Well, I must confess that pretty much of the following has been written well in advance and kept in my archive unpublished. However my view has not changed in such a way that invalidates their contents. So here you go...
What is the difference between education and going to school? Let's hear from Frank Lloyd Wright...
The scope of education is wide indeed. To make things complicated, different people have different beliefs and capabilities. My religious practice may be different from yours; I may be bad at drawing which is your forte. The possible combination of these qualities is almost limitless.
How to educate people under these circumstances? Centralization is the norm today, but it is evident that there are problems due to its one-size-fits-all nature. Besides, telling people what God to pray (or whether to pray at all), as in some "official policies", or what language to speak, are hardly conducive to peaceful coexistence of different kinds of people. Pacifists are likely to be concerned with nationalist teachings that exist in virtually all "national syllabi" that puts undue emphasis on "pride".
This is the non-economic problem of centralized education that I'd like to bring out. I don't have to cover the more comprehensive and economic side of the problem, since Milton Friedman has poured his talent over decades into analyzing the problem, and this article summarizes his points. My specific points on his article is available here. There are many ways of committing education to the forefront of national priority, while still leaving freedom for parents to decide and participate in the education of their children. Here's what I've thought up a couple of years ago:
The Ministry of Education will be substantially dissolved. Its existence is substantiated only be several new programs that will be instituted, as described below.
Separation of Government and Educational Institutions
The Constitution is to expressly prohibit the Government, at any level, to operate educational institutions and to promote non-objectively verifiable subjects such as moral-civic education, and history. The Government is liable to dissolution upon such a breach.
In preparation for the dissolution of the Ministry, government-operated schools and other educational institutions will be corporatized. The ownership of the institutions will be transferred from the Government to the Boards of Trustees of the respective institutions. Along with the dissolution of Central Bank and the Sovereign Wealth Fund, some of the proceeds will be distributed to these institutions as endowments.
Council of Education
A national council pertaining to basic education will be set up and named “Council of Education”. The Council will deal with basic education, i.e. education that a person undertakes to achieve functional literacy, and includes first undergraduate degree.
Any registered society or company with a substantial business in education, or interested person, is welcome to join the Council, although not compulsory. The Council itself operates as an incorporated, non-profit organization, with the state and federal Governments providing some financial support, but otherwise is financed by the civil society.
One of the most important agenda of the Council is to coordinate national educational effort. These include inter-alia organizing regular dialogues and special workshops towards such an effort, setting of standards and examinations, reaching out to such interested parties as parents and foreign educational institutions, and coordinating the country’s educational project with international organizations.
The Council will also undertake the collection of statistics, both to support its effort and to the benefit of the public; …
Education Voucher
Financially, the largest program administered by the new Ministry of Education is the Education Voucher (EV) program, which represents well over 90% of its planned expenditure.
An EV entitles the holder to spend on education in various ways. The most common way is to use EV to pay for tuition; shortfall would have to be borne by the holder (or his guardians), and unrealized value of EV can be carried forward by placing the EV into Edusave Account. Other permissible expenditures include, but not limited to, purchase of books (subject to certain limits), paying tuition of foreign educational institutions (ditto), and attending enrichment courses.
A table of apportioning entitlement is drawn up for the purpose of distributing EVs. The entitlement is apportioned to a pre-determined rate, typically expected expenditure of a primary school student. The apportionment schedule is as follows:
Let the Standard Rate be $2,500. Hence, a 13-year-old student will receive 100% of entitlement, or $2,500 per year; a 19-year-old student will receive 75% of full entitlement, or $1,875 per year; and a 35-year-old worker will receive 10% of full entitlement, or $250 per year; and so forth.
Using the population structure from 2001 to 2008, the expenditure on EV would be as follows (amounts in $ millions):
The expenditures are comparable to what the Ministry of Education has actually spent over the years. However, the Ministry did not cover adult learners in its budget, nor senior citizens. A comparatively large bureaucracy is needed to administer the existing system, adding considerable overhead to total expenditure.
What is the difference between education and going to school? Let's hear from Frank Lloyd Wright...
Education has been unrealistic.In education, there is more to mere literacy (i.e. reading, writing and counting). It includes within its contents the way of life, beliefs and spirituality. It could be as practical as how to maintain one's cleanliness; or as abstract as adopting cleanliness as a way of life, as exhibited by Shinto. Through education, one obtains the tools - skills - and the ability to yield control over them. The lack of the latter probably explains why there are people who are very smart but nevertheless commit themselves to white collar crimes. But it could be as subtle as one's being blinded by "logic and reasoning", instead of realizing that it is a tool that one can choose to heed or disregard.
Education has not seen the nature of the thing we needed as a people.
Education has not provided enlightenment. It’s provided conditioning
By way of books, by way of what has been, by way of the past,
By the habituation of the human species to date.
And it hasn’t taken the views of the men who are capable of looking beyond
and seeing what the nature of the thing was.
What is the nature of this thing we’re in.
Now that’s the grace(?) of seeing in, not seeing at.
And all education today is a seeing at.
The scope of education is wide indeed. To make things complicated, different people have different beliefs and capabilities. My religious practice may be different from yours; I may be bad at drawing which is your forte. The possible combination of these qualities is almost limitless.
How to educate people under these circumstances? Centralization is the norm today, but it is evident that there are problems due to its one-size-fits-all nature. Besides, telling people what God to pray (or whether to pray at all), as in some "official policies", or what language to speak, are hardly conducive to peaceful coexistence of different kinds of people. Pacifists are likely to be concerned with nationalist teachings that exist in virtually all "national syllabi" that puts undue emphasis on "pride".
This is the non-economic problem of centralized education that I'd like to bring out. I don't have to cover the more comprehensive and economic side of the problem, since Milton Friedman has poured his talent over decades into analyzing the problem, and this article summarizes his points. My specific points on his article is available here. There are many ways of committing education to the forefront of national priority, while still leaving freedom for parents to decide and participate in the education of their children. Here's what I've thought up a couple of years ago:
The Ministry of Education will be substantially dissolved. Its existence is substantiated only be several new programs that will be instituted, as described below.
Separation of Government and Educational Institutions
The Constitution is to expressly prohibit the Government, at any level, to operate educational institutions and to promote non-objectively verifiable subjects such as moral-civic education, and history. The Government is liable to dissolution upon such a breach.
In preparation for the dissolution of the Ministry, government-operated schools and other educational institutions will be corporatized. The ownership of the institutions will be transferred from the Government to the Boards of Trustees of the respective institutions. Along with the dissolution of Central Bank and the Sovereign Wealth Fund, some of the proceeds will be distributed to these institutions as endowments.
Council of Education
A national council pertaining to basic education will be set up and named “Council of Education”. The Council will deal with basic education, i.e. education that a person undertakes to achieve functional literacy, and includes first undergraduate degree.
Any registered society or company with a substantial business in education, or interested person, is welcome to join the Council, although not compulsory. The Council itself operates as an incorporated, non-profit organization, with the state and federal Governments providing some financial support, but otherwise is financed by the civil society.
One of the most important agenda of the Council is to coordinate national educational effort. These include inter-alia organizing regular dialogues and special workshops towards such an effort, setting of standards and examinations, reaching out to such interested parties as parents and foreign educational institutions, and coordinating the country’s educational project with international organizations.
The Council will also undertake the collection of statistics, both to support its effort and to the benefit of the public; …
Education Voucher
Financially, the largest program administered by the new Ministry of Education is the Education Voucher (EV) program, which represents well over 90% of its planned expenditure.
An EV entitles the holder to spend on education in various ways. The most common way is to use EV to pay for tuition; shortfall would have to be borne by the holder (or his guardians), and unrealized value of EV can be carried forward by placing the EV into Edusave Account. Other permissible expenditures include, but not limited to, purchase of books (subject to certain limits), paying tuition of foreign educational institutions (ditto), and attending enrichment courses.
A table of apportioning entitlement is drawn up for the purpose of distributing EVs. The entitlement is apportioned to a pre-determined rate, typically expected expenditure of a primary school student. The apportionment schedule is as follows:
Let the Standard Rate be $2,500. Hence, a 13-year-old student will receive 100% of entitlement, or $2,500 per year; a 19-year-old student will receive 75% of full entitlement, or $1,875 per year; and a 35-year-old worker will receive 10% of full entitlement, or $250 per year; and so forth.
Using the population structure from 2001 to 2008, the expenditure on EV would be as follows (amounts in $ millions):
The expenditures are comparable to what the Ministry of Education has actually spent over the years. However, the Ministry did not cover adult learners in its budget, nor senior citizens. A comparatively large bureaucracy is needed to administer the existing system, adding considerable overhead to total expenditure.
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Signed, EA Cheng
Does Najib need a session of economics revision? I can't help but to laugh upon seeing his wish of
His intention is indeed noble enough. I'm not looking down upon Malaysia's ability to get itself into the US$15,000 per-person annual income league, nor belittle-ing Najib's making this his important goal. What is dubious is, in fact, the level of US$15,000. Why that figure instead of some others?
There's a good thing about modern economy. It grows over a long period of time. You don't see that in an agrarian economy; the farmer son is going to do just as well as his farmer father (and no more), and both of them are under the complete mercy of nature (and perhaps invading army). Not so for the past 300 years; in the 20th Century alone, the world economy grew at a rate of, perhaps, 2% per year. Or shave a bit off and settle for 1.5%. For the 2% case, the annual income perhaps grew seven-fold over the century. The 1.5% case still afforded a respectable 4.5 times growth in income over the century. Certainly not bad compared to the relative stagnation since the dawn of human civilization!
Do not forget that within that hundred years a lot of things happened. There were plenty of wars - from the two World Wars, the Chinese Civil War, the "Cold War"... right up to the Persian Gulf conflict. There were genocides. There were nuclear explosions. We have plenty of natural disasters. Yet in the end, we see that tremendous growth in income and more importantly, the standard of living.
So I won't look at the recent recession too pessimistically. We'd probably get over it (and some say it's over). The economy will grow. The Asian economy will grow. The European economy will grow. And of course, the U.S. economy will grow.
Do I miss something...? Yes, they will grow! With economic growth, income will increase. (Of course, how to divide the economic pie is another question, and I won't say anything about it, here.) Yet the PM is setting a static target!
You might say, well, perhaps our PM, being an "economist" (an economics major is ipso facto an economist huh?), has already taken growth into account. He is projecting into the future using an appropriate growth rate. So leave it at that lah. Why make so much noise?
Well, in order to answer this, we must first be clear of something. The PM uses a dollar figure. Have you heard of something call "inflation"? Inflation distorts the sense of income (and a lot of other things) because the currency, being a unit of measurement, loses value over time. (The ruler gets shorter over time!) Now you have to be clear about the difference between "price" and "value". In Warren Buffett's words, "Price is what you pay, and value is what you get." He's using it in a different context, but I hope you appreciate the difference between the two terms.
Income has value. Prices itself has not. When we refer to our income as being "2,000 ringgit a month" or "5,000 dollars a month" we are just expressing the value of our income in terms of "ringgit" and "dollar", respectively, the two being units of value. You might as well say "700kg of rice per month". Since everyone understands 2,000 ringgit and you are also being paid in ringgit, it makes much more sense for you to express your income in terms of ringgit, naturally.
What can you say now? Oh, inflation eats away my purchasing power; I spend more this year compare to the last, but my living standard is about the same. But if I suggest to you that for the same amount of money you can buy a much more capable PC next year compare to this, you would probably say "yes". It is also possible that something that is completely impossible today can be made next year, and you are going to buy it in huge quantities!
We can see at this point that the measurement of income is not a straightforward process. It is rather nasty, if you like. The terms "income" and "inflation" are actually abstract concepts! If you think this is rather confusing and difficult (due to the nature of the problem and not, I hope, my inability to express the ideas clearly...), you are not alone. In fact, that explains why there are so many economists around and there are so much arguments within the fraternity. If the issue is settled, a lot of economists would be out of a job.
How do we measure income over time, then? Economists devised something call price indices ("indices" is the plural of "index"), and that could be used to provide a better measure of purchasing power in terms of ringgit (or other currencies). An index can be as simple as expressing the series of numbers in terms of a starting year; this is done by dividing the number in the series by the starting year's figure. So if I have a series (100, 200, 300, 400, 500), and I let 100 to be the base figure and "normalize" it to 1, the corresponding index would be (1, 2, 3, 4, 5). There are also weighted indices; there are a number of measurements for a given year, and some are given more importance compared to others.
This might sound very confusing, but the idea is simple. You see all the indices in action on a day-to-day basis! The Consumer Price Index (CPI, a measure of inflation), the Kuala Lumpur Composite Index (KLCI), the S&P 500, the Human Development Index... are all indices. They provide a more meaningful measure of a subject in question, be it the general price level, inflation, general level of stock market, or standard of living. (This is a good point of explaining why I use "corresponds to" when it is convenient to use "is". Abstract concepts - "income, price level" - and measurements - "CPI, dollar" - are not one and the same! So it is better to set things straight, rather than to ignore the subtle difference, only to get hopelessly confused.)
We have covered the issue of growth and measurement in some detail, albeit very crudely; let's get to the PM's point. He hopes for a per-capita income level of US$15,000, isn't it? Now, what is the current per-capita National Income for U.S. today? Roughly $40,000 in 2009, using 2009 as base Consumer Price Index; so this corresponds to "real income", with adjustment to inflation, rather than "nominal income", or just by stating measured income as-is. We will use 2009 as base CPI throughout our discussion. This is very crude and imperfect, because the component used in calculating the CPI actually changed over time. But this is better than no yardstick at all. I'll also tell you how I get those figures later.
(If you still can take it, or are still confused, take note of this: "National Income" is a term used in the National Income Accounting System, where Gross Domestic Product (GDP), Gross National Product (GNP) and National Income are lines in the financial statements. So "national income" is actually not the same as "Income", but corresponds to it!)
$40,000 is nearly 6 times Malaysia's per-capita income, if you haven't figured out! It's quite a while ago that U.S. per-capita income is $7,000, and even $15,000. The table below will tell you when.
(Click the image to enlarge.) It's between 1941 and 1951. I have no idea when the U.S. per-capita National Income is exactly $15,000, but we do know that the corresponding figure in 1951 is $16,000, and that was surely a long while ago!
Time to pause and tell you where those figures are from. The National Income figures are from the Bureau of Economic Analysis, under the U.S. Department of Commerce. The national population figures are from the U.S. Census Bureau. The original (1982-4 = 100) CPI series are from the U.S. Bureau of Labor Statistics. What about the CPI (2009 = 100) and per-capita income figures? For the former, I just normalized the 1982-4 series so that 2009 shows a value of 100. The per-capita figures are just, well, the U.S. national figures divided by the corresponding U.S. national population figures. Strictly speaking, what I do with the original statistics are not permissible if serious analysis is to be done further. But since we are not doing any serious analysis, but only to get a sense of perspective, we might as well loosen our belt and have a bit of fun!
Can the sense of 1950s America be taken seriously? Well, we can appeal to the condition of an average American family in the 1950s. The family may have a two- or three-room house, often in the suburb, with at least a bathroom. Telephone, radio, fans, refrigerator, washing machines, ovens and other like appliances were a-plenty, though television, computer and the Internet were still unaffordable and in the case of the Internet, non-existent. The husband works and the wife looks after the domestic household and her three children. Her children were expected to live 68 years. The husband may afford a car. Socialization were mainly gatherings in the house, or dinner and movie outside. Of course, discrimination were still rampant (Brown v Board of Education was in 1954) and a lot of things and culture have not yet been introduced. But by now we have a pretty good sense of the quality of life of an average U.S. person. (Oh, how good if one can take the average of a gentleman and a lady!)
The Americans have since gone far. Information about their standard of living today is widely available, and I won't repeat it here, other than the per-capita National Income figure above. And true enough, the gap between the standard of living of Malaysia, and the United States (and pretty much of the developed nations) is wide today. Now figure this: the world economy is going to grow for the next ten years, and the developed economies are surely not going to be left out. By then what would be the U.S. per-capita National Income? $45,000, $60,000 or $80,000? We would not make an estimate here (for obvious reasons) and in my opinion it is not worth making.
So, what's is our PM's sense of $15,000? Real term or nominal term? What is the base year? What would the rates of inflation and technological progress would be?
Only he or his advisers could answer those questions. Instead, I would conclude by showing you a few propositions of differing enormity.
The first is the growth rate we need to have in order to attain a per-capita National Income of $15,000, starting from 2008 till 2020, in nominal terms and today's ringgit. We assume that the ringgit-USD exchange rate is going to be constant all the way till 2020. The per-capita Gross National Income of Malaysia in 2008 is $6,970. By doing some math, you will get a required growth rate of 6.6% per annum.
However, if we were to attain a per-capita national income of $40,000, or roughly the U.S. standard today, and other things being the same, the Malaysian per-capita National Income would have to grow at 15.7% per annum. This is even better than the Four Little Dragon's during the heydays of 1970s and 1980s!
Now the more sobering one. If the U.S. per-capita National Income does grow at 2.5% all the way to 2020, the figure would be $52,500 at 2020. If we do play catch-up, our per-capita National Income would have to grow at 18.3% per annum. Anyone?
Now, I would have to tell you that the $6,970 figure I used is the nominal figure. This is pretty close to the PM's suggestion of $7,000. The Purchasing Power Parity (PPP) figure (see the Big Mac Index for an idea; I have also made similar suggestions when discussing about fuel subsidy two years back.) is about $14,000. Well, well -- where is there to grow if the figure is already at $14,000? $1,000 surely is plenty of room, and for a good ten years!
So what is the point of the idea that our PM is selling? There is growth, but apparently the end product is far behind the standards of developed economies; ambiguous wording that sounds grand and inspiring, but will be dampened upon close examination; and I suspect his vision would get even more unpalatable when equity of income is taken into account. What an un-exciting ending huh?
a Malaysia that would make a quantum leap from the current US$7,000 (RM23,100) per capita annual income to US$15,000 (RM49,500) in 10 years.
His intention is indeed noble enough. I'm not looking down upon Malaysia's ability to get itself into the US$15,000 per-person annual income league, nor belittle-ing Najib's making this his important goal. What is dubious is, in fact, the level of US$15,000. Why that figure instead of some others?
There's a good thing about modern economy. It grows over a long period of time. You don't see that in an agrarian economy; the farmer son is going to do just as well as his farmer father (and no more), and both of them are under the complete mercy of nature (and perhaps invading army). Not so for the past 300 years; in the 20th Century alone, the world economy grew at a rate of, perhaps, 2% per year. Or shave a bit off and settle for 1.5%. For the 2% case, the annual income perhaps grew seven-fold over the century. The 1.5% case still afforded a respectable 4.5 times growth in income over the century. Certainly not bad compared to the relative stagnation since the dawn of human civilization!
Do not forget that within that hundred years a lot of things happened. There were plenty of wars - from the two World Wars, the Chinese Civil War, the "Cold War"... right up to the Persian Gulf conflict. There were genocides. There were nuclear explosions. We have plenty of natural disasters. Yet in the end, we see that tremendous growth in income and more importantly, the standard of living.
So I won't look at the recent recession too pessimistically. We'd probably get over it (and some say it's over). The economy will grow. The Asian economy will grow. The European economy will grow. And of course, the U.S. economy will grow.
Do I miss something...? Yes, they will grow! With economic growth, income will increase. (Of course, how to divide the economic pie is another question, and I won't say anything about it, here.) Yet the PM is setting a static target!
You might say, well, perhaps our PM, being an "economist" (an economics major is ipso facto an economist huh?), has already taken growth into account. He is projecting into the future using an appropriate growth rate. So leave it at that lah. Why make so much noise?
Well, in order to answer this, we must first be clear of something. The PM uses a dollar figure. Have you heard of something call "inflation"? Inflation distorts the sense of income (and a lot of other things) because the currency, being a unit of measurement, loses value over time. (The ruler gets shorter over time!) Now you have to be clear about the difference between "price" and "value". In Warren Buffett's words, "Price is what you pay, and value is what you get." He's using it in a different context, but I hope you appreciate the difference between the two terms.
Income has value. Prices itself has not. When we refer to our income as being "2,000 ringgit a month" or "5,000 dollars a month" we are just expressing the value of our income in terms of "ringgit" and "dollar", respectively, the two being units of value. You might as well say "700kg of rice per month". Since everyone understands 2,000 ringgit and you are also being paid in ringgit, it makes much more sense for you to express your income in terms of ringgit, naturally.
What can you say now? Oh, inflation eats away my purchasing power; I spend more this year compare to the last, but my living standard is about the same. But if I suggest to you that for the same amount of money you can buy a much more capable PC next year compare to this, you would probably say "yes". It is also possible that something that is completely impossible today can be made next year, and you are going to buy it in huge quantities!
We can see at this point that the measurement of income is not a straightforward process. It is rather nasty, if you like. The terms "income" and "inflation" are actually abstract concepts! If you think this is rather confusing and difficult (due to the nature of the problem and not, I hope, my inability to express the ideas clearly...), you are not alone. In fact, that explains why there are so many economists around and there are so much arguments within the fraternity. If the issue is settled, a lot of economists would be out of a job.
How do we measure income over time, then? Economists devised something call price indices ("indices" is the plural of "index"), and that could be used to provide a better measure of purchasing power in terms of ringgit (or other currencies). An index can be as simple as expressing the series of numbers in terms of a starting year; this is done by dividing the number in the series by the starting year's figure. So if I have a series (100, 200, 300, 400, 500), and I let 100 to be the base figure and "normalize" it to 1, the corresponding index would be (1, 2, 3, 4, 5). There are also weighted indices; there are a number of measurements for a given year, and some are given more importance compared to others.
This might sound very confusing, but the idea is simple. You see all the indices in action on a day-to-day basis! The Consumer Price Index (CPI, a measure of inflation), the Kuala Lumpur Composite Index (KLCI), the S&P 500, the Human Development Index... are all indices. They provide a more meaningful measure of a subject in question, be it the general price level, inflation, general level of stock market, or standard of living. (This is a good point of explaining why I use "corresponds to" when it is convenient to use "is". Abstract concepts - "income, price level" - and measurements - "CPI, dollar" - are not one and the same! So it is better to set things straight, rather than to ignore the subtle difference, only to get hopelessly confused.)
We have covered the issue of growth and measurement in some detail, albeit very crudely; let's get to the PM's point. He hopes for a per-capita income level of US$15,000, isn't it? Now, what is the current per-capita National Income for U.S. today? Roughly $40,000 in 2009, using 2009 as base Consumer Price Index; so this corresponds to "real income", with adjustment to inflation, rather than "nominal income", or just by stating measured income as-is. We will use 2009 as base CPI throughout our discussion. This is very crude and imperfect, because the component used in calculating the CPI actually changed over time. But this is better than no yardstick at all. I'll also tell you how I get those figures later.
(If you still can take it, or are still confused, take note of this: "National Income" is a term used in the National Income Accounting System, where Gross Domestic Product (GDP), Gross National Product (GNP) and National Income are lines in the financial statements. So "national income" is actually not the same as "Income", but corresponds to it!)
$40,000 is nearly 6 times Malaysia's per-capita income, if you haven't figured out! It's quite a while ago that U.S. per-capita income is $7,000, and even $15,000. The table below will tell you when.
(Click the image to enlarge.) It's between 1941 and 1951. I have no idea when the U.S. per-capita National Income is exactly $15,000, but we do know that the corresponding figure in 1951 is $16,000, and that was surely a long while ago!
Time to pause and tell you where those figures are from. The National Income figures are from the Bureau of Economic Analysis, under the U.S. Department of Commerce. The national population figures are from the U.S. Census Bureau. The original (1982-4 = 100) CPI series are from the U.S. Bureau of Labor Statistics. What about the CPI (2009 = 100) and per-capita income figures? For the former, I just normalized the 1982-4 series so that 2009 shows a value of 100. The per-capita figures are just, well, the U.S. national figures divided by the corresponding U.S. national population figures. Strictly speaking, what I do with the original statistics are not permissible if serious analysis is to be done further. But since we are not doing any serious analysis, but only to get a sense of perspective, we might as well loosen our belt and have a bit of fun!
Can the sense of 1950s America be taken seriously? Well, we can appeal to the condition of an average American family in the 1950s. The family may have a two- or three-room house, often in the suburb, with at least a bathroom. Telephone, radio, fans, refrigerator, washing machines, ovens and other like appliances were a-plenty, though television, computer and the Internet were still unaffordable and in the case of the Internet, non-existent. The husband works and the wife looks after the domestic household and her three children. Her children were expected to live 68 years. The husband may afford a car. Socialization were mainly gatherings in the house, or dinner and movie outside. Of course, discrimination were still rampant (Brown v Board of Education was in 1954) and a lot of things and culture have not yet been introduced. But by now we have a pretty good sense of the quality of life of an average U.S. person. (Oh, how good if one can take the average of a gentleman and a lady!)
The Americans have since gone far. Information about their standard of living today is widely available, and I won't repeat it here, other than the per-capita National Income figure above. And true enough, the gap between the standard of living of Malaysia, and the United States (and pretty much of the developed nations) is wide today. Now figure this: the world economy is going to grow for the next ten years, and the developed economies are surely not going to be left out. By then what would be the U.S. per-capita National Income? $45,000, $60,000 or $80,000? We would not make an estimate here (for obvious reasons) and in my opinion it is not worth making.
So, what's is our PM's sense of $15,000? Real term or nominal term? What is the base year? What would the rates of inflation and technological progress would be?
Only he or his advisers could answer those questions. Instead, I would conclude by showing you a few propositions of differing enormity.
The first is the growth rate we need to have in order to attain a per-capita National Income of $15,000, starting from 2008 till 2020, in nominal terms and today's ringgit. We assume that the ringgit-USD exchange rate is going to be constant all the way till 2020. The per-capita Gross National Income of Malaysia in 2008 is $6,970. By doing some math, you will get a required growth rate of 6.6% per annum.
However, if we were to attain a per-capita national income of $40,000, or roughly the U.S. standard today, and other things being the same, the Malaysian per-capita National Income would have to grow at 15.7% per annum. This is even better than the Four Little Dragon's during the heydays of 1970s and 1980s!
Now the more sobering one. If the U.S. per-capita National Income does grow at 2.5% all the way to 2020, the figure would be $52,500 at 2020. If we do play catch-up, our per-capita National Income would have to grow at 18.3% per annum. Anyone?
Now, I would have to tell you that the $6,970 figure I used is the nominal figure. This is pretty close to the PM's suggestion of $7,000. The Purchasing Power Parity (PPP) figure (see the Big Mac Index for an idea; I have also made similar suggestions when discussing about fuel subsidy two years back.) is about $14,000. Well, well -- where is there to grow if the figure is already at $14,000? $1,000 surely is plenty of room, and for a good ten years!
So what is the point of the idea that our PM is selling? There is growth, but apparently the end product is far behind the standards of developed economies; ambiguous wording that sounds grand and inspiring, but will be dampened upon close examination; and I suspect his vision would get even more unpalatable when equity of income is taken into account. What an un-exciting ending huh?
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Signed, EA Cheng
It is a shame that I could have forgotten this blog - but I did eventually return! Since I do not have something ready to write, might as well pick something that I already have...
If you're not in a hurry, then the graph finds you well. It is a graph linking initial and final capital in terms of investment period and compounded rate of return. (Click the image to enlarge.) On the horizontal axis is the required number of years, and the vertical axis, the required compounding rate. The various curves indicate various final capital amounts in terms of multiples of initial capital.
How to read this graph? Let's say you'd like to triple your capital. So, you look for the dark blue line, which is 300%. If you want triple your money in a year, you'd have to earn 200% per year on your capital (with the initial 100%, you'd have 300% of your initial capital). If you need five years, the required return rate would be about 25% per year compounded, and so on.
The graph is rather hard to read, so I'd appended the table below that is used to construct the graph.
Click on the table to enlarge. As you can see clearly, the figures are very large when the required period is short, but drop off dramatically as the time frame gets longer. In fact, most of the figures are attainable by just holding on to low-return assets and a reasonable time frame.
Combined with the stylized fact that the greater the amount of capital employed, the lower the return it could be achieved, i.e. diminishing return; we could see that that a high absolute return rate and a short period of time is not conducive to a successful investment program. Instead, it is more favorable to have an above-average return rate compounded over a long period of time. Indeed, a single-figure compounded return can build up a respectable amount of capital over a long period!
It is fitting to end by quoting Ben Graham, that "[t]o achieve satisfactory investment results is easier than most people realize; to achieve superior investment results is harder than it looks." A key to successful investment program is that one establishes the two conditions - above-average compounded return rate and long periods of time - from which he could work.
If you're not in a hurry, then the graph finds you well. It is a graph linking initial and final capital in terms of investment period and compounded rate of return. (Click the image to enlarge.) On the horizontal axis is the required number of years, and the vertical axis, the required compounding rate. The various curves indicate various final capital amounts in terms of multiples of initial capital.
How to read this graph? Let's say you'd like to triple your capital. So, you look for the dark blue line, which is 300%. If you want triple your money in a year, you'd have to earn 200% per year on your capital (with the initial 100%, you'd have 300% of your initial capital). If you need five years, the required return rate would be about 25% per year compounded, and so on.
The graph is rather hard to read, so I'd appended the table below that is used to construct the graph.
Click on the table to enlarge. As you can see clearly, the figures are very large when the required period is short, but drop off dramatically as the time frame gets longer. In fact, most of the figures are attainable by just holding on to low-return assets and a reasonable time frame.
Combined with the stylized fact that the greater the amount of capital employed, the lower the return it could be achieved, i.e. diminishing return; we could see that that a high absolute return rate and a short period of time is not conducive to a successful investment program. Instead, it is more favorable to have an above-average return rate compounded over a long period of time. Indeed, a single-figure compounded return can build up a respectable amount of capital over a long period!
It is fitting to end by quoting Ben Graham, that "[t]o achieve satisfactory investment results is easier than most people realize; to achieve superior investment results is harder than it looks." A key to successful investment program is that one establishes the two conditions - above-average compounded return rate and long periods of time - from which he could work.
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Signed, EA Cheng
An Interview with the Mayor of Brunei (1)
0 Comments Published on Saturday, September 19, 2009 at 1:59 AM.
Interviewer: Good morning, it is my pleasure meeting you. Thank you for granting us an interview.
Mayor: Good morning! I hope you enjoy your stay in the State of Brunei, and that this interview may satisfy your curiosity concerning the working of Brunei.
Interviewer: Brunei is certainly the most pleasant place to stay; where else could I find skyscrapers in the midst of a forest? However I am not quite used to the food...
Mayor: [laughter] I understand; this is not the first time people say this to me! To address your first point, once upon a time Brunei was just like any other city in your country right now, with lots of roads, concrete and all that - trees were scarce! But as we developed the Integrated Land Transit System (ILTS), it gradually reduced the demand for road, so much that we removed most of the roads and plant trees in place of them!
Concerning the food, well, I do understand that life without meat can be hard for foreigners, as they had lived with it for so many years. But it is our principle that animal life is on an equal footing with human's, and there should be no discrimination between the two.
Interviewer: But life is surely less enjoyable without eating meat...
Mayor: [laughter] I can't comment on this as I had not tasted meat before. However, I think enjoyment is a matter of tastes and preferences. We tend to think of things foreign to us as absurd and false, or at least presumed to be so; and attach all sorts of connotations to it. Perhaps the absence of such a presumption enables Brunei to grow much faster than the rest of the world - 2.7% per year for the past 600 years - as we do not cling to unjustifiable ideas! To be specific, I had heard of the claim that not eating meat weakens one's body; but I'd have to plead the fact that Bruneians are the world's longest-living people by a considerable margin!
Well, Bruneians are generally guilty of not responding to such claims as 'meat encourages health' - such responses are not integral to our prosperity!
Interviewer: But surely extending the prohibition of eating meat to foreigners in Brunei is detrimental to your economy?
Mayor: Well, I'd have to admit that it reduces opportunity to trade with the rest of the world. But so much of Brunei's demand can only be met internally; the rest of the world is, pardon me if you would, too primitive to produce most kinds of goods and services Bruneians demand. On the contrary, the rest of the world is greatly hurt by failure to trade with Brunei, since it fails to grab the fruits of Bruneian research and ingenuity.
Sorry if I appear to be snobbish, but I'm not sure if that addresses your question.
Interviewer: [laughter] I don't mean to criticize you in return, but you say that in the face of Bruneian prosperity. Let's say if Bruneians are not that prosperous, would the ban on eating meat on foreigners still be enforced? Or you would trade the ban for more trade?
Mayor: If you do a little math using the growth rate I talked about earlier and the present per-capita annual income of Brunei, you would see that the corresponding figure 600 years ago is less than $10. That is very low indeed, compared to its contemporaries! But nevertheless the ban was maintained, and most Bruneians remain vegetarian. There were quite a few who left, though, and we felt sorry for them.
We prospered in the face of this. It's not an overnight process; it took us decades to catch up with the rest of the world, Bruneians being slow learners. But we never looked back since then. Today our average family is quite a bit wealthier and more productive than some nations on earth.
It is a matter to generate wealth, but another to keep it. I believe humans generally are not lacking in the former, but it is the latter that differentiates Bruneian approach from the rest of the world. The key is discipline and self-restraint. The two qualities are imparted upon us mainly through our practices of not eating meat. I'm sure you understand the urge to eat meat is hard to resist indeed!
Interviewer: That all sounds very well; but why Brunei still maintains weapons of mass destruction? Isn't that contradictory?
Mayor: Yes, and we are sorry. But one does have to remember that he is living in a world with other irrational people. It is plausible that one day, we may see situations that it is far worse to survive than to die. Think of enslavement, for example. We would rather die with the rest of the world than to see ourselves in the kind of situation I mentioned earlier. In any case, the weapon is in the form of our fusion reactors, which upon release of reaction control, would release energy sufficient to destroy the earth several times over. So there should be no worries!
Interviewer: But it is very paternalistic that Brunei gains an upper hand in determining the fate of human race!
Mayor: It is also possible to interpret the situation the other way around: by failing to develop, the rest of the world has forfeited its right share in determining the fate of human race! [laughter] Well, I am just joking. But we have nothing to gain and all to lose if the weapon is ever to be used.
By the way, you'd have to realize something, that reasoning does not work in all situations!
[To be continued...]
Mayor: Good morning! I hope you enjoy your stay in the State of Brunei, and that this interview may satisfy your curiosity concerning the working of Brunei.
Interviewer: Brunei is certainly the most pleasant place to stay; where else could I find skyscrapers in the midst of a forest? However I am not quite used to the food...
Mayor: [laughter] I understand; this is not the first time people say this to me! To address your first point, once upon a time Brunei was just like any other city in your country right now, with lots of roads, concrete and all that - trees were scarce! But as we developed the Integrated Land Transit System (ILTS), it gradually reduced the demand for road, so much that we removed most of the roads and plant trees in place of them!
Concerning the food, well, I do understand that life without meat can be hard for foreigners, as they had lived with it for so many years. But it is our principle that animal life is on an equal footing with human's, and there should be no discrimination between the two.
Interviewer: But life is surely less enjoyable without eating meat...
Mayor: [laughter] I can't comment on this as I had not tasted meat before. However, I think enjoyment is a matter of tastes and preferences. We tend to think of things foreign to us as absurd and false, or at least presumed to be so; and attach all sorts of connotations to it. Perhaps the absence of such a presumption enables Brunei to grow much faster than the rest of the world - 2.7% per year for the past 600 years - as we do not cling to unjustifiable ideas! To be specific, I had heard of the claim that not eating meat weakens one's body; but I'd have to plead the fact that Bruneians are the world's longest-living people by a considerable margin!
Well, Bruneians are generally guilty of not responding to such claims as 'meat encourages health' - such responses are not integral to our prosperity!
Interviewer: But surely extending the prohibition of eating meat to foreigners in Brunei is detrimental to your economy?
Mayor: Well, I'd have to admit that it reduces opportunity to trade with the rest of the world. But so much of Brunei's demand can only be met internally; the rest of the world is, pardon me if you would, too primitive to produce most kinds of goods and services Bruneians demand. On the contrary, the rest of the world is greatly hurt by failure to trade with Brunei, since it fails to grab the fruits of Bruneian research and ingenuity.
Sorry if I appear to be snobbish, but I'm not sure if that addresses your question.
Interviewer: [laughter] I don't mean to criticize you in return, but you say that in the face of Bruneian prosperity. Let's say if Bruneians are not that prosperous, would the ban on eating meat on foreigners still be enforced? Or you would trade the ban for more trade?
Mayor: If you do a little math using the growth rate I talked about earlier and the present per-capita annual income of Brunei, you would see that the corresponding figure 600 years ago is less than $10. That is very low indeed, compared to its contemporaries! But nevertheless the ban was maintained, and most Bruneians remain vegetarian. There were quite a few who left, though, and we felt sorry for them.
We prospered in the face of this. It's not an overnight process; it took us decades to catch up with the rest of the world, Bruneians being slow learners. But we never looked back since then. Today our average family is quite a bit wealthier and more productive than some nations on earth.
It is a matter to generate wealth, but another to keep it. I believe humans generally are not lacking in the former, but it is the latter that differentiates Bruneian approach from the rest of the world. The key is discipline and self-restraint. The two qualities are imparted upon us mainly through our practices of not eating meat. I'm sure you understand the urge to eat meat is hard to resist indeed!
Interviewer: That all sounds very well; but why Brunei still maintains weapons of mass destruction? Isn't that contradictory?
Mayor: Yes, and we are sorry. But one does have to remember that he is living in a world with other irrational people. It is plausible that one day, we may see situations that it is far worse to survive than to die. Think of enslavement, for example. We would rather die with the rest of the world than to see ourselves in the kind of situation I mentioned earlier. In any case, the weapon is in the form of our fusion reactors, which upon release of reaction control, would release energy sufficient to destroy the earth several times over. So there should be no worries!
Interviewer: But it is very paternalistic that Brunei gains an upper hand in determining the fate of human race!
Mayor: It is also possible to interpret the situation the other way around: by failing to develop, the rest of the world has forfeited its right share in determining the fate of human race! [laughter] Well, I am just joking. But we have nothing to gain and all to lose if the weapon is ever to be used.
By the way, you'd have to realize something, that reasoning does not work in all situations!
[To be continued...]
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Signed, EA Cheng
| Malaysia | Singapore | |
| Prime Minister | Bachelor's degree in industrial economics, University of Nottingham [1] | Master of Public Administration, Harvard University |
| Diploma in Computer Science, University of Cambridge (equivalent to a Master's degree) | ||
| BA (First Class Honors), University of Cambridge [2] | ||
| Deputy Prime Minister | Bachelor's degree in Economics and Malay Studies, University of Malaya [3] | (1) MBA, London Business School |
| BA (Hons), University of Singapore | ||
| Diploma in Business Administration, University of Singapore [4] | ||
| (2) Master of Science (Computing Science), Imperial College of London | ||
| Bachelor of Science (First Class Honors), UMIST [5] | ||
| Minister for Finance | Bachelor's degree in industrial economics, University of Nottingham [1] | Master of Public Administration, Harvard University |
| MPhil (Economics), University of Cambridge | ||
| BSc (Economics), London School of Economics [6] | ||
| Minister for Education | Bachelor's degree in Economics and Malay Studies, University of Malaya [3] | Master in Medicine (Surgery), National University of Singapore |
| M.B., B.S., National University of Singapore [7] | ||
| Minister for Defence | PhD in Communication, Universiti Putra Malaysia | Master of Science (Computing Science), Imperial College of London |
| BA, University of Malaya [8] | Bachelor of Science (First Class Honors), UMIST [5] | |
| Minister for Foreign Affairs | Bachelor's degree in "philosophy, economics and law", University of Buckingham [9] | MBA, Harvard Business School |
| MEng and BA, University of Cambridge [10] |
Source:
- http://www.pmo.gov.my/?menu=page&page=1926
- http://www.cabinet.gov.sg/CabinetAppointments/Mr+Lee+Hsien+Loong.htm
- http://www.silobreaker.com/biography-for-muhyiddin-yassin-5_2260541707743395840_4
- http://www.cabinet.gov.sg/CabinetAppointments/Mr+Wong+Kan+Seng.htm
- http://www.cabinet.gov.sg/CabinetAppointments/Mr+Teo+Chee+Hean.htm
- http://www.cabinet.gov.sg/CabinetAppointments/Mr+Tharman+Shanmugaratnam.htm
- http://www.cabinet.gov.sg/CabinetAppointments/Dr+NG+Eng+Hen.htm
- http://thestar.com.my/news/story.asp?file=/2008/10/18/nation/20081018171015&sec=nation
- http://www.kln.gov.my/fm/
- http://www.cabinet.gov.sg/CabinetAppointments/Mr+George+Yong-Boon+Yeo.htm
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Signed, EA Cheng
