Maybe Trump knows his base better than we do


December 3, 2017

Maybe Trump knows his base better than we do

by Dr. Fareed Zakaria

https://www.washingtonpost.com/opinions/maybe-trump-knows-his-base-better-than-we-do/2017/11/30/b4ca2164-d60e-11e7-b62d-d9345ced896d_story.html?utm_term=.227592e3afbc

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The most important revolution in economics in the past generation has been the rise of the behavioral scientists, trained in psychology, who are finding that people systematically make decisions that are against their own “interests.” This might be the tip of the iceberg in understanding human motivation. The real story might be that people see their own interests in much more emotional and tribal ways than scholars understand. What if, in the eyes of a large group of Americans, these other issues are the ones for which they will stand up, protest, support politicians and even pay an economic price? What if, for many people, in America and around the world, these are their true interests?—Dr. Fareed Zakaria

 

 

Watching the Republican tax plan race through Congress, one is reminded of a big apparent difference between President Trump’s program and other populist movements in the Western world. In the United States, Trump is leading something that is best described as plutocratic populism, a mixture of traditional populist causes with extreme libertarian ones.

Congress’s own think tanks — the Joint Committee on Taxation and the Congressional Budget Office — calculate that in 10 years, people making between $50,000 and $75,000 (around the median income in the United States) would effectively pay a whopping $4 billion more in taxes, while people making $1 million or more would pay $5.8 billion less under the Senate bill. And that doesn’t take into account the massive cuts in services, health care and other benefits that would likely result. Martin Wolf, the sober and fact-based chief economics commentator for the Financial Times, concludes, “This is a determined effort to shift resources from the bottom, middle and even upper middle of the U.S. income distribution toward the very top, combined with big increases in economic insecurity for the great majority.”

The puzzle, Wolf says, is why this is a politically successful strategy. The Republican Party is pursuing an economic agenda for the 0.1 percent, but it needs to win the votes of the majority. This is the issue that University of California at Berkeley political scientist Paul Pierson discusses in a recently published essay. Writing in the British Journal of Sociology, Pierson notes that Trump’s program does have strong populist aspects, especially on trade and immigration. But, he points out, “On the big economic issues of taxes, spending and regulation — ones that have animated conservative elites for a generation — he has pursued, or supported, an agenda that is extremely friendly to large corporations, wealthy families, and well-positioned rent-seekers. His budgetary policies (and those pursued by his Republican allies in Congress) will, if enacted, be devastating to the same rural and moderate-income communities that helped him win office.”

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Republican Party is cleverly and successfully hoodwinking its supporters, promising them populism and enacting plutocratic capitalism?  –Thomas Frank’s book “What’s the Matter with Kansas?

Pierson argues that Trump entered the White House with a set of inchoate ideas and no real organization. Thus, his administration was ripe for takeover by the most ardent, organized and well-funded elements of the Republican Party — its libertarian wing. Nurtured and built up over the years, this group of conservatives decided to ally with the Trump administration to enact its long-standing agenda. Pierson quotes Grover Norquist, the fiercely anti-statist GOP operative, explaining in 2012 his views on the selection of a Republican presidential nominee. “We are not auditioning for fearless leader. We don’t need a president to tell us in what direction to go. We know what direction to go. . . . We just need a president to sign this stuff.”

Image result for “The plutocrats are riding on a hungry tiger,” writes Wolf.

Is it that the Republican Party is cleverly and successfully hoodwinking its supporters, promising them populism and enacting plutocratic capitalism instead? This view has been a staple of liberal analysis for years, most prominently in Thomas Frank’s book “What’s the Matter with Kansas?” Frank argued that Republicans have been able to work this magic trick by dangling social issues in front of working-class voters, who fall for the bait and lose sight of the fact that they are voting against their own interests. Both Wolf and Pierson believe that this trickery will prove dangerous for Republicans. “The plutocrats are riding on a hungry tiger,” writes Wolf.

But what if people are not being fooled at all? What if people are actually motivated far more deeply by issues surrounding religion, race and culture than they are by economics? There is increasing evidence that Trump’s base supports him because they feel a deep emotional, cultural and class affinity for him. And while the tax bill is analyzed by economists, Trump picks fights with black athletes, retweets misleading anti-Muslim videos and promises not to yield on immigration. Perhaps he knows his base better than we do. In fact, Trump’s populism might not be as unique as it’s made out to be. Polling from Europe suggests that the core issues motivating people to support Brexit or the far-right parties in France and Germany, and even the populist parties of Eastern Europe, are cultural and social.

The most important revolution in economics in the past generation has been the rise of the behavioral scientists, trained in psychology, who are finding that people systematically make decisions that are against their own “interests.” This might be the tip of the iceberg in understanding human motivation. The real story might be that people see their own interests in much more emotional and tribal ways than scholars understand. What if, in the eyes of a large group of Americans, these other issues are the ones for which they will stand up, protest, support politicians and even pay an economic price? What if, for many people, in America and around the world, these are their true interests?

 

Why Denmark is a Special Place– It is not just the Mermaid of course


December 3, 2017

Why Denmark is a Special Place– It is not just the Mermaid of course

by Benedict Lopez*

Image result for the mermaid in copenhagen

The Little Mermaid to Copenhagen– The mermaid statue was created in bronze by Edvard Eriksen, and was unveiled in August of 1913.

Eriksen was commissioned in January 1909 by Carl Jacobsen of Carlsberg Breweries to create the statue. Carl was fascinated by a ballet at the Copenhagen Royal Theatre based on the fairy tale about the mermaid, and asked the star of the ballet, Ellen Price de Plane, to model for the statue.  Price declined modeling in the nude for the sculpture, and Eriksen enlisted his wife Eline Eriksen (who modeled for several other of his works) to model for the mermaid statue.   A popular story has it that Price modeled for the face and Eline Eriksen for the body, but in actual fact Eline Eriksen was the model for the entire sculpture.  This is easily seen when comparing the statue’s face with photos of Eline Eriksen, and the faces of Eriksen’s other statues.

This mermaid statue is one of the top tourist attractions in Copenhagen, and has become an icon and a symbol of both Copenhagen and Denmark. While the story by Hans Christian Andersen was more than enough to make this mermaid statue known around the world, the Disney movies have only added to the fame and the appeal of this statue.

There are copies of the statue – with some differences – in a number of locations around the world, which in some cases are authorized by Eriksen’s heirs, and in other cases have been allowed to remain without specific authorization from the heirs.

The mermaid statue on display in Copenhagen is the actual original, but other copies and sizes were made as well – which is a good thing, as the original has been vandalized several times, and then lovingly restored using the copies.   Several sizes are available for purchase at the official website for this most famous of all mermaid statues.

While the statue is often seen as being smaller than expected, it is actually larger than it appears, about 25% larger than lifesize.  The spectacular location and the grand features of ocean, harbor and shoreline around the statue contribute to make it look small in comparison.  The original statue here is the only true copy of the statue in this size – according to sculptor Edvard Eriksen’s will, only smaller copies may be produced, with Copenhagen Harbor having the only full-size statue.

https://aliran.com/thinking-allowed-online/2017-ta-online/denmark-progressive-nation-deep-rooted-basic-values/

Benedict Lopez is drawn to the simplicity, integrity and passion for the environment on display in Denmark.

Although I have visited Denmark several times since 2010, I always look forward to my next visit.

I feel comfortable being in the home of Carlsberg, not for the beer alone (although I enjoy a pint or two occasionally) but also for the core values of this country of 5.5m people – values I cherish as a human being.

Like in Sweden, discrimination is prohibited on the grounds of race, colour, religion, gender, disability and sexual orientation in Denmark.

On each visit, I observed as many things as possible as to what makes Danes the happiest people in the world. I personally believe it is the sense of security given to the citizenry by the state.

Sharply in contrast to citizens in many other countries around the world, Danes need not worry about the basic necessities in life like healthcare, education and social security as Denmark is a welfare state. This is made possible because of high taxes, accountability in public expenditure, little wastage, checks and balances in the system and virtually non-existent corruption.

Having travelled the length and breadth of the land of Hans Christian Andersen, I have observed many facets of Danish life. The virtues of the Danes may be summarised as follows: integrity, simplicity and passion for the environment.

READ MORE:  https://aliran.com/thinking-allowed-online/2016-ta-online/accountability-integrity-backdrop-swedish-society/


Government ministers, civil servants and all public sector officials are held accountable for their actions. And when inefficiency, negligence and breach of fiduciary responsibility is highlighted, the minister or official concerned resigns immediately or is reprimanded. Transparency ensures that public expenditure is effectively scrutinised with any leaks in the system immediately plugged.

There is a high level of integrity among ordinary people too, and they seldom hoodwink or defraud others. Seldom does one read about any form of dishonesty, abuse of power or financial transgression.

Simplicity is a virtue the Danes are noted for. About a third of Copenhagen residents cycle to work and the rest take the train or drive to work. Most of those who drive have ordinary cars. In my six years traveling all over Denmark, I never once saw posh makes like Lamborghini, Aston Martin and Ferrari.

In sharp contrast to their Malaysian counterparts, chairmen, CEOs and managing directors of companies in Denmark usually drive to work on their own – without a personal driver. There are no special parking spaces reserved for them at their place of work. All staff park their cars in the same place. Meeting rooms are simple with ordinary tables and chairs; no expensive executive chairs even for the top brass in the company.

Just like in Sweden, simple dressing is the order of the day for the office and meetings, and most men wear a jacket without a tie. Their dress code contrasts conspicuously with many in the upper echelon in Malaysia, who have a passion for branded products and wait for the opportunity to display their opulence.

READ MORE:  https://aliran.com/aliran-csi/aliran-csi-2017/uncharted-waters-1mdbs-fourth-auditor-faces-formidable-task/

The offices of top management staff in companies are simple, quite unlike what you find in Malaysia. No posh office furniture. I have noticed this in many companies in Denmark over the years and this is something we Malaysians can emulate. In Denmark, people look down on you if you flaunt your wealth conspicuously.

I always take the flight to Billund, the home of Lego, via one of the European cities, and the one-hour drive to Julesminde is just awesome. I admire the beauty of the Danish countryside while passing through country towns along the way.

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Each time after arriving in Juelsminde, a small town of less than 5,000 people, I immediately check into the guesthouse. Without wasting any time, I go for a jog on the beach in front of the guesthouse for an hour. The clean fresh air, unpolluted environment and early morning sunrise keeps me rejuvenated as I jog in the mornings and evenings.

I subsequently laze about outdoors reading a book with, of course, a glass of good wine beside me in the evenings, before I go for a satisfying Danish dinner with colleagues.

Danes are passionate about their environment and are moving at an accelerated speed towards zero dependence on fossil fuels by 2050. Much of Denmark’s renewable energy requirements will be met through wind, and wind farms are conspicuous on land and sea all over the country.

All through my travels in Denmark and my dealings with the Danes, I have observed one of their traits, and that is if you are honest and sincere with them, they respect you. I too was always candid in my dealings with them, constantly being the “unsubtle diplomat”.

 

 

READ MORE:

https://aliran.com/newsletters/2017-newsletters/courting-elephant-room-1mdb/

After all, honesty is the mark of self-respect in any human being, and only those without this trait try and boost their self-esteem in other, less edifying, ways.

Benedict Lopez was director of the Malaysian Investment Development Authority in Stockholm and economics counsellor at the Malaysian embassy there in 2010-2014. During the course of his work, he covered all five Nordic countries. An eternal optimist, he believes Malaysia can provide its citizens with the same benefits and privileges found in the Nordic countries – not a far-fetched dream but one that he hopes will be realised in his lifetime.

Lim Kit Siang’s Take on Najib Razak’s So-Called Mother of All Budgets 2018


November 2, 2017

Lim Kit Siang’s Take on Najib Razak’s 2018 BudgetThe So-Called Mother of All Budgets

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he (Najib Razak) presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.–Lim Kit Siang

http://www.malaysiakini.com

MP SPEAKS | Prime Minister Najib Razak described Budget 2018 being about “gifts, rewards and incentives.” It is a most mistaken view.

The Budget is a tool or instrument for presenting a statement about the state of the economy, its prospects, and policy announcements for improving governance. A well-crafted budget statement should be an objective and honest presentation meeting the goal of accountability.

Sadly, the budget he presented fails these basic tests. His speech of almost 12,000 words was more akin to a laundry list of giveaways, expenditure allocations both real and imagined, and vague statements about the economic consequences that would result.

The speech omitted any reference to urgently needed policy changes to restore the competitiveness of the economy that would enable the nation to escape the middle-income trap it finds itself in. The speech was silent about measures to correct the stagnation in real income, and address the looming danger associated with the mountain of debt – public, corporate and household.

The budget has been turned into an unabashed and irresponsible first salvo in the campaign for the 14th General Election. Page after page of the speech detailed expenditures and proposed allocations; no group was ignored in the largesse being extended.

Najib’s laundry list of giveaways, expenditure allocations both real and imagined, and vague statements.-2018 BUDGET

Little was said about how the proposed expenditures were designed to advance the overarching economic goals; no reference was made to how the addiction to deficit spending was to be overcome.

The projected deficit was itself a meaningless figure as the profligate spending in some measure would be financed outside of the budget, and nor did the PM in his speech or in the economic report provide details about the level of contingent liabilities or the new liabilities being assumed.

Electioneering

The PM chose to describe the budget as the “mother of all budgets”. Ironically, he was on target as this budget was an exercise in deception and was an unvarnished sales pitch seeking votes in the upcoming election.

Najib’s claim about “good news” needs to be taken with a large pinch of salt. The reality is that the news as reported in the budget statement is more in the nature of “fake news”. The budget framework is built upon dubious interpretation of statistical data in a highly selective manner.

The PM gloated over the growth numbers but was being selective. He failed to make any reference to issues of a structural nature raised by the World Bank and the International Monetary Fund (IMF) in particular in the latter’s Annual Article IV Consultations and reported on its website.

Economic growth rates

Najib also made much about the revised growth rates issued by the International Financial Institutions and attempted to claim credit. He omitted to indicate that the revisions pertained to almost all countries – Malaysia being one in the group.

The revised growth rates should not therefore be interpreted as an approval of the competence of the government in managing the economy. Growth rates are revised to be higher because of global economic developments, primarily resulting from changes in monetary policies by the US Federal Reserve Bank and its counterpart the European Central Bank, and the partial recovery in prices for oil and gas.

The PM has been selective in the use of data. This is best illustrated by his use of the year 2009 as the base for measuring change. There is no rational reason for this choice other than an attempt to glorify his own tenure of office. It is also pertinent to note that 2009 marked a global recession. The choice of this low base amplifies the recovery in the years since.

Najib, however, chooses to remain silent about the negative developments, for instance, in the losses in the country’s external reserves (from a peak of US$ 140.0 billion in 2012 to US$101.2 billion in Sept 2017; total reserves as a percentage of external debt fell from a high of 121.1 percent in 2007 to 47.2 percent in 2016 or the decline in the value of the ringgit from US$1 = RM 3.34 in 2007 to US$1= RM4.20 in September 2017. These are not indicative of “efficient governance and prudent discipline” as he claimed.

Putrajaya’s fiscal situation

For two decades the government has operated with a deficit; the reported federal government debt now approximates 55 percent. Additionally, the Putrajaya has concealed its borrowings and the true size of its debt by making government-linked companies and other quasi-government entities undertake borrowings to finance public sector projects under the guise of so-called public-private projects.

The government has, at the same time, accumulated large hidden contingent liabilities by extending guarantees for borrowings by GLCs and other entities.

The fiscal situation has been worsened by corruption, mismanagement and other abuses including non-competitive acquisition of goods and services. The absence of competitive bidding results in price distorted costs. Tax revenues have been eroded by way of so-called “incentives” extended to government cronies without resulting in any discernable rise in private investment.

NEM goals

The reference in the speech to the New Economic Model (NEM) is more in the nature of a throwaway remark.

Certain clear-cut goals and policies adopted at the launch of the NEM have fallen by the way side. It should be recalled that there was a commitment to pursue further privatisation of the government’s non-financial public enterprises and reduce the government’s holdings in the GLCs which in reality function as state-owned enterprises.

It is significant that the speech contained no reference to the pursuit of these stated goals.

The findings from a recent highly professional study led by Terence Gomez has highlighted the dominant role played by GLCs in almost all sectors of the Malaysian economy, from aviation, banking, manufacturing, plantations to various modes of transportation.

In 2013, a total of 455 companies (including subsidiaries) were classified as government-linked investment companies (GLICs). There were 35 publicly listed companies which were among the top 100 companies listed on the Bursa Malaysia. The latter account for an overwhelming percentage of the capitalisation of the exchange.

Without a doubt, the government’s footprint is large in the business and commercial sectors. The entities in question act as monopolies or privileged entities, thus stifling private enterprise. This has led to flagging private investment despite tax and other incentives.

Of late several entities (e.g., Mara, Felda, Tabung Haji) have become mired in financial scandals. There is little or no accountability by such entities.

Furthermore, it is strange indeed that while Malaysia as a upper middle income country seeks to attract FDI flows, yet government linked agencies are currently exporting capital. These endeavors taken represent contradictions. But, more troubling is the fact that they give rise to abuses and corrupt practices.

The claims of successes in employment creation merit comment. While indeed some 2.3 million jobs have been created in the past eight years, most of these have been low paying jobs with many filled by migrant workers.

Serious shortages of skilled workers exist; paradoxically the brain drain continues unabated. These labor market developments along with the stagnation in wages are indicative of a failed set of policies that are contributing to the loss of competitiveness and entrapment as a middle-income country.

The self-congratulatory remarks about export growth are yet another example of delusion. While the current level of exports are expressed in ringgit terms, the PM has chosen to ignore the fact that he is comparing values based on different exchange rates.

The comparison of international reserve levels is rather devious – this is the only comparison linked to 1997!

The reporting of an increase in income per capita from RM27,819 in 2010 to RM49,713 in 2017. This trend is contradicted by the World Bank as the following numbers show:

The significance of these numbers points the extent to which Malaysia is lagging in terms of achieving “high income” status which in 2016 was set as income levels in excess of US$12,235.

Indeed, taking account of the current level of GNI per capita, projected exchange and growth rates, it is patently clear that the much-touted goal of achieving “high income” status by 2020 is a fading dream.

Budget allocations

The budget allocations for 2018 are projected at RM280.25 billion, an increase of RM20 billion, with RM234.25 billion for operating expenditure and some RM46 billion for development.

While further details are highlighted, Najib chose to be silent about a large item, namely debt service which amounts to 11 percent of the operating expenditure. The increased allocations are largely to restore cuts that were imposed earlier in the year.

Revenue collection in 2018 is projected at RM240 billion, an increase of approximately nine percent from RM220 billion in 2017.

No details are given either about the sources of revenue, or the amounts reduced by way of tax cuts and exemptions. The projected growth lacks credibility given GDP growth rate, reductions in revenue attributable to the exemptions from GST granted for big ticket items alongside the reductions in income tax rates.

In brief, the rosy estimates of modest growth in expenditure coupled with unrealistic levels of revenue receipts follow a pattern. Revenue projections are pitched high whilst expenditures are restrained in the budget.

Thus, there are inevitable supplementary expenditure requests later in the year. These approaches in budgeting enable the government to put out massaged numbers for the deficit. These practices appear to be sharpened in the preparation of the 2018 Budget.

Lip service was paid about fiscal consolidation without mention of how the PM proposes to reduce debt levels. While he was upbeat about all manner of “progress”, no mention was made about the record concerning deficits. It is noteworthy that it is now more than 20 years since Malaysia enjoyed a budget in surplus.

Once again total debt along with contingent liabilities will rise in the year ahead. These will represent burdens passed on to future generations. With an ageing population, the burden will be all the greater. The nation’s long-term interests are being sacrificed for short term political gains.

The claim that this budget will chart the course for building the nation for the next 30 years is a farfetched assertion. This is all the more questionable considering the fact that the Budget hardly lays out any long- term policies and goals but is only concerned with the “here and now” issues assumed to be of interest to a highly jaded electorate.

Rewriting history

Most remarkable, however, is the PM’s assertion: “Since we declared Independence, we have been fortunate as our forefathers have governed and administered this country embedded with shariah requirements”. Najib appears to be rewriting history by ignoring the fact that the country adopted a secular constitution and up until recently shariah played no major role in administration.

To claim that for six decades a shariah framework has operated with the federal constitution playing a secondary role is an outright distortion of the facts. The formulation used by the PM ought to raise a red flag about his coalition’s intentions regarding the status of the Constitution.

While acknowledging that “the framework has not been written in any government documents, but its practices are reflected in all inter-related national philosophies and policies” Najib appears to be outlining a position that the government will adopt in the event it is returned to power. It is thus a signal of how the secular federal constitution will be further sidelined.

Trends in investment

The PM set out several targets dealing with investment and trade. The statistics about trends in investment were selective.

Once again by choosing a low bench mark year (2009), a year that recorded a global recession, and inflated targets for 2018, he attempted to project progress.

These statistics appear impressive in attributing performance of private investment. A closer review, however, paints a different picture.

Given that the GLCs dominate the private sector, and that they largely operate as SOEs, much of the “improvement” can be attributed to government initiatives handled by these entities.

The process permits the government to by-pass concerns about the debt ceiling and at the same time permit nefarious projects as evidenced by the 1MDB saga.

The trends in private investment are erratic as inappropriate policies and political uncertainties have impacted on private investment, both domestic and foreign. The failure to announce corrective policy measures will result in sluggish investment patterns along with continuing outward capital flows

Passing reference is made in the 2018 Budget to accelerating exports. However, no indication is given as to what policies will be introduced to develop capacities in new products and promoting industries involving new technologies for instance the use of artificial intelligence.

No mention is made about how the government proposes to deal with the withdrawal of the US government from the TPPA; the PM was silent about what posture it intends to take viz. other trading arrangements within ASEAN or with the EU and the China-led proposals for a regional trade arrangement.

The claim that “…for the first time in the history of the nation’s budget…” a large allocation “is provided to assist farmers, fishermen smallholders and rubber tappers” appears to be a most strange claim. Every Five-Year Plan, every budget over the past six decades has contained allocations for these groups; it is disingenuous indeed to make claims that are short on a factual base.

 

The mega rail transportation projects that have been announced raise multiple concerns. For a start, cost benefit and feasibility studies have not been disclosed, assuming these have been done.

It is worthy of note that the projects will be financed by loans from China; the terms of these loans have yet to be announced. Reports in the media appear to suggest that major parts of these projects will be assigned to China’s enterprises who will invite some Malaysian entities to collaborate.

Najib evaded the entire issue of port expansion using loan funds in the face of overcapacity in the nation’s major port, Port Klang, following the departure of a major user. Many of the other transportation projects highlighted in the speech will not be financed from the Federal budget.

The following quote from his speech is most remarkable – it projects self-glorification and is somewhat insulting of past holders of the office of Finance Minister:

“This Budget that has never been crafted so well, even during the last 22 years or the past 60 years of our own nation, and marked in history, making this Budget the Mother of All Budgets.”

Ironically, this Budget may indeed qualify as the “mother of all budgets” for reasons other than those offered by the PM. The speech represents an open attempt to create fake news in pursuit of gaining credibility with an electorate that is largely disenchanted by the workings of a government tarred by endless scandals, led by someone viewed as a kleptomaniac.

The current budget also qualifies as such for its extensive giveaways, without a realistic vision or any demand for sacrifices. It provides no coherent strategies to permit the nation to escape the middle-income trap.

Malaysia urgently needs a course correction if it is to regain dynamism to enable it to move forward on the road to greater prosperity.


LIM KIT SIANG is DAP Parliamentary Leader and MP for Gelang Patah.

 

Deja Voodoo–Trump’s Tax Reform


October 20, 2017

Deja Voodoo–Trump’s Tax Reform

by Joseph E. Stiglitz*

http://www.project-syndicate.org

A Trump administration staffed by plutocrats – most of whom gained their wealth from rent-seeking activities, rather than from productive entrepreneurship – could be expected to reward themselves. But the Republicans’ proposed tax reform is a bigger gift to corporations and the ultra-rich than most had anticipated.

Image result for joseph stiglitz on malaysia

NEW YORK – Having failed to “repeal and replace” the 2010 Affordable Care Act (“Obamacare”), US President Donald Trump’s administration and the Republican congressional majority have now moved on to tax reform. Eight months after assuming office, the administration has been able to offer only an outline of what it has in mind. But what we know is enough to feel a deep sense of alarm.

Tax policy should reflect a country’s values and address its problems. And today, the United States – and much of the world – confronts four central problems: widening income inequality, growing job insecurity, climate change, and anemic productivity growth. America faces, in addition, the need to rebuild its decaying infrastructure and strengthen its underperforming primary and secondary education system.

But what Trump and the Republicans are offering in response to these challenges is a tax plan that provides the overwhelming share of benefits not to the middle class – a large proportion of which may actually pay more taxes – but to America’s millionaires and billionaires. If inequality was a problem before, enacting the Republicans’ proposed tax reform will make it much worse.

Corporations and businesses will be among the big beneficiaries, a bias justified on the grounds that this will stimulate the economy. But Republicans, of all people, should understand that incentives matter: it would be far better to reduce taxes for those companies that invest in America and create jobs, and increase taxes for those that don’t.

 

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After all, it is not as if America’s large corporations were starved for cash; they are sitting on a couple of trillion dollars. And the lack of investment is not because profits, either before or after tax, are too low; after-tax corporate profits as a share of GDP have almost tripled in the last 30 years.

Indeed, with incremental investment largely financed by debt, and interest payments being tax-deductible, the corporate tax lowers the cost of capital and the returns to investment commensurately. Thus, neither theory nor evidence suggests that the Republicans’ proposed corporate tax giveaway will increase investment or employment.

The Republicans also dream of a territorial tax system, whereby American corporations are taxed only on the income they generate in the US. But this would only reduce revenue and further encourage American companies to shift production to low-tax jurisdictions. A race to the bottom on corporate taxation can be prevented only by imposing a minimum rate on any corporation that engages in business in the US.

America’s states and municipalities are responsible for education and large parts of the country’s health and welfare system. And state income taxes are the best way to introduce a modicum of progressivity at the subnational level: states without an income tax typically rely on regressive sales taxes, which impose a heavy burden on the poor and working people. It is thus perhaps no surprise that the Trump administration, staffed by plutocrats who are indifferent to inequality, should want to eliminate the deductibility of state income taxes from federal taxation, encouraging states to shift toward sales taxes.

Addressing the panoply of other problems confronting the US will require more federal revenues, not less. Increases in standards of living, for example, are the result of technological innovation, which in turn depends on basic research. But federal government support of research as a percentage of GDP is now at a level comparable to what it was 60 years ago.

Image result for Trump's Deja Voodoo Economics

While Trump the candidate criticized the growth of US national debt, he now proposes tax cuts that would add trillions to the debt in just the next ten years – not the “only” $1.5 trillion that Republicans claim would be added, thanks to some growth miracle that leads to more tax revenues. Yet the key lesson of Ronald Reagan’s “voodoo” supply-side economics has not changed: tax cuts like these do not lead to faster growth, but only to lower revenues.

This is especially so now, when the unemployment rate is just over 4%. Any significant increase to aggregate demand would be met by a corresponding increase in interest rates. The “economic mix” of the economy would thus shift away from investment; and growth, already anemic, would slow.

An alternative framework would increase revenues and boost growth. It would include real corporate-tax reform, eliminating the tricks that allow some of the world’s largest companies to pay miniscule taxes, in some cases far less than 5% of their profits, giving them an unfair advantage over small local businesses. It would establish a minimum tax and eliminate the special treatment of capital gains and dividends, compelling the very rich to pay at least the same percentage of their income in taxes as other citizens. And it would introduce a carbon tax, to help accelerate the transition to a green economy.

Tax policy can also be used to shape the economy. In addition to offering benefits to those who invest, carry out research, and create jobs, higher taxes on land and real-estate speculation would redirect capital toward productivity-enhancing spending – the key to long-term improvement in living standards.

An administration of plutocrats – most of whom gained their wealth from rent-seeking activities, rather than from productive entrepreneurship – could be expected to reward themselves. But the Republicans’ proposed tax reform is a bigger gift to corporations and the ultra-rich than most had anticipated. It avoids necessary reforms and would leave the country with a mountain of debt; the consequences – low investment, stalled productivity growth, and yawning inequality – would take decades to undo.

Trump assumed office promising to “drain the swamp” in Washington, DC. Instead, the swamp has grown wider and deeper. With the Republicans’ proposed tax reform, it threatens to engulf the US economy.

*Joseph E. Stiglitz, recipient of the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979, is University Professor at Columbia University, Co-Chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and Chief Economist of the Roosevelt Institute. A former senior vice president and chief economist of the World Bank and chair of the US president’s Council of Economic Advisers under Bill Clinton, in 2000 he founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University.His most recent book is The Euro: How a Common Currency Threatens the Future of Europe.

 

Jomo: Whither the Malaysian economy ?


October 17, 2017

Jomo: Whither the Malaysian economy under Najib Razak?

http://www.malaysiakini.com

Image result for Finance Minister Najib Razak and the National Debt
Malaysia’s Worst Finance Minister Najib Razak–Fiscal Mess, Heavily in Debt and Lowest Reserves in Asia.

This interview with economist Jomo Kwame Sundaram, former Assistant Secretary-General for Economic Development at the United Nations, was conducted in August for publication in the run-up to the country’s next Budget for 2018 due to be announced next Friday.

Developed country status

Question: Malaysia is close to achieving developed country status and is growing at a reasonable pace. Why are you concerned then?

Jomo: Becoming a developed country involves much more than achieving high-income status. But even by reducing ‘developed country’ status to becoming a ‘high-income’ country, we are not quite there unless we resort to statistical manipulation, e.g., by using 2013 exchange rates, or by ignoring about a third of the labour force who are ‘undocumented’ foreign workers.

For example, the ringgit declined from RM3.2 against the US dollar in 2014 to almost RM4.5 before recovering to the current RM4.2! But then we continue to use the old exchange rate or purchasing power parity (PPP) to pretend that we are almost there. The only people we are cheating is ourselves.

Also, if we continue to grossly underestimate the number of foreign workers in the country, then the denominator for calculating per capita income goes down. Similarly, by excluding the lowest paid foreign workers, income inequality has been declining when their inclusion may give a different picture. Thus, we can reach supposed high-income status more quickly if we pretend there are only one or two million foreign workers, when even the minister admitted last year to about 6.7 million!

Seven million, mainly undocumented foreign workers in Malaysia comes to over a third of the country’s total labour force. Many of them work and live in far worse conditions than the worst-off Malaysian workers. We are thus dependent on a huge underclass, largely foreign, whom we are in denial about.

New Economic Model

What do you think of Prime Minister Najib Razak’s New Economic Model?

Jomo: Let us be clear about this. The New Economic Model, or NEM, is really a wish-list of economic reforms desired from an essentially neo-liberal perspective. That does not mean it is all good or all bad. It contains some desirable reforms, long overdue due to the accumulation of excessive, sometimes contradictory regulations and policies.

 

Although the NEM made many promises and raised expectations, most observers would now agree that it has rung quite hollow in terms of implementation despite its promising rhetoric. As we all know, the NEM was dropped soon after it was announced for political reasons, and has never been the new policy framework it was expected to be.

Turning to actual policy initiatives, to the current administration’s credit, it accepted the minimum wage policy and BR1M (Bantuan Malaysia 1Malaysia) idea, both long demanded by civil society organisations, and supported by many, mainly opposition parties. The minimum wage policy has probably been far more important than BR1M in improving conditions for low-income earners.

Premature deindustrialisation

The contribution of manufacturing to growth and employment has been declining in this century. Yet, you seem to be nostalgic for industrialisation when the leadership wants to move to tertiary activities.

Jomo: Sadly, instead of acknowledging the problem, ‘premature deindustrialisation’ is being cited as proof of Malaysia being developed although services currently account for most job retrenchments.

Indeed, Malaysia has been deindustrialising far too early, even before developing diverse serious industrial capacities and capabilities beyond refining palm oil and so on. We have abandoned the past emphasis on industrialisation, but have not progressed sufficiently to more sophisticated, higher value-added industries.

In Japan, South Korea and China, policies to nurture industrialists and other entrepreneurs to become internationally competitive, enabled these countries to grow, industrialise and transform themselves very rapidly.

We are suffering great illusions if we think we can leapfrog the industrial stage and go straight to services. We should not try to emulate Hong Kong because we are a different type of economy. Even Singapore has not gone the Hong Kong way and continues to try to progress up the value chain in terms of industrial technology.

We need to stop blindly following policies espoused by international institutions. GST (Goods and Services Tax) is a variant of value-added taxation, long promoted by the IMF (International Monetary Fund). To accelerate progress, we need to develop better understanding of the Malaysian economy – of its real strengths and potential, rather than assuming that the current mantra in Washington is correct, let alone relevant.

Middle-income trap

According to the World Bank and others, Malaysia is stuck in a middle-income trap. The argument is that the NEM as well as financial services development are needed to get out of it.

Jomo: The idea of a ‘middle-income trap’ is due to Latin American and other countries uncritically following Washington Consensus prescriptions promoted by the Bank and the IMF. The promise is that following their prescriptions would lead to development.

Key elements of our own ‘middle-income trap’ are actually of our own making, e.g., by giving up so quickly on industrialisation. The prescriptions imagine we can somehow leap-frog to accelerate development without making needed reforms.

 

The NEM and current official development discourse emphasise modern services, especially financial services, for future growth. But why would investors want to come here rather than, say, Singapore? If they want lower costs, there are other locations.

To offer tax breaks or loopholes, or to make Malaysia a tax haven, the question again is why come here rather than Singapore.

And how much has the national economy really benefited from the Labuan International Offshore Financial Centre? Do we need to keep making the same errors?

Looking at other international financial centres, it is not clear that it will be a net plus for the country, and provide the basis for sustainable development suitable for an economy like ours. Remember, we are no Hong Kong.

Historically, we have been heavily dependent on foreign direct investment, not for want of capital, but for access to markets, technology and expertise. To make matters worse, over the last decade, foreign investors have taken a growing share in publicly listed companies, helped by the falling ringgit in recent years.

Arguably, foreign ownership of the Malaysian economy has never been as high since the 1970s. As large corporations are increasingly dominant, they have often crowded out small and medium-sized enterprises (SMEs) and other Malaysian firms.

Macroeconomic management

In his recent book, Dr Bruce Gale (author of ‘Economic Reform In Malaysia: The Contribution Of Najibnomics’) has praised current macroeconomic management.

Jomo: Well, Gale is a political consultant and needs to ‘cari makan’. He is not a serious macroeconomist the last time I checked, but should nonetheless be taken seriously because he reminds us that well-managed ‘public relations’ influence market and public sentiment, including credit and other ratings. He heaps praise on ‘conventional wisdom’ which remains very influential, even if wrong.

Gale’s book reminds us that ‘creative accounting’, involving the transfer of debt and liabilities to state-owned enterprises or government-linked companies, has enabled the government to limit the growth of mainly ringgit-denominated federal government debt by rapidly expanding federal government-guaranteed ‘contingent liabilities’.

His defence and justification for GST ring quite hollow as his premise is that the middle class has been evading income tax, whereas it is mainly the rich who have successfully done so, whether legally or otherwise.

Although he has been writing on Malaysia for over three decades, he appears to have selective amnesia, only giving credit to the prime minister and his late father, whom no one would grudge, while ignoring other prime ministers and finance ministers, in line with the new official narrative.

Malaysians worse off?

Earlier, you acknowledged that Malaysian economic growth has continued, albeit at a lower rate, over the last two decades. Yet, you also argue that Malaysians may have become worse off in recent years. That sounds contradictory.

Jomo: Moderate economic growth has continued since the 1997-1998 financial crisis. More recently, this has been partly due to foreign financial inflows, helped by unconventional monetary policies in OECD economies.

Between 2012 and 2014, most people, especially low-income earners, became better off, thanks to the introduction of the minimum wage, continued ‘full employment’ and higher commodity prices.

Since then, commodity prices have fallen, unemployment has been rising (especially for youth), the GST was introduced, and consumer confidence has fallen lower than during the 1997-1998 or 2008-2009 financial crises.

However, consumer sentiment in Malaysia has been negative for some time according to CLSA and MIER (Malaysian Institute of Economic Research). Indeed, according to Nielsen, the international polling company, it has been poor since 2013, and is now the lowest in Southeast Asia.

Food prices have generally continued rising, as transport charges – for tolls, trains, etc. – have been increasing again, with floating petrol prices. Meanwhile, lower commodity prices and climate change have reduced many farm incomes.

Official unemployment has gone up from 2.9% in 2014 to 3.5% in 2016, still commendably low, although there are concerns about high youth unemployment, especially among the tertiary educated.

Retrenchments have been worst for services, casting doubt on future employment prospects as the authorities rely increasingly on services for growth and jobs. With unemployment low, but rising, wage growth has slowed after the initial introduction of the minimum wage, while real incomes have been hit by higher prices and taxes.

Wage depression

You seem to imply that Malaysian wages have been artificially lowered.

Jomo: Malaysians, in general, have higher incomes now than before. However, official numbers are misleading as we do not account for the massive presence and contribution of foreign labour, especially undocumented immigrant workers.

Their status has also served to depress wages for low-income Malaysian workers. Not surprisingly then, labour’s share of national income has gone down relatively.

This decline is not due to declining labour productivity, even if that may be the case. After all, higher labour productivity does not automatically raise workers’ incomes. Prevailing low wages retard technical change which would, in turn, raise productivity.

Thus, the unofficial low wage policy stands in the way of labour-saving innovation, such as mechanical harvesting, so necessary for development. We need a medium-term development strategy far less reliant on cheap foreign labour.

Consequently, wages and living conditions are too low, especially in agriculture. And even smallholder agriculture has been neglected by officialdom in Malaysia for some time, especially after Pak Lah’s (Abdullah Ahmad Badawi’s administration.

Fighting a jihad against middlemen was not only thinly disguised misinformed and misguided stunt intended to score ‘ethno-populist’ points, but also irrelevant to addressing contemporary challenges.

Shifting tax burden

How have recent tax reforms affected Malaysian households?

Jomo: Following the introduction of the GST in April 2015, tax revenue from households increased from RM42 billion in 2014 to RM67 billion in 2016, with GST more than doubling the contribution of indirect tax from RM17 billion to RM39 billion.

At the same time, income tax revenue has risen modestly from RM24 billion in 2014 to RM28 billion in 2016. On average, Malaysian households paid taxes of RM5,600 each, more than ever before.

Meanwhile, government subsidies and assistance have declined, falling from RM43 billion in 2013 to RM25 billion in 2016, with most food price subsidies removed between 2013 and 2016.

Inflation numbers

Official inflation numbers are low. Why does the public doubt official inflation numbers?

Jomo: There are many reasons why the public doubts official inflation numbers, but perhaps most importantly for the country’s open economy, the ringgit exchange rate dropped from RM3.2/USD to RM4.5/USD before recovering to RM4.2 recently.

People presume that a decline in the international value of the ringgit by about a quarter must surely have inflationary consequences.

The GST of 6% has been imposed since April 2015, directly affecting about half of household spending, with up to a fifth more indirectly affected. Again, this is expected to have affected the cost of living.

Price subsidies for sugar, rice, flour and cooking oil have been removed since 2013, raising prices by 14% to 31%. Meanwhile, transport – including fuel and toll – prices have risen on several fronts.

Hence, you can understand why people are sceptical.

Transformasi Nasional 2050 (TN50)

After announcing and then abandoning the New Economic Model, there is now much ado about an economic transformation agenda for 2050.

Jomo: The TN50 exercise has been broadly consultative, involving young people, which surely is a good thing. Unfortunately, as with BR1M, it has been used to mobilise political support for the regime before the forthcoming elections rather than open up a more inclusive debate about where the country is headed.

The conversation should be about where the country should go and how to get there. It is still unclear to what extent we are going beyond the usual feel-good, futuristic sounding clichés, but this should open up an important debate to give serious consideration to actually achieving the transformation.

 

The country is presently mired in a political crisis that has paralysed effective economic policymaking. Malaysia desperately needs a legitimate and consultative leadership to implement bold measures to take the country forward.

Many people in the country know what ails the economy, but we do not have the open discussion needed to really tackle the challenges the nation faces. For example, a free and independent media will not only improve the quality of public discourse, but also the legitimacy and acceptability of resulting public policy.

Yesterday: Jomo in defence of honest, constructive criticism

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline


October 5, 2017

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline

by T K Chua@www.freemalaysiatoday.com

Image result for Najib as Finance Minister

 

In a couple of weeks, the 2018 national budget will be revealed and a peek into the options and challenges awaiting us, is in order.

Beware of Off-Budget Agencies

FIRST, the budget is not what it used to be. Increasingly there are expenditures and commitments outside the purview of the budget but their impact may eventually impinge on government finance. These are off-budget agencies of which the revenues, expenditures and debts should be tabulated and presented as addendum to the budget.

Keep Budget Deficits under Control

SECOND, in all likelihood, the 2018 budget will be another year of deficits. This means there will be new borrowings or sales of government assets to finance the deficit. New borrowings mean more accumulated debts and more debt service charges going forward. When more is provided for debt service charges, less will be available for other operating expenditures.

THIRD, most government revenue has almost reached its limits unless income and expenditure continue to grow. In recent times, the government has been relentless in its enforcement efforts to extract the maximum from individuals and business establishments. Similarly, the implementation of the GST is in full swing. It is doubtful that the government will be able to cover more loopholes and tax leakages/avoidance cases or to increase further the GST rates at this stage.

If revenues are limited, the government will not be able to offer new expenditure programmes unless it incurs more borrowing and debt.

FOURTH, most expenditure programmes are “locked in”, stifling the government’s ability to look at the new impetus. The government’s commitments toward BR1M, civil service salaries and benefits, pensions, and debt service charges will continue to grow. This will leave little room for the budget to meet new challenges lurking in the horizon.

Watch the Expenditure Side of Things

FIFTH, the government has looked at the revenue side by introducing new taxes and by enforcing stricter compliance of existing taxes. However, this trend can’t go on forever. It is time to look at the expenditure side of things.

The annual audit report has given more than sufficient information on wastage, inefficiency and abuse of government allocations and expenditures. Sometimes corruption is due to allocations being too lavishly handed out. If government departments and agencies have too much money, the tendency is to be careless with the expenditures.

 

MALAYSIA ‘SCREWED UP’ BY WORST FINANCE MINISTER NAJIB – RESERVES THE LOWEST IN ASIA THAT MoF UNABLE TO PAY EVEN US$600 MILLION DEBT?

Who is the de facto Minister of Finance– Najib Razak or Handbag Rosmah Mansor? How did she spend the funds  allocated for her signature project Permata?

Stringent and optimal budget allocations do not have to affect output or service to the people, as was commonly claimed. We only need those responsible to work harder and be more careful with the money.

The National Budget is not a Mundane or routine exercise

I think it would be a big mistake if we continue to look at the budget formulation as a mundane or routine exercise. Some of the trends are obviously unsustainable. Even if we start to reverse or correct the trends now, it may take us many years to restore sustainability.

TK Chua is an FMT reader.