The End Of The World As We Know It

2012 has often been touted as the year the world would end. When we think about the end of the world, our minds would typically jump to scenarios that we have seen in movies such as Armageddon, 2012, The Day After Tomorrow or even the Time Machine and Wall-E. Either a meteor heading towards Earth, or insanely volatile climate, or the breaking apart of the moon, or even an alien attack would kill us all. Or at least, it would reset the world to the Ice Age where giant cockroaches ruled the planet.

I must admit, I have pretty much rubbished the claims that the world would end at the end of this year. I might even venture a scoff if you tried to convince me of it. Many of the scenarios from the movies above typically originate from man-made errors. We consumed too much, were too greedy, and we were too late in realizing the error of our ways. Most of the scenarios above were designed in part to scare the living day lights out of us, so that we repent and perhaps start recycling (if you haven’t already), or start driving hybrid cars, etc.

Dani Rodrik, a professor at Harvard University, has a different take on how the world would end. His version depicts the beginning of the end from a less likely source, albeit still man-made. He extends the great European debacle into a apocalyptic scenario where all hell breaks loose and ends with an interesting quote:

Many years later, Merkel, who has withdrawn from politics and become a recluse, is asked whether she thinks that she should have done anything differently during the euro crisis. Unfortunately, her answer comes too late to change the course of history.

The political inaction of the Eurozone leaders will lead to a domino effect that would be the end of us all. Do have a read. What is scary is that, the scenario doesn't seem too far-fetched at all. I had likened the Eurozone crisis as being on the sinking Titanic, but perhaps, I didn't think big enough.

Blast From The Past

Since I have not got around to posting my thoughts on these issues, and some of them are getting a little out of date, I am just going to share the links here for archiving purposes. They are good reads and definitely worth thinking about. 

1. Rise of the Technocrats?

Is the European Union’s supposed “democratic deficit” now spreading to individual European countries in the wake of the sovereign-debt crisis? The rise of unelected technocrats to political power in Greece and Italy suggests, at least superficially, that the old taboo against technocratic governments pursuing an EU-dictated agenda has been shattered.

2. The Philippines - Malaysia's New Competitor?

The Philippines reopened for business under new management only a little more than a year ago. It is faring very well – and is set to become increasingly profitable.

3. Just a chart on the desirability and earnings potential of different college majors in the US

P/S: Anyone else find it shocking the Geology and Earth Sciences is listed under Arts?

4. Why Art majors are being subsidized (refer to No.3 for more)

ALEX TABARROK, a George Mason economist and blogger at Marginal Revolution, notes that though many more young Americans, about 50% more, now go to college than did 25 years ago, the number of students studying science, engineering, technology, or mathematics has not increased. So, Mr Tabarrok asks, "If students aren’t studying science, technology, engineering and math, what are they studying?" They are studying interesting and enjoyable fields, it turns out. Mr Tabarrok reports, with no little dread:

"In 2009 the U.S. graduated 89,140 students in the visual and performing arts, more than in computer science, math and chemical engineering combined and more than double the number of visual and performing arts graduates in 1985."

This is worrisome because diseases go uncured and potential gains in purchasing power are left unrealised as America's apple-cheeked human capital squanders itself staging the "Vagina Monologues". Mr Tabarrok admits there's nothing exactly wrong with young Americans learning how to play the euphonium, he just doubts this fluff is worth subsidizing. Growth-enhancing disruptive innovation doesn't come from villanelles!

"[G]raduates in the arts, psychology and journalism are less likely to create the kinds of innovations that drive economic growth. Economic growth is not a magic totem to which all else must bow, but it is one of the main reasons we subsidize higher education. 

The potential wage gains for college graduates go to the graduates — that’s reason enough for students to pursue a college education. We add subsidies to the mix, however, because we believe that education has positive spillover benefits that flow to society. 

One of the biggest of these benefits is the increase in innovation that highly educated workers theoretically bring to the economy... 

There is little justification for subsidizing sociology, dance and English majors." 

As a consequence, Mr Tabarrok thinks that "the taxpayers who foot the bill for these subsidies" are being ill used.

5. Here is Tabarrok's full post: College Has Been Oversold

6. Why Debt Is Not The Real Problem in Greece, But Competitiveness Is

7. One Year in Prison Costs More Than One Year at Princeton

Eurozone's Political Crisis (Not Economic Crisis)

After a long hiatus from the Eurozone crisis, I am back. This time, with more backing from former Spanish foreign minister and former Senior Vice President and General Counsel of the World Bank, Ana Palacio:

Europe’s current crisis is rooted in loss. Untethered from the mooring of Cold War-era bipolarity, Europe was swept off its feet and cast adrift in the currents of a globalized world, unable to find either its place or direction. Most critically, Europe’s old instincts and modus operandi persisted long after the new contours of global affairs had taken shape. 

They still do. That is why, in facing its gravest test so far, Europe seems oblivious: its leaders project confusion and indecision; its citizens exude a mixture of complacency, indifference, and self-doubt; and its institutions are locked in turf battles and remain hindered by laborious procedures and protocol. 

It is also part of the reason why markets are besieging the eurozone so incessantly. What investors sense is not weak economic fundamentals, but Europe’s weak political fundamentals – the absence of a governance structure with real power and the will to use that power to resolve problems. If Europe is to adjust to the requirements of the new “Pacific world,” it does not need fine-tuning; it needs a new design.

I had asked this question before. The Eurozone's refusal to face reality is causing a slow and painful death for its periphery. In Two-Cent Economics, Volume 3 Issue 45, I said:

Personally, observing the way things are going with the Eurozone right now, it feels a lot like watching a tragedy in slow motion. It is agonizingly painful. It would seem like you know a disaster is coming but you can't avoid it. Something like being on the Titanic as it is sinking.

And back to Ana Palacio:

Europe is plagued by three distinct problems. First, it remains incapable of adjusting to the realities of a world whose center of gravity has irrevocably shifted eastward to the Pacific, pulling with it the attention of the United States. Second, more than ever, Europeans are looking inward, as a sense of entitlement meets pervasive skepticism – a combination that permeates to the highest echelons of the Union and EU national governments.

 Source: Project Syndicate

Learning From Hungary

It may be shocking for you to know that a European country is becoming more and more like Malaysia. Read here and here. I don't think I need to add any further comments, especially when time has become an increasingly valuable commodity these days.

Source: Paul Krugman

Another Eurozone Post??!

I just posted this morning about how the former ECB President was dreaming if he expected austerity to be expansionary:

I guess he (Michael Boskin) can't be too blunt about the former ECB President. How can fiscal consolidation be expansionary? The private sector is not spending, the government is not spending, the consumers have no jobs, so they have no money to spend. So who is spending? If no one is spending, how can the economy expand? What is this confidence fairy thing?

Now, if you think I am talking junk, here is Joseph Stiglitz on the issue:

Public-sector cutbacks today do not solve the problem of yesterday’s profligacy; they simply push economies into deeper recessions. Europe’s leaders know this. They know that growth is needed. But, rather than deal with today’s problems and find a formula for growth, they prefer to deliver homilies about what some previous government should have done. This may be satisfying for the sermonizer, but it won’t solve Europe’s problems – and it won’t save the euro.

I am not in the habit of name-dropping but it would be foolish not to leverage on the comments of a Nobel Laureate.

 Source: Project Syndicate

More Eurozone Stoof - Part 3.14159

I really lost count how many Eurozone posts I have made in the past few weeks or months. It is not a lot, but the frequency is increasing simply because I think the Eurozone is about to blow us all to kingdom come. Here is another Project Syndicate post which puts the problem (and solution) in a very nice way:

Reforming social-welfare benefits is the only permanent solution to Europe’s crisis. One hopes that, with the help of national governments, the European Central Bank, the International Monetary Fund, and the European Financial Stability Facility, the holes in the sovereign-debt-funding dike will be temporarily plugged, and that European banks will be recapitalized. But this will work only if structural reforms make these economies far more competitive. They must both lower the tax burden and reduce bloated transfer payments. Too many people are collecting benefits relative to those working and paying taxes.

This only stops short of saying that the lazy and corrupt are piggy-backing and free-loading off those who are working hard and paying taxes. Sounds like another country I know that begins with M. And I think that Michael Boskin is being too kind here:

Some experts, such as former ECB President Jean-Claude Trichet, argue that fiscal consolidation would be expansionary. Specifically, it would boost confidence, which would lower interest rates and offset any direct effect on demand, as occurred in Ireland and Denmark in the 1980’s. But that is less likely now, as many countries are undertaking fiscal consolidation simultaneously, non-sovereign interest rates are already low, and monetary union prevents the most troubled countries in the eurozone – Portugal, Italy, Ireland, Greece, and Spain – from devaluing their way to competitiveness.

I guess he can't be too blunt about the former ECB President. How can fiscal consolidation be expansionary? The private sector is not spending, the government is not spending, the consumers have no jobs, so they have no money to spend. So who is spending? If no one is spending, how can the economy expand? What is this confidence fairy thing?

If they keep believing in the confidence fairy that is going to make everything OK magically, then we are in for a tough 2012 ahead. 2012 is going to make 2011 look like a walk in the park, and 2011 is the year where three Middle Eastern/North African regimes fell, a tsunami/earthquake/nuclear disaster hit Japan, multiple other earthquakes all over the world, the US debt ceiling circus/comedy/tragedy, the floods in Thailand, and much, much more. Can 2012 be any worse than this? You bet, with the way the Eurozone jokers are acting.

Source: Project Syndicate

More Eurozone Stoof

To some, the problems are very obvious:

First, and most obviously, Europe already has its own in-house lender of last resort. The European Central Bank can make available all the euros needed to backstop Italy’s debt. And printing them would only offset, through mild inflation, the effects of the otherwise Draconian relative price adjustment that is taking place under the corset of the common currency. 

So it is puzzling that some observers have saluted the IMF’s involvement as a virtuous effort by the international community to bring the listing European ship to port. Why should the IMF (or, for that matter, the international community) do for Europe what Europe can but does not want to do for Italy? Why should international money be mobilized to pay for European governance failures? 

And if, as appears to be the case, Germany is playing a dangerous game of chicken with some of its eurozone partners, why should the cost be shifted to the IMF for the benefit of Europe’s largest and most successful economy? Letting the ECB off the hook in this manner would simply validate for Europe as a whole the same moral hazard feared by German and other leaders who oppose ECB intervention.

My sentiments exactly.

Source:  Project Syndicate

Volume 3 Issue 48: Two-Cent Economics

The Shit Which Is Eurozone

Time is not my friend today. But neither it is the Eurozone's. Here is a great summary of what's going on over there and why we are all going to die. No, not literally. But I think at this point, recession is just over the horizon.

Source: Ezra Klein

Volume 3 Issue 45: Two-Cent Economics

Roubini The Prophet (again?)

OK, I take it back. Roubini is not a loser. He does make a lot of extreme forecasts, but some of them actually make sense. For example, he spoke at Davos in 2006 about the dangers that the Eurozone was facing. I doubt anyone listened to him at that time. Here are some highlights:

In summary, there is serious growth divergence in the Eurozone area. This performance divergence is leading to serious tensions in fiscal and monetary policy. Given the growth slowdown and the political difficulties of fiscal adjustment when growth is mediocre, larger fiscal deficit are emerging in many laggard countries. These persistent violations of the GSP are a medium term threat to EM and to the ECB no bailout rule. Also, economic divergence and the tensions it is creating is leading to political pressures on the ECB to do more to stimulate growth, as the reaction of EU finance ministers to the ECB December 2005 decision to hike rates by 25bps shows. 

This growth divergence is becoming a serious threat to EMU. As an increasing number of European observers are suggesting, different countries are coping differently to these challenges. Daniel Gros has shown that Germany has reacted with corporate restructuring, cutting labor costs and “competitive deflation”. I would argue that Italy has done little and is experiencing “stagdeflation”, a combination of stagnation and deflation. Indeed, as shown by Daniel Gros Italian labor costs have increased by 20% relative to those of Germany since EMU while Italy’s trade market shares have fallen by 20% relative to Germany. Similar competitiveness problems are faced by Greece, Portugal and Spain.

... 

In conclusion, my view is that EMU can work and has worked for the Eurozone countries that have reformed and are reforming. But, unless Italy and other Eurozone laggards change their policies to pursue serious economic reforms that restore competitiveness and growth, they will eventually be forced to exit EMU. This would be a disaster but a disaster that may become unavoidable unless policies change. And I am currently pessimistic about the chances that such changes may occur given the policy makers and policies currently in place in countries like Italy.”

In 2006, I guess I was still in the peewee leagues in terms of analyzing economies. Nonetheless, five years later, in 2011, the fact that things are turning out to be closer and closer to what Roubini described  is enough to prove to me that he is no loser.

But I can't say that he is alone in seeing this problem. I don't know enough about the Eurozone issues. But I think the fact that he saw this as a competitiveness issue shows some deep insight. I always feel appalled when I read about people saying that the trouble with Eurozone is that they have a monetary union without a fiscal union. That doesn't even begin to scratch the surface of the problem.

The lazy PIGS are quite simply, lazy and complacent. They have brought this upon themselves through years of resting on their laurels. It is going to be a painful period for the Eurozone, and for the rest of the world. Personally, observing the way things are going with the Eurozone right now, it feels a lot like watching a tragedy in slow motion. It is agonizingly painful. It would seem like you know a disaster is coming but you can't avoid it. Something like being on the Titanic as it is sinking.

As Tim Duy points out:

There is no solution, no magic summit at hand. At this point, it is a choice between severe recession and depression. There is no happy ending to this story.

 Good times ahead.

Eurozone In One Paragraph and A Bit On Roubini

If it was ever possible to describe the Eurozone debacle in one paragraph, this would be it:

EconoMonitor : Nouriel Roubini's Global EconoMonitor » Full Analysis: Greece Should Default and Abandon the Euro: "Like a broken marriage that requires a break-up, it is better to have rules—divorce laws—that make separation orderly and less costly to both sides. Breaking up and divorcing is painful and costly even when such rules exist. But being stuck in a marriage of convenience that is not working any longer is more costly and painful for the couple and their offspring (children/future generations) than an orderly and civilized break-up. Once the pain and costs of the break-up are managed, both sides can look forward to a more friendly relationship and a brighter future."

I have always been harsh on Roubini, but a good analyst should know when something someone says is right. The reason I am not too fond of Roubini is because he got lucky with the 2008 financial crisis prediction. He is the epitome of the following statement:

If you must forecast, forecast often, and if you’re ever right, never let them forget it.

If you don't believe me, read here:

In 2006, a somewhat obscure economist stood before a room full of peers at the International Monetary Fund and let loose with some good old-fashioned doomsaying. The United States was about to get hit with a ghastly housing bust, he said. The price of oil was about to skyrocket, and a particularly nasty recession was on its way, bringing with it untold ruin and misery for citizens, bankers, and businesspeople all over the world. The prophesy was dismissed initially as the mutterings of a pessimistic crank. A year later, he was proved right beyond all doubt. “He sounded like a madman in 2006,” an economist who had attended the talk later told The New York Times. “He was a prophet when he returned in 2007.” 

That economist was New York University’s Nouriel Roubini. And since he called the Great Recession, he has become about as close to a household name as an economist can be without writing “Freakonomics” or being Paul Krugman.

... 

But here’s another thing about him: For a prophet, he’s wrong an awful lot of the time. In October 2008, he predicted that hundreds of hedge funds were on the verge of failure and that the government would have to close the markets for a week or two in the coming days to cope with the shock. That didn’t happen. In January 2009, he predicted that oil prices would stay below $40 for all of 2009, arguing that car companies should rev up production of gas-guzzling SUVs. By the end of the year, oil was a hair under $80, Hummer was on its way out, and automakers were tripping over themselves to develop electric cars. In March 2009, he predicted the S&P 500 would fall below 600 that year. It closed at over 1,115, up 23.5 percent year over year, the biggest single year gain since 2003. 

How can this be? How can someone with the insight to be so right about a major event be so wrong about so many other ones? According to a recent study, it’s simple: The people who successfully predict extreme events, and are duly garlanded with accolades, big book sales, and lucrative speaking engagements, don’t do so because their judgment is so sharp. They do it because it’s so bad. 

... 

That one big call about the Great Recession gave him an unrivaled platform from which to issue ever more predictions, and a grand job title to match his prominence, but his subsequent predictions suggest that his foresight may be no better than your average man on the street. The curious nature of his fame calls to mind two of economist Edgar Fiedler’s wry rules for economic forecasters: “If you must forecast, forecast often,” he wrote. And: “If you’re ever right, never let ’em forget it.”

Here is more on Alphaville and Real Time Economics:

Roubini has actually talked about this kind of thing before, in his now-famous 2006 speech to the IMF that predicted the crisis. Back then, he was forecasting a 70 per cent chance that there would be a severe recession. 

Where did he get his number? Here’s what he said in the speech:

My analysis has been based on circumstantial kinds of observations. I am not a professional forecaster and I do not use a big global macro model. Even then I said the probability of a recession is “70 percent”. If you ask me where I got that number: just out of my nose, I will be very honest about that. I think if you said “50 percent” you look like a wimp, it means you are not sure. So if you have the guts of believing there is going to be a recession, you should say something higher than that, and that is where the “70 percent” comes from. 

So my model is a ‘smell test’ or a ‘duck test’: if it looks like a recession and walks like a recession and quacks like a recession, it should be a recession. Or we can think of it as being the famous ‘obscenity test’: I’m referring to the Supreme Court Justice who said ‘I cannot define obscenity or pornography, but I know it when I see it’. So I see a recession that is based on this analysis and based on data and historical evidence.

Just out of his nose? Well, there are worse places to pull a forecast out of. Though if 50 per cent makes you “look like a wimp”, what should using the 40% Rule do for your image?

Get what I mean now? 

Volume 3 Issue 39: Two-Cent Economics

Countering the Contagious Western Economic Illness

Here, Mohamed El-Erian says it exactly like it is:

The very fact that we are posing this question is novel and notable it its own right. You can add this to the list of previously unthinkable things that we have witnessed lately. That list includes, just in the last few weeks, America’s loss of its sacred AAA rating; its political flirtation with a debt default; mounting concern about debt restructurings in peripheral European economies and talk about a possible eurozone breakup; and Switzerland’s dramatic steps to reduce (yes, reduce) its safe-haven status. 

The answer to the emerging markets’ question would have been straightforward a few years ago. It is not today. 

In the world of old, the West’s economic malaise already would have pulled the rug from beneath most emerging-market countries. Indeed, the conventional wisdom – supported by many painful experiences – was that when the industrial countries sneezed, the emerging world caught a cold. 

Today, however, several (though not all) emerging-market countries are benefiting from years of considerable efforts to reduce their financial vulnerability by accumulating huge amounts of international reserves. They have also paid back a significant share of external debt and converted much of what remains into more manageable local-currency liabilities. 

This sharp balance-sheet improvement has been instrumental in enabling emerging countries to bounce back strongly from the 2008-2009 global financial crisis, whereas the West continues to hobble along. Indeed, until the recent renewed downturn in America and Europe, the emerging world’s major policy concern was too much growth, mounting inflationary pressure, and economic overheating. 

Today’s emerging countries have considerable policy flexibility and much greater latitude to act than they had in the past. Accordingly, faced with a weakening global economy, they confront two basic policy choices.

Volume 3 Issue 34: Intelligent Investing

Volatility Is The Name Of The Game

Here is a chart of the S&P500 for the past 6 months:

S&P500

Just look at the plunge in the last few weeks. Then some rebound and then more plunging. Some say it is the credit rating downgrade, some say it is the weak economic conditions in the US and the Eurozone. But then look at the KLCI:

KLCI

The plunge is there too. Once investors started to worry about the US economy, they will start to worry about every other economy. The most frequently asked question would be, will the plunge continue? Have the stock market indices bottomed out?

If you look at the global economic environment, the issues and problems are endless:

1. Weak US economy 
Two years after the financial crisis, the unemployment rate of the US is still stuck at 9.1%. All the other indicators point to weak demand within the economy. There is even talk that the US might become the next Japan. However, I think this is unlikely. But I do believe that a recession is coming. If you have been following Bloomberg closely, you would have noticed that more and more fund managers and strategists are downgrading their outlook. While it is not in my habit to listen to other analysts, but we all know that the markets tend to fulfill itself. If everyone thinks it will go down, then it will.

2. Eurozone debt crisis 
For those of us who have a keener memory will remember that the talk about the debt crisis started all the way back in March 2010. This is a long-standing problem and there are no solutions in sight. What's worse is that it seems to be spreading to the bigger economies like Italy, Spain and France. Many things can go wrong from here as politicians continue to talk, talk and talk but there is no actual doing.

3. China's inflation muddle
As I mentioned in Two-Cent Economics, China's inflation problem is a delicate and difficult issue. It cannot let inflation spiral out of hand, and it cannot slow down its economy too fast. Once again, too many things can go wrong from this. No human can control the weather conditions. The most China can do is to cool down its demand. The supply side is out of their control. So far, Mother Nature has not been kind in 2011. Earthquake in Japan, droughts, floods, cyclones, more earthquakes, ash clouds and most recently, snow in New Zealand. Who would have thought of that?

4. The Middle East and North Africa
The political uprisings began in Tunisia in December 2010 and spread across all the other countries like Egypt,  Libya and Syria. The problems in Libya and Syria doesn't seem to be ending soon as more and more people get killed every day. Things can turn bad in so many different ways.

With so much uncertainly in the political and economic environment globally, all I can say is that, anything can go wrong. Not all of them will go wrong, but all it takes is a few of the things to go wrong and the stock markets will plunge like no other. The best thing to do right now is to do your homework. Look out for good companies, and build up your war chest. Save up your cash. When things go bad, good stocks are going to look cheap. In times of war, prepare for peace. In times of peace, prepare for war. Those are the great words of Sun Tzu.

Volume 3 Issue 29: Two-Cent Economics

Rubbish Analysis on the Ringgit

According to this Bloomberg article, the Ringgit is weakening due to concerns over the Euro debt crisis. Here is an excerpt from one of CIMB's currency strategist, no less:

“Risk-appetite is on the low side as debt issues in Europe are still plaguing Asian currencies,” said Suresh Kumar Ramanathan, a currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “Malaysia’s inflation data may not have much impact.”

I don't know how he makes up these reasons but let us have a look at the Ringgit's performance against the USD and EUR:

USDMYR

EURMYR

Over the past year or so, the Ringgit has been appreciating strongly. The Euro debt crisis has been around since early 2010, and if you look at the EURMYR, the Ringgit appreciated very strongly against the EUR in the first half of 2010, which actually suggests that the worry was much worse at that point in time. So, this mambo jumbo over the Ringgit's depreciation is pure hogwash.

Could the reason be as simple as "the Ringgit is overvalued"? It is high time that the Ringgit corrected itself. With the slew of unimpressive economic data of late, there is absolutely no surprise that the demand for the Ringgit should subside. GDP growth in 2Q 2011 will quite likely be unimpressive too.

I guess my point is, sometimes, we can't just take the "advice" of analysts at face value. Besides, what does the Euro debt crisis have to do with the Ringgit vs the USD? Try to apply some skepticism in reading some of these analysis. Try to ask, "Does this actually make sense?". It will do you a lot of good in helping you to keep your money safe. 

Volume 3 Issue 28: Intelligent Investing

Spain's KLIA

You'd think that this problem is one of its kind in the world. I am talking about the huge distance between Malaysia's main airport and the city. Then I found out about Tokyo's Narita Airport. It is located about 80 km away from Tokyo. The KLIA is located about 60 km from the city. And in Spain, its Ciudad Real Central airport is located in the middle of the desert, in a town boasting 72,000 people, about 140 miles (about 225 km) away from Madrid. It is one of Spain's largest and most modern airport. The best part about it is, it is almost empty.

Read here for more.

Guess what else does it have in common with KLIA? The Central, as it is also known, was supposed to cost US$620 million to build, but the costs ran up to more than US$1 billion in the end. Ring any bells?

And now, Spain is in deep shit over its debt and deficit problems. Is Malaysia going to go there? What will it take? Are mega-projects the way to go again? 

Volume 3 Issue 25: Two-Cent Economics

European Lesson for Malaysia

Here is an article from the Chief Economist at the Centre for European Reform.

If you read through the entire article, it explains how sustained improvement in standards of living can be achieved in an economy via productivity growth. The article briefly discusses why many of the Eurozone economies are in trouble right now, and also why many of them are stuck in a rut.

The article serves as a premonition of what is going to happen to Malaysia in about 10-20 years if we don't start focusing on productivity growth. In fact, if you replaced anything "European" in the article with "Malaysia", I would say the article would still be 90% accurate. Here are some examples:

Governments obsessed with national competitiveness are likely to pursue damaging economic policies. If economic growth is seen as being dependent on the cost competitiveness of exports, governments will focus on things that might make sense for exporters, but not for their economies as a whole, such as labor-market policies aimed at artificially holding down wage growth, which redistributes income from labor to capital and exacerbates inequality.

Does this remind you of the massive import of cheap foreign labor in Malaysia?

...An individual firm can cut wages without undermining demand for whatever good or service it produces. But if all firms cut wages simultaneously, the resulting weakness of overall demand undermines companies’ incentives to invest, in turn depressing productivity growth.

The article makes it sound so obvious, yet our government has failed to see the point after 40 long years of the NEP.

...Without stronger productivity gains there, economic growth will prove elusive...

But improvement presupposes diagnosing why Europe’s productivity performance, with a few notable exceptions, has been so bad. There are two core problems. The first is inadequate skills levels, aggravated by complacency.

If you replaced "Europe" with "Malaysia", you wouldn't miss a thing. It is exactly the problem Malaysia is facing right now.

The second problem is inadequate competition. In too many sectors, incumbents are protected. This is justified in terms of upholding “social justice” or defending “national champions.” But it merely fuels rent-seeking – the ability of particular groups in society to extract disproportionate rewards for their work. Where this tendency is strongest, productivity levels are weakest.

This is the clincher for me. What more needs to be said?