Out Of The Woods And Into The Sea Of Sharks Pt 2

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What I learned from PM Najib after his claimed that the country is out of recession and the economy is vibrant was that, prices of goods will keep increasing and pay checks remain stagnant. Please read part 1 Out Of The Woods And Into The Sea Of Sharks, experiencing first hand the feeling we get from being out of recessions and into a vibrant economy.

Today, I went to the supermarket to get some groceries. What a surprise and true to PM Najib saying that we are out of recession and our economy is vibrant. I circle around the supermarket a few times before forcing myself to buy only 3 items. All the prices of goods have shot up, what a remarkable economy we are experiencing.

Instant mee, Before CNY RM2.80 - RM3.50 now RM3.30 - RM4.50

500gm peanut butter, Before CNY RM5.50 - RM7.90 now RM7.90 - RM11.20

The 3-in-1 teh tarik pack, Before CNY RM7.80 now RM9.80.

I only bought these 3 items that I need to have.

I have to forgo many items that I can live without.

When the economy is good, prices are also good.

I read from Din Merican's blog this article, "On the Malaysian Economy" which I copy and paste for your further understanding of our economy.

John’s Take on the Malaysian Economy

by John Lee @Dartmouth College, USA

The more I learn about 1 Malaysia and the Najib Razak administration, the more convinced I am that this is all just another giant farce. I cannot tell where this perception that Najib is more competent or principled than his predecessor is coming from.

1 Malaysia is all propaganda without results, and the actions of our government show it is more concerned with a good show rather than substance. The latest propaganda triumph of the Najib regime is an impressive 4.5 per cent economic growth rate in the last quarter of 2009.

All well and good, but as Najib himself conceded, the growth was driven by unique conditions: the holiday season drove up consumer spending to a degree we cannot expect for the other three quarters of the year, and the government also ramped up its stimulus spending to boost aggregate demand.

This is not a sustainable economic recipe; it is not real, meaningful economic growth.The government has been running deficits like mad for years, artificially boosting demand. Now, that is fine if we are doing it to keep pace with increasing aggregate supply.

Aggregate supply hinges on natural resources, technological innovation, and capital —both capital goods, and the more intangible human capital. And Najibonomics is a complete failure on the supply side, I can tell you right now.

In terms of capital, it is no secret that net investments in Malaysia are dropping off a cliff. Until about halfway through the Abdullah Badawi administration, net investment on an annual basis was hovering somewhere near zero—that is to say, foreign investments coming in roughly equaled Malaysian investments going out.

We want a positive level of savings and investment to boost our capital stock — but in the final years of the Badawi government, and now under Prime Minister Najib, we literally have seen investment drop off a cliff.

To put this in more concrete terms, what this means is that foreigners are refusing to invest in Malaysia, and Malaysians insist on investing their money overseas.

A back of the envelope calculation suggests that last year, Malaysians invested almost as much money in the entire Australian property market alone as foreigners invested in the whole of Malaysia.

Investors, both Malaysian and foreign, have completely lost confidence in our country — nobody wants to put money in Malaysia, and so our savings are flowing out of the country, instead of being invested in local enterprise.

Even if you don’t invest directly, you are still probably being screwed. The Employees’ Provident Fund (EPF), eschewing the best practices of most other public pension funds around the world, concentrates its investments solely in Malaysia, ensuring our employees’ pensions are subject to the risk of putting all their eggs in one single basket. Worse still, the Ministry of Finance manipulates the EPF portfolio at will to artificially prop up our stock market.

In other words, our financial markets are a farce built upon the farce of the EPF. And speaking of economic farces, only about 10 per cent of working age Malaysians, or 1.5 million people, pay taxes. This isn’t because of massive tax evasion — it’s because only 1 out of every 10 Malaysians even earns enough to qualify for the income tax.

Even if we assume every last one of these Malaysians is a professional, square that with the 500,000 Malaysian professionals overseas. One out of every four Malaysian professionals lives and works abroad — our human capital stock stands at only 75 per cent of its full potential, and it is falling; last year, the emigration rate nearly doubled.

At home, our schools and universities are not training high-value workers, and our economy is distorted by rent-seekers.

When my father began working as an engineer thirty years ago, his salary was in the RM1,000 to RM2,000 range. That is still the case for a young engineer starting today—despite massive inflation and rising costs of living. Things are so bad that most of these young workers — who by right should be skilled professionals, commanding high wages — are not even eligible to pay income tax.

It’s no wonder people are losing faith in Malaysia. We have no plan to fix our fundamentals. Our school system discourages innovation in favour of accepting orders from above; our economic system stifles entrepreneurship in favour of corrupt rent-seeking.

Our prosperity is pump-primed by petroleum and forestry — when we run out of these resources, without any human capital or meaningful industrial enterprises, our economy will collapse.

Instead of bravely confronting these realities, Prime Minister Najib is content to proclaim our recovery from the global recession — as if all will be nice and dandy now.

He should be announcing an ambitious policy to reverse our capital outflows, reduce our dependence on natural resources, and improve our human capital.

This is a crisis in the making — with no investment, we cannot build up our industry, and with no human capital, we cannot compete in the knowledge economy; the problem goes beyond a short-term recession.But these things do not concern Najib’s regime.

After all, this is a regime of propaganda, not results. The government under Najib now brazenly seizes books it doesn’t like from bookstores across the country. It blatantly rewrites history by contradicting Tengku Razaleigh, who helped draw up the original petroleum royalty agreements with the states.

There is no policymaking here—just propaganda.

The Barisan Nasional government is simply a ship of fools, content to lead us to disaster. They have no vision for the country, no idea of the massive challenges we face or any intention to face such challenges to begin with.

All this government does is pat itself on the back for putting on a good show. We deserve a government which lives in reality, not the neverland of 1 Malaysia. Why is this regime of “no action, talk only” supposed to be so much better than the alternatives?