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Posts Tagged ‘Economics stuff

Austrian economics and the fallacy of deflation

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Recently I’ve been engaged in an online discussion with Christopher Pang of the New Asia Republic here. Christopher wrote an article on some supposed economic myths and his attempts to debunk them. My comments on his stand and opinion may be read over there. Personally I feel that much of it is heterodox Austrian economics which is questionable theory. As I and another commentator Fox have said, Austrian economics conflates between consumer price inflation and monetary inflation, the former being a general increase in consumer prices but the latter being an increase in the money supply. But here I would like to address one particular claim, that deflation might be a good thing. This is a favourite talking point of Austrians which comes up quite often so it’s worth devoting an entire post to debunking that argument.

According to the Austrians, deflation is not necessarily a bad thing. Deflation is defined as a fall in the overall level of prices in the economy, generally a fall in the price of a consumer basket of goods/services tracked. Intuitively it may be a good thing because it helps to lower prices and wages until they become affordable again. This runs counter to what is normally understood in everyday conversational economics and introductory courses. Personally I am of the opinion that in general, falling prices across the board are a bad sign, but this statement requires some clarification and qualification.

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Written by defennder

January 6, 2011 at 1:48 AM

Posted in Economics and business

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3.3% inflation due to population increase?

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Note: I have not been able to update this blog as of late due to increasing work commitments. Loyal readers (and I personally thank you for that) should check this blog much less often for updates. Reader comments may be unaddressed for some time.This is likely to be the last post you see for a long time (I will be coming back eventually).  A big thank you to those who have been reading this blog.

It was reported recently that the year-on-year inflation rate in Aug 2010 was 3.3%. At first glance this may not seem unusual.  After all, Singapore is projected to achieve double-digit GDP growth for this year; some 20% growth is not out of question. It is perhaps with this in mind that the government has argued that letting in more foreign workers is crucial to prevent the economy from overheating.  Singaporeans are told that unless more foreigners (whom are willing to work for lower pay) are allowed in, inflation will climb even more sharply higher.  But a more in-depth analysis of the factors behind this inflation appears to undermine that argument.

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Written by defennder

October 3, 2010 at 3:56 PM

Housing inflation in Singapore’s CPI

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Housing prices have always been a hot topic for discussion amongst Singaporeans. Both academics and netizens have written extensively on the relentless rising cost of living due to housing price inflation. In a footnote to a 2008 paper on Singapore’s policy responses to ageing and retirement, Prof Mukul Asher cites a 2007 Citi memo (which I have unfortunately not been able to unearth) authored by Dr Chua Hak Bin arguing that Singapore’s inflation rate was severely understated primarily due to the way housing inflation was calculated:

Chua (2007b) has argued that the inflation rate in Singapore, as measured by the consumer price index, is significantly understated, primarily because of the way the housing component is incorporated.

One of the bigger mysteries in Singapore is that although public housing prices have gone through the roof, inflation has not. Why should this be so, especially since home-ownership rates in Singapore is one of the highest in the world (88.8% as of 2009). What determines how housing prices in Singapore affects the inflation rate? To answer this question, we must examine how housing prices are factored in the consumer price index (CPI). This may come as a surprise to some, but housing prices in Singapore are not reflected in the CPI.

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Written by defennder

August 9, 2010 at 4:54 PM

Putting Singapore’s GDP in perspective

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Supporters of the ruling party and status quo are fond of citing Singapore’s GDP per capita, one of the highest in the world as evidence that its government has done well. Measuring economic success by GDP has many disadvantages as various other netizens have elaborated. I don’t intend to add to those, but in this post I will endeavour to show how this metric is flawed even without disputing that GXP (where ‘X’ refers to any of various national income accounting measures) measures the economic well-being a country’s people.

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Written by defennder

August 6, 2010 at 11:35 PM

Are America’s problems cyclical or structural?

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Recently there has been some discussion concerning whether the economic malaise Americans are currently undergoing is structural or cyclical in nature. The former view holds that current high unemployment rate about 9.5% is here to stay whereas the latter holds that after a period of painful credit de-leveraging by America’s indebted households businesses, things will simply be back to business.

Now personally not too long ago I believed the problem was cyclical, namely that after the recession is over we should see an uptick in employment along with output and unemployment will decrease back to below 5%. But lately, some worrying signs have emerged that structural unemployment may be here to stay.

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Written by defennder

July 30, 2010 at 6:08 PM

The dual economy of Singapore

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In early 2007, economist Dr Chua Hak Bin published an essay titled Singapore Economy: The New and the Dual. For many who remember 2007, it was a year of strong economic growth, as well as a year when Singapore’s ministers argued that robust economic growth justified their own outrageous salary hikes. But that would not be the focus of this post, instead it would be on thesis/theory of the dual economy.

What is the dual economy thesis? Why does it matter? In this post, I will argue that the best way to reconcile Singapore’s recent and startling growth with the perceived lack of “trickle-down” effect to the general population would be to accept some form of this theory.

Anyone who has been following the news recently might have been shocked at the rate of economic growth Singapore is projected to achieve for the year. On July 15th, the headlines of the ST screamed the following at its readers:

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Written by defennder

July 29, 2010 at 2:22 AM

Who really benefits from rising HDB housing prices?

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This post was originally supposed to be titled “Do HDB home owners benefit in any way from property price hikes?” and was in response to a conversation I had with a friend on whether Singaporean home-owners can be said to benefit from rising property prices.  Since then, however, I have decided to expand upon it to include other considerations.

Qn: Does anyone benefit from relentlessly rising HDB flat prices?

In light of recent news that HDB resale prices have increased again this quarter, such a development should certainly give Singaporeans pause for concern, if only because rising prices sometimes do portend a growing housing bubble. However the subject of this post would not be whether the current housing price increases is indicative of a speculative bubble, as I’m not in the business nor possess the expertise to discern one in advance.  Home seekers for sure are disadvantaged by rising prices. But really, can fast growing home prices be beneficial to anyone?

The simplest answer, and the most obvious one would be HDB home owners, as my friend has said.  These folks whom are either fully-paid owners or in the process of paying off their mortgages have “locked-in” a fixed price for their houses, and any price appreciation would only mean that their total wealth is increasing. But this answer ignores a few important points. How exactly can a home owner tap increasing housing equity?

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Written by defennder

July 14, 2010 at 4:08 PM