Re-post : The Worst Economist In The World

Re-post : Professor Paul Krugman.

The Worst Economist in the World

A thought: it has occurred to me that we could use an economics equivalent of Keith Olbermann’s “Worst Person in the World” award. KO does not, of course, mean that the person he goes after on any given night really is the worst person in the world; he just uses the title to highlight some especially awful action or statement.
I’d encourage others to enter this game — and yes, I know that various paid trolls and others will award me the title five times a day if they can. But here’s what caught my eye: the WSJ’s Real Time Economics explaining (or rather, “explaining”) the risks form competitive devaluation:

When one country devalues its currency, others tend to follow suit. As a result, nobody achieves trade gains. Instead, the devaluations put upward pressure on the prices of commodities such as oil. Higher commodity prices, in turn, can cut into global economic output. In one ominous sign, the price of oil is up 8.7% since August 27.

Urk.

Why do dollar commodity prices tend to rise when the dollar falls? Because other countries buy commodities too, so that a constant dollar price would mean a fall in terms of other currencies. To a first approximation, in fact, you’d expect commodity prices to remain constant, other things equal, in terms of a GDP-weighted basket of currencies around the world.
So yes, a fall in the dollar tends to raise the price of oil in dollars — but it also tends to reduce the price of oil in euros. A fall in the euro tends to raise the price of oil in euros, but raise it in dollars. So what would devaluations that raise commodity prices in terms of all currencies look like? I have no idea.
There is, I think, a tendency to think of devaluations as reductions in the value of currencies relative to something external and eternal — and hence as making us all poorer. But the reality is that my depreciation is your appreciation, and vice versa; we can’t all devalue at the same time.
But competitive devaluation is one of those things people just know is bad, and so critical thinking has a tendency to go out the window.


Paul Krugman

Warisan Merdeka Tower : Why Do We Need It

Let's open our heart and think as an opportunist and optimist.

Warisan Merdeka Tower is a new project announced by our Prime Minister, Dato' Sri Najib Tun Razak. The project cost is estimated to be around RM 5 billion and will be constructed and supervised by PNB Berhad. A mammoth in Malaysian corporate sector, this project is said to be fully funded by PNB Berhad itself and the Malaysian Government will only give its blessing to the project.

But what I read on daily basis ever since this project is announced is that there are some Malaysian opposing the idea, they even created a Facebook page to derive support from fellow Malaysian. So why does they opposing this idea? What consequences that this construction bring to many Malaysian? What disadvantage will overcome after the completion of this tower? Why must this tower be condemn?

As always, every mega development in Malaysia will face criticizing first from her people, such precedence cases like Petronas Twin Tower, who was once the tallest tower in the world and Penang second bridge. This simple examples shows us that our nature is to oppose before we think. We are full of anger. (sad)

I still remember when the government announce years ago about their plan to built Petronas Twin Tower, many opposed, especially opposition politicians, they uttered many criticisms onto the prospect. I was young at that time, too young to understand, too young to interpret the logic behind it, too young to explore into a more complex economical benefit from the tower, but I can remember my dad and his pals in old days condemned the idea. They said the construction money should be distributed to all Malaysian evenly, they said the money to construct the tower comes from tax payer, they said that there is no point to have such a tall and big tower and it is pointless to have that big ambition as we are nothing to compare to other developed nation in the world.

But now, look what's our perception later. When the Petronas Tower is completed, we all say woooooooo, wtf, mamma mia, or my good lord that's one tall building. We are all awe! Until now, the tower has attracted many visitors from all over the world, many businesses operate inside the tower, many job opportunity has been created and Malaysian life standard has been lifted up.

Let me know if there's any Malaysian now still think that Petronas Tower is useless, and I will condemn him or her.

I am blessed to have the chance to travel to most part of the world. Been to many country for my economy and sociology researches, business trip and vacation. Every time I'm at the cafe or bar enjoying my cigar or pipe, I met new friend, we'll talk about the current world, we'll talk about Malaysia, and Petronas Twin Tower is the compulsory topic and I never miss to hear from them beside Sepang International Circuit topic.

I'm a patriotic kinda guy, I'll shed tears when people praise Malaysia development. Hence, without hesitation, I always be their host every time they visit Malaysia as a gratitude to acknowledge Malaysia.

Now you see what is the impact from just a tower. It's a branding strategy, it's a marketing strategy, it's a way to let other nation to look upon us and say 'Malaysia is not bad, I never thought they are ahead with others nation.'

So the same strategy is applied to Warisan Merdeka Tower, the tower is offering business opportunity, will open more job opportunity, shall boost our tourism and boost our image to the world.

The 100 storey tower will comprise shopping center, office, car park and apartment. This development in economic perspective will stimulate the economic activity in Malaysia in a long term prospect. FDI is predicted to enter Malaysia drastically, more job opportunity is expected to be created and living standard will be lifted as well. So why oppose?

During my writing, it has already 80,126 visitor in Facebook clicked 'like' to the 1 Malaysian Reject 100 Storey Tower page on Facebook, some commenter wrote :-

'please...we're not searching for fame via this mega tower , it's a waste of money! put those money to enhance our education, liberate ones from poverty... & so on in the name of helping us,the Malaysians' 

'Mega turd idea!! Wahahaha once again we prove to the world we are led by turds who thinks the longest upright structure would show the world we mean business... Incidentally, showing foreigners the longest finger we got on our hand, literally, also means business... AWESOME FACT! They should just dig the deepest hole and hide in there...'. 

'Where are the Honest reporting Journalist ? 80,000 people objecting to something surely should be making News Headlines'.                                                                                                                          'i like roti canai. u all know what ? im only a kiddo but can think about this country future because i love my country. not only to show my name to the world that i build this fucking taller building. oh yeahh.roti canai to all fakir miskin...'. 

'this time i really proud malaysian can unite to disagree with government STUPID planning to wasting people money!!!!! luv u all Malaysian!! haha'.

I read all the comments, I don't condemn them, I don't criticize them. Everybody has a right to express what they though. This is a free country, I'll fight for liberty, equality and fertility.

But let us be reminded again, this project is not funded by the government.!

But if the government decided to build it, I will still agree, because the benefit will always goes to Malaysian.

The best method to analyze every decision that has been decided is to sit calmly, and write down the pros and cons. From there you will know that the issue is wise or unwise. 

Dear fellow Malaysian, I'm not here to say I'm a big fan of the government, I'm just a big fan of economy, as I was saying, I'm a saltwater economist. Where there's a greater good for the people, I'm there to support. I'm a Malaysian.

Check on PNB Berhad. They are the one who proposed the idea, they are the one to finance the whole project, not the government.

 

Zimbabwe : What Is the Next Challenge?

The Republic Of Zimbabwe motto is Unity, Freedom and Work. Aren't it idealist?

So, what's so interesting for me to share in this article about the economic of Zimbabwe? For a period, I have planned to discuss Zimbabwe issue to the public, for us to understand their perspective, our perspective, economic perspective and globalization perspective and how can we interpret from this essay.

Back in 2009, I was in Lumut, Malaysia. Living there is pretty bored even though me and my friend rented a villa next to the sea. Due to the boringness plus the heat that produced by the sea breeze, I've recalled back to the time when I was in Ethiopia in 2007. I was there accompany my late girlfriend to study the water treatment, water supply and Geo-politic in Ethiopia, during my stays at Dire Dawa, I've learned that most African tend to be living in a laid-back attitude. For them, time for them is best to be enjoy slowly and took everything one after another. At first we had many difficulties to work in there because our schedule is pretty tight, but we can't force the local to follow our way of work because they will not adapt it easily. What I've learned from my visit to Ethiopia is much more than the economic perspective, but I've learn the sociological aspects.

So what's there for me to link my experience from Ethiopia to Zimbabwe? As what I've mentioned earlier, African are the most laid-back type, and I don't mean laid-back culture is unproductive. Every culture has its own style and methodology on dealing every task, and what's for us to concern right?

But when it come to budget deficit, monetary policy or banking structure. This whole phenomena aren't supposed to happen, this kind of attitude should be eliminate. A strict regulation are mandatory to unsure a nation wealth is fully distributed. Administrating a country is not easy as administrating SME enterprises. A president or prime minister are the CEO of the nation, they are the decision maker, policy maker and key player to the nation growth. That's the weight of responsibility which the title carry.

Robert Mugabe not my favorite type of President. The recent hyperinflation that struck Zimbabwe represented his incapability to run the nation. Hyperinflation in Zimbabwe began in the early 2000s, shortly after Zimbabwe's confiscation of white own farmland. It is estimated on 2008, Zimbabwe's annual inflation rate at 89.7 sextrilion, annual inflation was estimated at 6.5 quindecillion novemdecillion percent, the equivalent of
6 quinquatrigintillion 500 quattuortrigintillion percent, or 65 followed by 107 zeros – one googol 65 million. That's how severe the inflation is.

So how does this inflation happen?

Shortly after the confiscation of white-owned farmland, and land reform policy, it has causes a drastic consequences on Zimbabwe economy. The main objective of land reforms is to distributes the nation land to the local from the white colonial, and this so-called nationalist approaches has failed drastically.

Zimbabwe is the first country in the 21st century to hyperinflate. In February 2007, Zimbabwe’s inflation rate topped 50% per month, the minimum rate required to qualify as a hyperinflation (50% per month is equal to a 12,875% per year). Since then, inflation has soared.   
The last official inflation data were released for July and are hopelessly outdated. The Reserve Bank of Zimbabwe has been even less forthcoming with money supply data: the most recent money supply figures are ancient history—January 2008. 
Absent current official money supply and inflation data, it is difficult to quantify the depth and breadth of the still-growing crisis in Zimbabwe.  To overcome this problem, Cato Senior Fellow Steve Hanke has developed the Hanke Hyperinflation Index for Zimbabwe (HHIZ).  This new metric is derived from market-based price data and is presented in the accompanying table for the January 2007 to present period. As of 14 November 2008, Zimbabwe’s annual inflation rate was 89.7 Sextillion (10²¹) percent. 

By
Professor Steve H. Hanke, The Johns Hopkins University and Senior Fellow The Cato Institute.

On  14-Nov-08, the inflation rate is 79,600,000,000.00%, inflation index is 853,000,000,000,000,000,000,000.00 and annual inflation rate is 89,700,000,000,000,000,000,000%.

Do you see the figure? Don't know how to pronounce it? Forget it, you will never see this kind of numbers anymore.

As we are all understand, inflation means the rise in the general level of price of goods and services in an economy over a period of time and hyperinflation means inflation that is very high or "out of control", a condition in which prices increase rapidly as a currency loses its value.

In 1956, Phillipe Cagan wrote The Monetary Dynamics of Hyperinflation, generally regarded as the first serious study of hyperinflation and its effects. In it, he defined hyperinflation as a monthly inflation rate of at least 50%. International Accounting Standard requires a presentation currency. International Accounting Standard (IAS 21) provides for translations of foreign currencies into the presentation currency. IAS 29 establishes special accounting rules for use in hyperinflationary environments, and lists four factors which can trigger application of these rules:

1. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power
2. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
4. Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.

Sources from WikiPedia

On this post, I did not decide to blame anyone, but hope that we understand why this sad hyperinflation happened so that in the future, we would never see this kind of scary data.

Let's look at the person who help Zimbabwe economy to become much more worst. He is Gideon Gono. He is the current Governor of the Reserve Bank Of Zimbabwe who acted as Central Bank for the country.
The policy that will always be remembered by most economist in the world is on his decision to print Zimbabwe currency in a large quantity.

Several reports that I've read is criticizing his policies and the impact that followed after he implementing his policies. The impact has causes a great problems in Zimbabwe finance, such problems are:

• cash shortages
• fuel and food scarcity, shortages in agriculture.
• businessmen have been arrested by the police and army under Gono's orders.
• some Zimbabweans have become fugitives or have languished in prison, notably Mutumwa Mawere, James Makamba, July Moyo, Philip Chiyangwa and David Batau.
• the highest inflation in the world and unemployment and the collapse of the health, education and agriculture sectors.

Quantity Theory of Money is a most common knowledge for an economist, and every governor need to mastered the theory well. But Gideon Gono has violate this theory and printed enormous amount of money with the intention to save the inflation.

The formula of Quantity Theory of Money is simple:

(I will explain a much more detail about this formula on the other post)

For those who not really understand how the economy works might think the same solution as Mr. Gono did, because the common understanding is that the more money circulate on the market, the more secure it will be, but by printing enormous amount of money, it has caused a devaluation on the currency itself.

Let's remember the basic theory of economy here, where there's a demand, there's a supply, it applicable to every activity that we practice on everyday life. So when there's no demand for the products or services, but there's a lot of money haven't been spent, then there will be an immediate hike of price for the goods or services that available money can buy. When this scenario happened, inflation took place and when it goes out of hand, hyperinflation is the monarch in the financial system.

Not only by printing the money, Mr. Gono also demonetized old bank note and introducing new currency while the hyperinflation is at peak, the new currency represent a new high value where 1 Zimbabwe Dollar is equivalence to 1000 New Zimbabwe Dollar. For the period of 2 years, Gideon Gono has introduced many types of denomination ranging from 100, 100 000, 200 000, 500 000, 750 000 to 200 million and 50 billion Zimbabwe Dollar. From the time of currency revaluation to the beginning of June 2008 the money supply in the country has increased from $45 billion to more than $900 quadrillion, or a 20,000,000 fold increase!

Mr. Gono is a very 'religious man' when he once quoted  "In the Lord's hands, I commit this Monetary Policy Framework for our economic turnaround." And he put god to a position where 'he' too will be participating in Zimbabwe monetary policy.

So, from Robert Mugabe and Gideon Gono, they are the type of laid back person. Where in Zimbabwe, a bread would cost hundreds of million, this kind of people enjoy the luxury money could buy.

So to Zimbabwe.. what is the next challenge to you? How fast can you recover? Why must Gono still be your Governor?

Think! let's think! Think again for the Zimbabwe motto which are Unity, Freedom and Work..