Friday, August 05, 2016

BR1M for Britain

When Prime Minister Dato Najib introduced BR1M in 2012, prior to the 2013 general election, it was criticised as buying votes. The lower income earners and retirees appreciated the cash handout to lighten their burden.

The impact on votes for BN is still up for debate till today. Partly because giving away money freely was principally wrong to the eyes of Dr Mahathir. When he turned political against Najib, he associated BR1M with dedak to gain political support. It was turned around against him as demeaning the common folks.

BR1M was one of the four excuses he put together to justify overthrowing Najib. The others being Sirul, GST and 1MDB. There is no intention for reform as claimed in his failed Citizens' Declaration.

However, his thinking is in line with the Republican economic thoughts that abhors subsidy, social assistance and anything interrupting the free market mechanism. Mahathir attitude is more synonymous with the frugality of his generation. Do not give fish but give fishing rod to enable them to fish.

The theoretical justification behind BR1M was not clear thus it was presumed as an election tool. If that is the case, are 35 British economists out to assist Tory win the next general election?

A group of British economists was reported to suggest direct cash handouts as away to boost Britain’s flagging economy as compared to interest-rate cuts.

In a letter published in The Guardian, the 35 economists urged new UK chancellor of exchequer Philip Hammond to let the Bank of England try this radical option. The letter below:
Wednesday 3 August 2016 19.46 BST
Last modified on Thursday 4 August 2016 12.15 BST

A post-Brexit economic policy reset for the UK is essential Wallet with pound notes

‘Ultra-loose monetary policy has come with harmful side-effects,’ write 35 economists in their letter to the Guardian. Photograph: Chris Radburn/PA

In the wake of June’s Brexit vote, the outlook for the UK economy is more uncertain than at any time since 2008. Mark Carney has promised that the Bank of England will do “whatever it takes” to support growth. But with interest rates at historic lows, and questions being raised over the viability of additional quantitative easing (QE), it is unclear that the Bank of England has the tools to meet the challenges ahead. The new government’s promised economic policy “reset” should involve a new collaborative relationship with the Bank, whereby the Treasury supports the design of alternative monetary policy tools.

The monetary policy committee is expected to cut rates and consider restarting QE at its next meeting on 4 August. But seven years of easier monetary policy has not yielded its desired effects. It is often forgotten that before 2009, interest rates had never fallen below 2%. Since then they have not increased above 0.5%. Further cuts in interest rates will not benefit the UK’s economy. Similarly, a further expansion of the Bank’s £375bn QE programme is the wrong solution for today’s economic problems. QE was arguably required in 2009 to provide the banking sector with liquidity in the face of a frozen interbank lending market. The risks facing our economy have little to do with the availability of liquidity in the financial sector, and all to do with businesses and households cutting spending due to an increasingly uncertain economic outlook.

As well as being of limited effectiveness, ultra-loose monetary policy has come with harmful side-effects. Just before she became prime minister, Theresa May became the latest high-profile politician to recognise that lower interest rates and QE have increased inequality by inflating asset prices. Indeed, the success of both of these policies is dependent on the private sector taking on even more debt. These policies are being considered despite the Bank itself identifying household debt as one of the most significant risks to our economy. Responding to a potential recession by risking financial stability with more private debt hardly seems like a viable policy solution.

As the new chancellor looks to “reset” economic policy, new ways of conducting monetary policy should be considered. Instead of policies designed to fuel asset price bubbles and increase household debt, the Treasury and the Bank should co-operate to directly stimulate aggregate demand in the real economy. A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.

In any of these policy scenarios, new money will be directly introduced into the real economy, stimulating aggregate demand and boosting employment, investment and spending. While it is a job for the Treasury to set up the framework for these policies to be deployed, it would remain a decision for the monetary policy committee as to the timing and size of any future stimulus.

After seven years of ineffective unorthodox monetary policy – which has created risks and adverse side-effects – we urge the new government to consider alternative policy approaches that will directly increase spending and investment in the real economy without burdening households with more debt.

Andrew Watt Macroeconomic Policy Institute, Hans-Böckler-Foundation
Avner Offer University of Oxford
Fran Boait Positive Money
Biagio Bossone Chairman of the Group of Lecce
Christian Marazzi University of Applied Sciences and Arts of Southern Switzerland
Constantin Gurdgiev Trinity College Dublin
David Boyle Radix
David Graeber London School of Economics
Ellen Brown Public Banking Institute
Eric Lonergan Economist and writer
Fulvio Corsi City University of London
Guy Standing School of Oriental and African Studies, University of London
Helge Peukert University of Erfurt
Herman Daly University of Maryland
Iqbal Asaria Cass Business School
Jem Bendell University of Cumbria
John Weeks School of Oriental and African Studies, University of London
Joseph Huber Martin Luther University of Halle-Wittenberg
Josh Ryan-Collins New Economcs Foundation
Kaoru Yumaguchi Doshisha Business School
Kees van der Pijl University of Sussex
Ladislau Dowbor Pontifical Catholic Universit
Laurence Seidman University of Delaware
Luca Ciarrocca Macroeconomic author
Livio Di Matteo Lakehead University
Mark Blyth Brown University
Mary Mellor University of Northumbria
Matthias Kroll World Futures Council
Nigel Dodd London School of Economics
Ole Bjerg Copenhagen Business School
Philip Haynes University of Brighton
Lord Robert Skidelsky Warwick University
Steve Keen Kingston University
Thomas Fazi Social Europe
Tim Jackson University of Surrey
Victoria Chick University College London

The Financial Times reported the British economy was chugging along fine till Brexit came along and put “a spanner in the works”. In a recent development, The Guardian reported signs of retrenchment in several industries.

"An expansion of 0.6% in the British economy between April and June was countered by signals from the construction industry, car factories and high street stores that provide the Bank of England with justification for moving to boost growth when its interest rate-setting committee meets next week."

The fear of the side effect of conventional rate cutting measures brought about the letter by the 35 economists. They believed the new Exchequer should look at new ways of conducting monetary policy and consider something similar to BR1M.

This development in Britain throws aside arguments, including by yours truly, that BR1M has no economic justification but merely to bridge the economic transformation till higher income reach the masses.

Dublin-trained economist, Tengku Razaleigh had offered the similar economic remedy in Semangat 46 election manifesto decades ago.

The seldom clueless Kelab Che Det will need to look for new argument to support their idol. Will Mahathir recycle his old argument against the British dole system in the wake of him buddy buddying with the West for political support?


Anonymous said...

Well done TS Zeti. Under your leadership many good things have been proposed and implemented for Malaysians.

drMpower said...

why u think if someone else mat salleh does it then its good for us?

the demographic is different. the financial demographic is different. the GDP or whatever numerical comparisons are different. and last but not least, the human maturity is different.

so again i ask u. why is it a mat salleh does something then we need to do it as well?

like it or not, the example that our way is better for us is the 1998 capital control. by mahathir. u may not like this but if we take your 'mat salleh does it so we must also do it' policy, probably all the businesses would have gone. it was his selfishness that saved us. you know all those malaysians doing work over there in iskandar, or the MRT, or LRT, or whatever place now, benefitted from the selfish and that headstone mahathir.

he didnt call it human capital development whatever. but when he changed the way malaysia were heading into industrial based and developed nation, those set up made it possible malaysians acquired skills, honed their mind into analytic, and set the thinking of a malaysian to be developed as well. so when these malaysians can do something, then they trade their skills and attitude for better pay.

by doing this, the peers below the trained and skilled ones, would also be as skilled and trained, or even better. this continued until today. and now you see malaysians, doing businesses all over the world. because of one selfish, kepala batu mahathir.

ps - imagine if those malaysians were given monies. u imagine some malaysians can go build bridges or roads in Arab Saudi as they are now? can they? thats why it is wrong to give dedak!

Charles F. Moreira said...

Britain and many Westren European countries have had more than an equivalent of BR1M. It's called a welfare state in which unemployed people receive a monthly state allowance to help them pay living basic expenses and for accommodation. Most retirees, whether they had worked for the government, private sector or were self employed are entitled to a state pension, as long as they have regularly paid their taxes.

Some people abuse it of course and they should be dealt with under the law but that is no reason to abolish it.

One of my friends proudly proclaims that he has never accepted BR1M payments because it comes from taxpayer's money but I tell him that since he has paid tax all these years and is still paying tax, since he is still working in his mid 60s, he should be willing to get some of his the tax he paid back.

Anyway, the arguemnts being advanced against BR1M are neo-liberal arguments and I despise neo-liberals and will fight them to the bitter end.

Anonymous said...

Can handout help to revive the country economy or at least ease the burden of consumer?

Yes and no.

Yes if given as a one off boost like what Singapore did during the Asian Financial crisis and also in 2008.

No in Malaysia case. The effect is on the reverse. Malaysia started giving BRIM in 2012 at RM500 and the amount continuously move upward to RM1000 in 2016 (for income below RM3000). The law of diminishing return applies here. This is especially so once the GST was implemented and government cut petrol subsidies. BRIM can no longer ease the burden of high cost of living especially in urban areas.

Look at the GDP growth, increase from 4.5% in 2013 to 6.5% in 2014, than spiral downward to 4.7% in 2015 and we are lucky if it stands at 4.0% in 2016. Look also on the consumer confidence data, it moves downward from 100 in 2013 to around the 70's for 2014 to 2016.

(Source MIER)

Eventhough the government spend more on BRIM but it no longer can boost the real economy, have no effect on the consumer confidence but at the same time it burdens government fiscal.

UK should learn from Malaysian experience. The half baked BRIM initiatives formulated by PEMANDU failed to reach its target.

Anonymous said...

“To judge one’s intention is to belittle him, and to belittle him is a form of pride, and to have an atoms worth of pride in your heart is enough to forbid you from entering paradise.
Shaykh Omar Suleiman

“Rushing to judge someone’s intentions are an indication of one’s own insecurities.
Saad Tasleem

“A believer catches his intention changing forty times a day, but a hypocrite remains on the same intention for forty years.
Yasir Qadhi

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