Sunday, July 25, 2010

The 'Ripple' Effect vs The Inflation

..GDP is so far the best indicator to measure the economy of a country..and as far as i'm concerned, GDP consists of four key factors: private (domestic) consumption (C), gross investment (I), government spending (G), and export/import (Ex-Im)..

..and out of these four factors, Malaysians economy has been largely driven by government spending and export/ as a proof, the Ministry of Finance has introduced the RM60bil of stimulus package in the mids of the recession..this is very important for our economy as a response of slow export/import w/ our biggest trade partner, US..

..yet, our economy cannot forever depend on these two factors..Foreign Direct Investment (FDI) is proven to be less attractive for the sake of our economic indicated by our 4th Prime Minister, many of these investors have stopped to bring their capitals into our country..instead, they are using our sources (borrow from our local banks) as to do business here..this, i guess, is not good for our local entrepreneurs, who many of them has limited financial sources, and therefore, depend on the credit from our local banks..meanwhile, many of our local investors have gone to other countries, such as China and Hong Kong to invest their money..the bureaucracy + the slow internet speed are two out of million reasons they are running away from their own countries..

..besides, our domestic consumption is yet to be very of record, US economy is largely depending on the domestic consumption..yet, our people prefer to do savings instead of spending, the government has to play its role as to stimulate the economy..they create so many "immediate" projects..all these projects are created so to make the money flowing from top to bottom..for example, if there is a project of building a new school, there should be many workers, the government has created the job for the people..then, the nearby restaurants or warung-warung would be benefited since these workers have to feed their stomaches too..if these warung owners can sustain in their business, all the food suppliers would be happy since they can sell their products..and the effects will continue..this is what we call as the "ripple" effect..

..yet, i'm still worried because many of these workers are foreigners..these foreigners prefer to send their money to their families instead of spending, the flow might be affected slightly..and also, the intention to create jobs for our local people are not achieved..instead of improving the economy of our own people, we are helping our neighbors to solve the unemployment issues in their countries.., i guess, to cut the subsidy as to create more projects, and therefore, improving our economy is something that questionable..for example, if we cut the people subsidy, the market price of certain products would be higher..since, the income of the people are increasing in slower pace as the inflation rate, it would create a "saving" society instead of spending people..also, the purchasing power will drop..this country would then be less attractive to investors to start their business, the domestic consumption + gross investment might be affected..this is not healthy for our countries..

..hence, i guess, we need to implement the minimum basic wage for all sectors, being that private or public, and all workers (regardless of locals or foreigners) doing this, foreign workers would be less, many companies would be left w/ no options other than hiring local, we can reduce the number of unemployment..however, it's worth to note that, if our young people are interested to work in construction site or not?? if not, we might have more problems than we might expect..

*disclaimer: i'm not an economic, all these views are based on by personal research..please let me know, if there is a misleading fact included..anyway, this is only my opinions based on my logic and some superficial knowledge in economy


  1. Good pondering my fren.But economics is easier said than done.That's why we see economics now is going from social to mathematical science.

    On basic wage:Basic min wage means contributions to EPF will increase,hence increase cost to employers/businesses.This might go into inflation/job cuts.

    I think ppl in M'sia are spending.The numbers of bankruptcies among youths are increasing.We always need a balance between spending & savings.Too much spending will create budget deficit & too much savings deters economic growth.

    Nice job on the topic,but when u talk abt economy,u need figures to reasons.That's why I'm quite lazy(hehe) to write on economy.

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  3. TQ for the response ;)

    ..well, economy w/o numbers n figures is useless: True

    ..maybe,min wage is supposed to be the syn of the lowest wage given to doesn't mean we have to increase the current wage,right? yes, i heard many has started argue that the philosophy of the econ shuld be revised..the "humane" factor should be considered instead of profit/loss..

    ..youth-bankruptcy: that's sad to know that the reason is they cannot afford to pay their car loans..and also, the credit card overdrafts..well, i guess, the credit policy should b more tight so that only qualified people can have this privilege..

    ..anyway, u should write more on economy in a simple way, so that people like me can learn & understand more.. ;)


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