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Project Malaysia, “online think tank” for Malaysia and Malaysians by Malik Imtiaz and friends.

UiTM student speaking up.

Image credit: Bank Negara Malaysia

The economic downturn that we’re are facing now have a lot in common with the 1980s recession.

I just found that out because today, I got hold of a sum of money which I don’t need to use at the moment. I was thinking what to invest this money into. Considering that inflation shot up to more than 7% last month, investing in unit trust and other interest-bearing deposits would result into me making a great loss since their effective rate of return (per month) won’t compensate the surging monthly inflation which “economists” expect to remain high for awhile.

Then I thought of buying some gold coins. That, apparently, not a good option either. In late 1970s / early 1980s, during the economic downturn, the price of gold sky-rocketed to around $800 per oz. only to go down to about $300 per oz. a few months later and stabilised around that for many, many years. It has been increasing rapidly since Q4 last year and has now reached over $1000 per oz.

Looking back at the past:

The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation lead to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. - Wikipedia

The 1980s recession had got to do with world oil price hike. We just need to be a little patient.

So unless I am saving this money for the next great economic downturn probably only coming in about 20- or 30-year time, there’s no point to buy gold now. So what should I be spending the money on? Should I invest in China or should I go watch Olympics in China?

By the way, the “economists” are pressuring the Bank Negara to increase interest rates. I can see the logic but please don’t foolhardily increase it to 7% right away like what that other pseudoeconomist did to our retail oil price. Maybe the Bank can consider increasing it just a little bit lower than 4% by the end of this month, then gradually to 5% in September and 6% in November and keep that until end of this year. By next year we can reduce it back regressively to a favourable rate since they say it will start to soothe by then.

N.B. This account is purely from my college-level knowlegde in economics. If you’re in doubt, go find Mankiw.

Ah, I just remembered that they are having a sale in the mall now and I do need some new clothes. Economic downturn supposedly make you skinnier but I grow fatter.

Rudd kidding me? This Oz PM is now viewing Malaysia as exemplary. Remember the raid on Ozzie Sunday Times? Guess they must’ve learnt that from this democratically “vibrant” country.

There’s actually a directory of Malaysian politician’s blogs. Surprisingly I discovered it on Mashable. Did you know that that Iranian Lincoln has blog, too (depite blogs being blocked over there)?

Journalists snapped back after being snubbed by parliament management. Funny that the Speaker said other parliaments he has visited are not as “chaotic”. Where did he go? Uganda? Aussie and British parliaments have live telecast, stupid. US Congress is chaotic. Go figure.

Eric Chia died at 75 in a hotel room he has stayed for a month.

Mahathir’s side of story on Tun Salleh’s dismissal.

Prime minister Abdullah Badawi had just made the much anticipated announcement of today. Petrol will increase by 78 sen to RM2.70, effective midnight which according to media reports to mitigate oil subsidy burden. Expect news on price increase in all other goods and services looming in the coming weeks.

Photo by Mohd Fahmi on Flickr

This year I will finally experience oil price increase that would directly affect me. Thinking about it makes me crazy. Among other things, I keep on worrying whether my favourite ice cream at Ikea would remain at RM1? It is definitely a bold move by the government, albeit very late, to announce such unpopular move at this moment of political awakening. It obviously shows that the government got caught in ‘now or never’ situation. Oil is like religion in Malaysia, everybody is emotionally passionate about it.

The mechanism to support the price increase by right should work very well. It would first and foremost encourage users of motor vehicles to reduce fuel consumption. Fuel subsidy given discriminatively to those using small car and motorcycles which make perfect sense because these type of vehicles are more fuel efficient. (It should not, however, be a presumption that the subsidy would “rightly” reach the lower income group since higher income group can buy small car and motorcycles, too.) Fuel subsidy are given in the form of rebate instead of a supplemental to the price at consumer level.

When learning economics, I always interested to find out how changes in policies, which are supposedly made to address problems, can backfire. One common mistake policymakers tend to commit is not explaining what they are doing.

How do you think the majority of Malaysians would react to the price hike? To them, price increase would only mean that they need to fork out more money for petrol, instead of reducing fuel consumption and despite the subsidy through rebates. Whoever they are, they would transfer their economic burden to whoever that pay their income (i.e. employees would ask for higher salary from employers, suppliers would charge buyers higher price) and the problem would eventually spiral. In the end, the economic burden would be borne by consumers. Since everyone is a consumer, inflation would go higher and higher.

The government has a lot of explaining to do to avoid unnecessary panic which would possibly make this subsidy restructure fail like last time. (Remember improvement in public transports?) It is not merely a subsidy cut. The change is meant for consumers to reduce fuel consumption and for oil subsidy to be directed to the right people (i.e. those who commit to reduce consumption). We need to change our flawed understanding of subsidy. It is an incentive, not an aid. Subsidy should not be meant to ease consumers’ burden but to encourage them become efficient.

From now on, we need to take carpool seriously. It’s good for the environment and mental health, too.

Who attempting murder whom? It’s gonna be Hindraf all over again. Damn.