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Tuesday, 22 May 2007

Real Income - Out of the proportions

23rd May 2007 - Let's be honest when we discuss about the current domestic economic environment faced by Malaysia. Investment are turning away not due to the diminishing low labour cost or domestic geopolitical situations of the country, but due to the unattractiveness policies towards the external-business community that would like to invest internally. Vision 2020 once looked accessible not it seems so near but too far. Why it is that thing was so good before then turn sour to us Malaysian?

What we are experiencing presently is called a malaise!

Such one that had been experienced by the Americans during President Jimmy Carter era, Malaysia is pretty much in stagflation. Stagflation is a word referring to describe a period out-of-control price inflation combined with slow-to-no-output growth, rising unemployment and eventually recession. That is what our nations are experiencing at the present moment.

In referring to my first article on the government servant’s salary increment – Yes! We are mending the problems in outer layer where the main problems lies are that there is no obvious direct real growth that will affect the grass roots forthrightly. Yes indeed by increase the salary of the government servant’s it is one way in enhancing domestic growth. Yet there is still too much to be done.

By increasing the salary, it is confident that one way or another with the 1.2 millions government servant’s purchasing power, it will promote positive aggregate demand in the domestic markets. This aggregate demand simultaneously will encourage loans, circulations of public funds domestically and positive aggregate supply. It is optimistic and hopeful that by giving more purchasing power to the 1.2 million peoples in Malaysia, they will use that credits to buy, spend and not encourage savings during the stagflations time.

I do agree on the decision by raising the salary as policies that definitely will promote demand at macro level. That’s why it is imperatives that these people will utilize the purchasing power to spend hence reduce the effects of unemployment and stagflations. That’s why in my first article I stressed on the importance of government interference in helping the nation by pulling it out of the malaise by means of spending on infrastructure projects. As a result, the citizens hence will be encouraged to spend more because more money is in circulation. People will invest more, and it will subtract the effects of inflations and bring us out of economic malaise or stagnation.

I believe such endeavour can be attained for the reason that we have the sufficient credits. Take the development of Putrajaya for an example. Tun Dr. Mahathir used Petronas money since the first day of the Putrajaya development took place, and we do aware that Petronas had billions of cash money capitalising of its profits every month into account. Such money can be utilized to finish up the development of Putrajaya. But without strong reason the money currently can’t be touched on unexplained issues. For that reasoned, Putrajaya progress is in stagnations. I take Putrajaya monorail projects for an instance, there are thousands of government servants need to commute from home to office daily. If the projects hadn’t been stopped at the first place, the city wouldn’t be experiencing unnecessary slow growth in delivery systems as we all know that bus services are always not punctual compared to monorail. That is one of the problems we will have if the allocations of the public money are not going to be exploit accordingly.

Consumerism is not only an act in getting physical products, but also a term to describe the effects of equating personal happiness with purchasing material possessions and consumptions. If ten thousands of government servants commute daily using the public transport in Putrajaya and not happy with the service provided (late, uncomfortable, unreliable), then productivity needed will not be delivered. So much of a salary increment took place that should act as a carrot and stick for government servants to what end?

It should be seen that an active government policy have to be effective in managing the economy. So much in cutting the deficit spending, any act that will create countercyclical fiscal policies should be detested. I stand firm on my views that inflation will happened and keep on increasing no matter how. One way or another is ensuring that there are enough resources to be cycle within the market and economic sphere. Borrowing the words of John Maynard Keynes, “in the long run, we are all dead”. But it will be a very long run indeed.

Let’s go back to my previous assertion on how the left-wing socialism world affects us in being into the current blowback markets. During the Marxist-Lenin’s economic beliefs, there are no complex monetary policies implemented, no complex interest offered and a certain policy which abhors aggregate demand economy. These further create a shocked and stunned credits market for the former soviets nations when embracing free trade. In the capitalist and free trade world and business spheres, one of the most important cyclical economic effects is the aggregate demand. One of the government responsibilities and relevancy of government sector in the globalize world is ensuring the cyclical effect of the domestic markets using the public funds. That’s why it is imperatives to stabilize the purchasing power of the citizens in parallel to the changing economic environment.

To be continue…

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Faces of Tun Teddy

Faces of Tun Teddy