Tuesday, January 29, 2008

We Should Nominate Malaysian Govt for Nobel Prize in Economics this year

I am serious, bukan main main.

You see, Malaysian Government has found a new way to control inflation, way more sophisticated than A.W. Philips theory back in the 50's. Philips way of controlling inflation is outdated. Philips Curve and NAIRU may have been sophisticated theories in those days, but its outdated.

Edmund Phelps would love this new working discovery of inflation economics.

Malaysian Govt latest discovery in the field of inflation dynamics is that inflation could be controlled by asking/directing the news media not to publish or discuss the subject of inflation altogether. Read the report here in Malaysiakini.
The basis of the theory is like this;
If people expect inflation to be higher next year, say 5%, then it is fair to expect that prices in general would increase by 5%. Armed with this knowledge, people would start hoarding goods that they need in the future to save cost now rather than paying more in the near future when they need the goods. So if everyone in the country has this expectations, goods supply would run out faster, because people are hoarding the goods.
Not only that, consumption of services would also increase, because people would rather buy the services now at todays prices rather than at a later date at higher prices. So the snowball effect materializes, expectation become reality.

So the logic of Malaysian Govt telling the media not to publish anything about inflation make sense. If people do not know anything about inflation, they would behave normally wouldnt they?

Other measures that has been taken by Malaysian Govt in the past like sending legions of price inspectors to markets to make sure that traders sell goods at the prescribed prices. It doesnt matter if the traders margins is low or that some goods are in short supply, hence higher prices.

Even Malaysian economists from mainstream banks all agree with the Govt policy and seem to toe the line. Read this report here in The Star .

What do you think?

What do I think? I think its all CRAP.

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