Sunday, October 24, 2010

Economics @ Home © Volume 2 Issue 22

Troubled times - 100-storey style

These are troubled times indeed. With the launch of the 2011 Budget, how can a self-respecting newsletter proclaiming to discuss economics not talk about it?

By now, most of us would have read and heard and discussed and bitched about how the government is wasting the people's money in trying to build a new 100-storey mega tower. The government has subsequently rebutted by saying that the money used will not be the people's money, but belongs to PNB. So, this week's issue will avoid repeating the gory and now already boring details about the 100-storey building.

Econ @ Home will take a look at what the 2011 Budget means for regular Malaysians at home. After all, that is what the newsletter is for. Bringing down economics at the macro level to the micro folk at home. Making common sense, common.

For starters, bear with me for elaborating a little bit more about the Warisan Merdeka mega tower. Most people who bitch about this issue claim that the money is being wasted on a useless mega-tower and have recommended using the money in places like health, education, security and what not. Everyone wants a little piece of this hot pie. But what the country needs is not spending in these areas. haven't you all learnt your lessons? The government can spend money in these areas. We have seen the likes of RM48,000 laptops, and the like. The trouble with the Malaysian economy is in its policies. Where the money is spent is just secondary.

Now that that part is settled, what does the 2011 Budget mean for folks at home like us, the common folk that try to earn an honest living to spend on the needs and wants of our lives?

First of all, the lack of any initiative to reform the policies bodes huge ills for the nation. The ETP is a huge disaster compared to the NEM that was launched in March this year. Econ @ Home is not anti-government. But Econ @ Home is anti-stupidity. With such a well-written plan like the NEM available, it requires almost no intelligence to go along such plans. How can improving productivity and competitiveness be so bad?

How can Malaysia and Malaysians keep denying to themselves that nothing is wrong with our policies? The government's current stance is, "Don't worry, this time, business is not as usual. That's because the private sector will be the one spending the money." Why have they not realized that it does not matter who is the one spending the money. My favorite simile for such a situation is, "Be it the government or the private sector that adopts the white elephants, they will still be white elephants". The joke of the whole situation is, the government is telling the private sector where to spend their money. This is made worse when our infamous bankruptcy prophet, Idris Jala says that, "If the projects fail, it will be the private sector's fault". I do not need to elaborate further the irony of the issue.

Second, what do minimum wages mean for us? Sadly, on the surface, to most of us, it means nothing. This is because Malaysia as a whole, is being squeezed in the middle income trap. But is it true that it does not affect us? Let me just touch on why minimum wages are bad in an unproductive and uncompetitive country like Malaysia. Mind you, this is just simple economic theory that anyone who studied Economics at the pre-university level can tell you (Hmmm... I think I need to qualify what pre-university means because Matriculation is a lazy student's excuse of a pre-university education). You may ask, "How can minimum wages be bad?" It raises the wages of the poor, and subsequently, their standard of living.

Ordinarily, this would be a good idea if the country was a productive one like Germany or China. But mentioning Malaysia along the names of those industrious countries is like blasphemy. When you impose minimum wages, you will immediately raise the costs of hiring for companies. While local companies have no choice by to absorb these costs, MNCs do not have to deal with this. All they have to do is set up a new factory in Vietnam and voila, they would have cut their wage expenditure by 75%. Can we afford to lose the few meager FDI that still remain within the country?

What does this mean for local companies? Since they can't really move out of the country at their whim, they have 2 options. First, cut expenditure elsewhere. They may have to cut expenditure on advertising, research and development, and even training budgets. Cutting advertising will ultimately lower sales, and reducing expenditure on research and training simply means the firms have no hope of moving up the value chain. Lower resources also mean that firms are unable to bid for the talent that they seek. How are we going to achieve competitiveness? Their second option is to pass the cost of hiring to the consumers. Now, guess who the biggest group of consumers are? If you guessed the middle class, then you are most likely to be correct. It is us, the hardworking people who struggle to make an honest living who have to bear the burden of higher prices because of increased costs. Since the middle class does not fall into the levels of minimum wages, it does not help them at all. So how can the middle class cope with increased costs of living? Simple, by demanding higher wages. Now, I hope you can see where this is going. In economic theory, this is called the wage-price spiral. Higher prices drive wages higher. Then higher wages will drive prices higher.

Now, the issue on services tax. What does the increase of 5% to 6% mean for us and for the government? Well, needless to say, the majority of our expenditure will be consuming services. Let's say that 70% of our expenditure is on paying for services. That would entail a raise of 0.7% in our typical expenditure pattern. That is by all means palatable. What does this mean for the government? If you look at the economic report downloadable from the Ministry of Finance's website, you will notice that revenue from services tax will increase ONLY from 2.4% to 2.5% of revenue. That is a 0.1 percentage point increase in revenue. One can only wonder, what is the rationale for this? If the government wishes to raise funds to fund their mega projects, why not just rationalize the subsidies or trim down the bulging civil service. Can you imagine that 28% of the government's money is spent on paying civil servants in emoluments? Of the total labour force, only about 10% are from the civil service. What this means is that, 28% of the government's money is spent ONLY on paying 10% of the hardworking people of Malaysia. This is not even counting the pensions and gratuities and whatever other benefits the civil servants have.

I hope that these 3 issues will open your eyes further on how the 2011 Budget affects the typical Malaysian at home. I tried not to dwell too much on the 100-storey tower simply because all of you have already over-discussed it. By the way, as a trivia, as at time of completion of this article, there are 144,004 supporters on the "1M Malaysians Reject 100-storey Mega Tower" page.

Sunday, October 10, 2010

Economics @ Home © Volume 2 Issue 21

No Child's Play

I wrote this article in my blog when I was still studying at Bucknell University and was volunteering as a chess coach for a group of 8 year-olds. I still find this experience very interesting and thought-provoking, and so I would like to re-share it in Econ @ Home in case you missed it the first time.
Who ever thought teaching chess to 8 year-old kids can involve difficult decision-making and carefully chosen words? There are two issues that I would like to address today.

I think we should all understand that kids like to win. I have in my life only encountered one exception, but I will talk about this later. But let's just accept the generalization that kids like to win. So one of the kids that I have been "teaching" to (out of 8 other kids), is what seems like a beginner among beginners. Just to note, I don't like to use the word "teach" because it's more like sharing to me. It is obvious that he is trying hard and is willing to try hard, but just can't seem to beat the rest of the kids. So on this fine day, his father pulled me aside and told me that he is really trying and asked if I could give him some encouragement. So that troubled me. Firstly, now the parents have expectations on me. I hate it when people tell me how to do my job, at least when I am supposed to be good at it. I don't claim to be something like a Grandmaster or anywhere close to that, but I can say without boasting that I am pretty knowledgeable when it comes to chess. Now to say that I hate this situation would be an exaggeration because he didn't tell me what to do, he just asked politely. So I am just mildly troubled/irritated. Irritated because of the above-mentioned preference, but troubled because I don't know what to do. You see, even years of practice in encouraging girlfriends who needed to be encouraged did not train me to encourage an 8 year-old. How do you tell an 8 year-old who hates to lose, loves to win, that it's OK to lose, and our goal here is to get him to improve so that he can win in the future. For an 8 year-old, the end of the one hour chess session IS the future. Anything else that happens two hours from his arrival at the chess session is a new day altogether. I am not belittling a child's mindset, but merely stating their thought process. Because to him, being better 6 months from now is simply not worth the effort. He wants to start kicking butts now. I mean, if the we invented instant noodles and other magical thingamabobs, who can blame them for expecting instant results?

I tried to think hard about the time when I started chess. What was it like and how did I overcome losing? Maybe overcome is not the right word, because obviously, the way to overcome losing is to win. Hahaha... So how did I accept losing? Why did I get better? How did I get better? This ties back to the earlier point I made about what Kasparov and Abraham Lincoln were trying to say. It is very important to understand ourselves and where we are. I don't mean to preach but some messages just cannot be said enough. I remembered my first tournament. It was the PFS Open 1992. Back then, I could only watch in the sidelines the games played out by Chuah Heng Meng, Eric Cheah and many other "untouchables" who were always playing in the top five boards. To be honest, I didn't even bother watching because there was no way I could have understood the games. But I remember this one game. I was playing against a girl's MSSM U-20 champion. At that time, I was definitely no match for her. I was down a lot of material. With only a queen, bishop and a few pawns left, I set up a mating cheapo on White's g2 square. While barely staying alive, I managed to finally place my queen and bishop in that holy diagonal and got the checkmate that I was pining for 5 moves before that. A cheapo indeed! But of course, before the game, I had no idea she was an MSSM champion and my dad was very surprised that I won. Everything might have changed if I had known. My whole life would have taken a completely different path. I might have played the game knowing that I would lose, and would eventually lose. I would then go on to be an average player not knowing that I have a tricky mind, even as a kid. Or maybe my chess development was fated... Who knows? I'd like to think that it's little moments like these in our lives that are significant, and that we won't realize it unless we think about them.

I was 8 years-old when that happened. Why is it that I can remember only that game from 16 years ago. I don't remember any other game from when I was eight. That game was by no means brilliant. Upon hindsight, the only thing that can explain this phenomena, other than my powerful memory, is that for some reason, I was encouraged by that game. I can safely say that before I came to university, I have received no encouragement or a "well done" from either of my parents. I remember in National Age-Group 1999 where I squandered a half-point lead going into the final round. I drew a game after losing my queen because of the "touch-move" rule. I got over-excited over the idea of winning the tournament with a 10 move combination and in style. What was more devastating was that I could have won after losing my queen but I took a cheeky draw offer. I was so excited about winning that I played the wrong first move of the combination. A perfect lesson on "counting your chickens before they are hatched". Nevertheless, the point of this story was to say that despite this devastating loss, I did not even get "It's OK, you can try again next year". Did I wish I got a word of encouragement or two? I don't know. Would I have been weaker? Because it definitely wasn't OK to lose in a tournament of such importance. By the way, I tied for first place and lost in the blitz playoffs. No "Congratulations" for second place, no "It's OK" for not being first. How did that affect me? Did that make me stronger? Wiser? Most probably so. But I was already 15 then. Half of that lifetime ago, did I think that winning was everything? I loved to win. No doubt about that. But what I am trying drive home is that my experience has not taught me about giving words of encouragement. You lose, time after time, you think about why you lose, and you fix it. That's the kind of education that I got and was expected of me.

So back to the point of this issue, which is, if you can remember, how do you encourage an 8 year-old kid who is trying hard but not getting the fruits of his labor? As I write this article and think about it, the only words of comfort that I can come up with are "The other kids have been playing much longer than you have, and if you keep working hard the way you do, you may well become better than them in no time". Does that even sound honest? Because I hate telling lies, especially to kids. I hate being lied to as a kid. Maybe that's where I get my lying abilities from. Because I get lied to all the time. But that's another story for another day. So if any of you people have any ideas on how to deal with this kid, let me know.

As for the second issue, which is kind of similar to the first, and has the same underlying problem. Another kid in the group who also loves to win, repeatedly asked for my permission to play against the aforementioned kid. Now the reason is obvious because he will get to win all the time. He went so far as to lie to me about not having played against the other kid yet. So this kid is by no means close to being the weakest player in the group. If anything, he is one of the better players. The key difference here is that he does not need encouragement. But the trouble is, how do I explain to him that winning is not everything? To him, winning IS everything. Can I, dare I, should I dash his dreams and desires at a tender age of eight? We all want kids to dream big, be all they can be and all that good stuff. I can't just send the roof crashing down on him and tell him that in life, we cannot beat everyone at everything.

So I did not allow this kid, Brad, to play against the previous kid, Aaron. See the problem when parents try to interfere with my job? Now I don't want Aaron to keep losing, so I told Brad that you can't and shouldn't keep playing Aaron if you want to improve. I tried to explain to him the concept of "It's OK to lose" and the main purpose of our chess sessions is to help them improve so that they can win more in the future. I think that even though he understood the message deep down inside, he kept it inside him that he didn't like my decision to not let him play Aaron. I can deal with a kid not liking me or whatever. But how could I have avoided the situation? What could I have said to appease a kid who loves to win, and yet help him to improve? That answer was the best I could come up with, so if you have better ideas, let me know.

That marks the end of the two issues that I had, and now, as promised I will return to the exception of the generalization that I had asserted, which was all kids love to win. So a third kid in this group, Chuck, who in the previous week, intentionally lost to Brad to make him happy. He said to me that well, he would rather someone else be happy since it's not a "real" tournament. By the way, the background story is that I organized a tournament for them and put a prize up for grabs. So Chuck doesn't feel like this is a real tournament because it's not officially organized by some recognized group or whatever. So he decides to let Brad win and I saw him intentionally throw a won game. It wasn't an excuse he gave for losing. I knew he saw how he could have won. I have the ability to see what moves other people are thinking about. When you have played chess for as long as I have, these things just come naturally. I just couldn't understand why a kid would do that because as we know it, "Winning is not everything, it is the ONLY thing!"

Anyway, it's just something to leave you people with. Dealing with children is most definitely no child's play. Man, I can't wait to get a kid a torture him with all kinds of psychological tricks. But that's just me. I am not saying I am ready to raise a kid. I just wanna see how messed up they will become. Hahaha...