singapore, you would be amazed that Singapore as a country exported more in terms of value compared to Malaysia. You must ask yourself, how does a small country that has nothing, export more than a country that has oil, palm oil, rubber and whatever else? Remember that we were once number ONE in the world for some of these products.

Of course the answer is a combination of 1001 reasons and things that the Singapore government did and the Malaysian government didn't do. Malaysians laugh at jokes made about the Singapore government. Very few Singaporeans laugh at jokes made about the Malaysian government simply because those jokes are not made up. They are true stories that are exceptionally hilarious! Just the other day, OC Phang of PKFZ fame said that she did not understand the term cash flow projection. So I went around asking 12-15 year-olds what they thought cash flow projection meant. All of them got the idea albeit not the exact definition correct.

While I am not going to go through the 1001 reasons that I mentioned, I will elaborate on a few important points. Singapore stressed on the importance of providing value-added services. Exporting raw materials and commodities have no value-added-ness. The price of these goods are determined by the world market. If crude oil is USD80 today, we can only sell it at USD80. By providing exclusive value-added services, we would have differentiated our products from the homogeneous commodities and thus give ourselves pricing power. Consequently, pricing power raises our export value and income. Now that I have said it, the idea seems trivial. Why do we not provide value-added service? To add value to any good and service, there has to be invention and innovation, which is a by-product of education. As long as our education system is filled with potholes and bumps, there is no way that Malaysia can be a champion of value-added-ness.

On a macro scale, output is a determinant of our income. While it is fun and games to talk about output on a macro scale, thinking about it seems boring because when we really examine the issue, it is hard to see how this affects us as individuals. So what if my country does well or not? All I have to do is to make sure I work hard or smart or however you want to work, and earn enough money for myself and my family and my noble goals. Why do I need to bother about output?

Perhaps the link from the individual to an economy is hard to see, as the performance of the economy is a mere aggregation of individual performances. Actually, the same concepts apply to the individual as well. In fact, this concept of maximizing output is so inherent in our everyday lives that we take it for granted. Even a 12 year-old can tell you that he wants the most bang for his buck, however unethical it is for a 12 year-old to be talking about obtaining banging for his buck.

We commonly think of material goods as resources. Day in and day out, we try to get the most value with our money. Although it may be common sense, I will still say it (because common sense is ever so uncommon these days): time is also another important resource. Everyone has 24 hours each day and it is only too cliched to say that we should make the best of the time that we have. We hear our parents tell us that all the time. While studying does give us good grades and perhaps a well-paying job, it probably isn't fun. So then, how do we really make the best of our time? Maybe I will attempt an article on this topic in a future issue.

Another important intangible resource is our mind. I have seen brilliant ideas go to waste simply because they were not put into action. My meek attempt at improving the output of my mind is to contribute a weekly newsletter that has a miniscule readership.

Going back to the main points, the idea of maximizing productive output is almost intuitive. I say this because we can always construct another bridge to nowhere or a building that is taller than the currently tallest building in the world and this would still contribute to national income. That is why the keyword here is "productive". If left completely to demand and supply, most of the goods that are produced would only be those that provide maximum utility. It is the role of the government to provide incentives for allocating resources to productive output.

What then, is productive output? To put it simply, they are products that can help generate growth. Growth not only allows us to produce more output in absolute terms, but ideally, it should allow us to produce more output with the same amount of resources that is to say, improve efficiency. I will talk more about growth, its importance, and perhaps attempt to figure out how to obtain it in the second part of this article next week. Until then, I wish that you can find the most bang for your buck.

Sunday, September 06, 2009

Economics @ Home © Volume 1 Issue 7

Policonomic Ideals

Economists are not very creative people. I mean, they came up with terms like utility to mean satisfaction. I am about to continue that trend. While Political Economics relates to studies regarding the politics of economics; policonomics, I regard, as being related to the the economics of politics. The intertwining of terms may seem confusing and probably allude to the fact that I have created a new word just for the fun of it. But then again, if it isn't fun, why do it?

First of all, political economics is related to the decision making by authorities regarding the allocation of resources. Basically, it studies the the government's actions regarding the country's economic decisions. Without going too much into detail, political economics dwells on the role of the government in allocating resources in an economy.

What I will discuss today is probably not so different from that, rather, I will focus on the economics of the decisions of policymakers, more specifically,what are the policonomical ideals and how we may achieve them. Once again, I won't pretend to know how to run a country, but I think it suffices to have the ability to analyze the costs and benefits of an action or the outcomes of an action.

Anyone who has kept himself (without loss of generality in terms of gender) abreast with regards to the issues surrounding Malaysia will find it too easy to criticize the government and call for action or change or whatever it is. While many realize that the delapidated state of our country today is not a result of today's government but the leaders of the past and their mismanagement (to put it mildly) of the country, I find it disturbing because what these people are doing can be compared to blaming a son for his father's crimes. I will leave this topic at that and go back to what I intend to cover, that is what are our policonomic ideals and how we can achieve them.

I am not about to analyze every single policy in detail. I would like to focus on three key areas: education, healthcare and security. I chose these three specific areas simply because they tend to have positive externalities that extend the furthest. The benefits of developing these areas will naturally spillover to other areas and because of this, we can afford to assume that it is quite possibly the most efficient way to spend the people's money.

I touched a little bit on education in Volume 1 Issue 1. To recap, I asserted that the way to promote quality education was to significantly hike the salary of teachers and the trainers of teachers. This may seem absurd at first, but the idea behind it is rather simple. In fact, I recommend the policy of increasing wages significantly in these three key areas. Let us examine the effects on them one by one.

Of course, many people can argue that a sudden surge in pay of teachers is unwarranted and most definitely undeserving. Many teachers today are not only unable to teach science and mathematics in English, they sometimes impart the wrong facts to the students. I consider that a minor flaw. What is worse is that the students are taught the wrong attitude. Factual errors happen all the time and can be corrected by reading exposure. Teaching a student the wrong attitude is like baking a cookie with the wrong mould. Once its baked, it's almost impossible to reshape it. Because of this, it is clear that education is a vital sector to focus a country's efforts on.

We don't like to admit it but we all know that money is one of the greatest motivators. I am actually crazy enough to advocate a simple increase in the wages of teachers. As far as I understand, the government wages are paid based on the number of years people spend studying in university. So, doctors get paid more because they spend at least five years in university. Similarly, keeping teachers in university longer can only be beneficial. The standard of teachers today simply call for more training. Of course the teachers of teachers have to be competent as well. The best way to attract competent people into an industry is simply to offer attractive wages. The most obvious examples today are Real Madrid and Manchester City. The message is loud and clear: money is king!

Because of the increase in wages, more qualified (truly qualified, not just on paper) people will strive to become teachers. After all, being a teacher is a noble profession. No one is going to look down on someone because he is a teacher. The only reason bright students steer away from teaching and go into medicine, law and accounting is simply because of wages. I mean, seriously, why would anyone become a lawyer? The cause and effect is clear as the blue skies.

I don't need to elaborate the importance of healthcare. It is sufficient to note that better quality of living can only improve productivity and all the other nice things about any country.

As I said, the case is similar in healthcare. We all know how well-paid doctors are. However, doctors are not the only people who work in the healthcare industry. The often forgotten and unsung heroes, the biomedical scientists need to be given much better incentives. While the government has provided (or tried to provide) state of the art infrastructure everywhere, it fails to see that these facilities are clearly underutilized. Our country is great at boasting of having the most high tech corridor in the world and what not, but we forget to ask, what is the point of a corridor that no one uses?

Similarly, to attract great medical talents to Malaysia, our country must not be stingy on research grants to pull in the talents from all over Asia. Singapore is benefiting greatly from its generosity to sponsor research personnel. I am very certain that a stone's throw would be sufficient to pick out eager and talented researchers from China or India or some other "poor" country who can only cry about the lack of opportunities. Our selfish pea brains often ask, "Why invest in world class infrastructure and let foreigners use them?". First, it is obvious that giving an ordinary driver an F1 car is not only dangerous, but irresponsible. We simply do not have the expertise to fully utilize the infrastructure our government has strived to offer. Second, what our government always overlooks (or pretends to) are positive externalities. A simple question such as, "Why do we try to send our children overseas?" would lead us to the conclusion that we NEED foreign expertise. All this talk about how we MUST develop local talent and we choose to ignore the simple truth. Why not bring the foreign talents here? If Malaysia can establish itself as a healthcare hub of the world, the spill-over benefits for locals will be forgone conclusion.

Security is a very controversial issue in Malaysia. But I guess this is the case in every part of the world these days. I will not delve into the intricacies of the balance between regulation and freedom. Just like the indifference curve, there are many points on the balance that can provide the same amount of utility that can be derived from the security for a particular country. The issue is to maximize this utility. In this case, the cure happens to be the problem. Underpaying security personnel is like prescribing an incomplete schedule of antibiotics. Not only does the illness not go away, but in many cases, the bacteria become stronger.

Imagine yourself being a police officer who is underpaid. While it is all good and right to argue from the moral perspective but if your family or survival depended on money, would you not accept bribes if you could get away with it. Some people can even justify that it is only right.

There are three very strong benefits why increasing the wages of security personnel. First and similar to the previous two cases, we will get more competent personnel in the industry. It is only beneficial to have efficient workers in the police force. Imagine having bright detectives who solve crimes at unequalled success rates and police officers that are actually strong and brave enough to overpower the hoodlums that control our dark alleys. Will crime still be rampant in Malaysia? Second, paying security personnel high wages will force bribe offerers to up the ante as well. Imagine offering a bribe of RM50 to a police officer who earns RM10 000 per month. While money is still money, sometimes RM50 is not worth the risk. This brings us to our third point. By having high wages, the police will have too much to lose if they are caught receiving bribes. Now, their survival instinct will work in the people's favor. With a family to fend for, is wasting a perfectly noble and high paying job worth the risk? It is clear that the wage increase should not be limited only to the police force. I will leave how a wage increase can benefit the security industry as whole to your imagination.

Finally, I would like to reiterate why I chose to focus on these three areas. The positive externalities of having world class education, healthcare and security are practically unlimited. World class students bring world class brains and productivity across all industries. World class health care provides an enviable quality of life that will inevitably attract foreign investment. World class security and corruption standards entail the ease of conducting business in Malaysia. We often hear the Prime Minister preach about thinking "first world". Well, here is first world thinking for you. Please stop throwing money at useless submarines and other ridiculous mega projects and focus on what's most important for our country. There is no need for cute catchy names like 1Malaysia to label our people. Let's not be sidetracked about the issues that cloud the real matter at hand. Focus, and we can all prosper.

Monday, August 31, 2009

The Lean and Mean Machine Pte Ltd Monthly Income Statement August 2009

Below is the first monthly income statement for my company, The Lean and Mean Machine Pte Ltd. I would like to highlight several conventions of my income statement. This is not your typical income statement because the company makes equity investments and I chose not to record this in the income statement because it makes little sense as it will make my company appear to make losses via relatively large investment expenses.

The income statement will recognize capital gains as revenue and not the revenue from the sale of shares.

Needless to say, in August, the company made several investments in equities and that is not reflected in its income statement. It will be reflected in a special quarterly balance sheet that shows both the cost of my investments as well as their market value.

Revenue for this month is slightly higher than expected due to unexpected revenue from a chess tournament victory during the Merdeka Rapid Tournament. This, however, is offset by the much higher than expected expenditure on food. While it is still below budget, the company believes that there is a possible further cut in food expenditure in the near future to maximize profits.

Fuel expenditure is also higher than expected due to extra transportation services provided to friends in need. Fuel prices are expected to increase in September and the company will reassess the situation at the end of September.

Net profit margin is at 25%, which is satisfactory at this point. The company hopes to increase the NPM further by minimizing costs.

Net asset value (NAV) per share reflects the total shareholder's equity per share at market value as at 31 August 2009. This means at equity investments are valued at market price as at 31 August 2009

The Lean and Mean Machine Pte Ltd Copyright © 2009

Income Statement

August 2009


Interest Income


Dividend Income


Net gain on quoted disposal of investments




Less: Operating Expenses



House rent






Electricity Bill


Internet Bill




Investment Fees




Profit before tax


Income tax expense


Profit after tax


Net Income


Basic Earnings Per Share


Net Profit Margin


Return on Equity


NAV per share