Despite compliants of people, the Gov resolved to raise retail prise of petro and rice drastically. In my personal view, i throw my full support into PM Abdullah, who courageously pursue public interest regardless of the political consequences. However, we shall not ignore the social costs that inflation has imposed on Malaysians.
Inflation ranks high on people’s list of major national problems, generally even ahead of judicial partiality. However, most of us have many misconceptions about it. Some believe that inflation systematically erodes the purchasing power (the decline in what money will buy)of wages, are appalled by rising prises even when wages are rising just as fast, and blame inflation for any unfavorable changes in relative prices. What a crock of shit! The wages people earn are also prices (prices for labor services). During a period of inflation, wages also rise and, in fact, the average wage typically rise more in step with prices. Thus, contray to popular myth, workers as a group are not usually victimized by inflation. Nor does inflation lead to “unfair” prices due to the working of economy’s self-correcting mechanism that cures the inflationary gap. Of course, not all of the costs of inflation are mythical. For example, inflation redistributes income in an arbitrary way that distorts society’s distribution of income. The actual income distribution should reflect the interplay of the operation of free market and the deliberate efforts of Gov to alter the distribution. Infation interferes with and distorts this process. In addition, senior citizens who are trying to scrape by on pensions suffer badly from inflation. Other costs of inflations include regulation of public utilities & interest rate and so on are also very real indeed. As a result, people consider inflation to be something bad inevitably leads to alarming political leaders manage the economy in a way that promotes their own political fortunes (esp the unreasonable and ridiculous MPs from DAP) rather than stabilize the economy through Adam Smith’s invisible hand.
In recent years, Malaysia have encountered stagflation that often follows in the aftermath of an inflationary boom arising from Oil & Food Cisis. First, the nations constituting the Organization of Petroleum Exporting Countries (OPEC) got together on a collusive agreement to limit production that succeeded in rising the price of crude oil. To Malaysian consumers, this showed up as a substcutial increase in the price of petrol. To Malaysian firms, this action meants that one of the important inputs into their production process-energy-rose drastically in price, thus increasing the cost of doing business. Second, crop failure (because of poor weather and other factors) in many parts of the world sent agricultural prices soaring. Because food prices are an important component of the cost of living, this shortage added directly to inflaction. And it also contributed to inflation in two indirect ways. First, since some agricultural scraps are used as an alternative energy source, the higher agricultural prices led to higher energy prices. Second, the accelerating consumer prices encouraged labor to strive for more generous wage increases. The general lesson to be learned from these two crisis is as important as it is clear: The typical results of an adverse supply shock are a fall in output and an acceleration in inflation. This is the only one reason why the world economy is plagued by stagflation recently and it can happen again in future if another series of supply-reducing events take place.
Although the economy seems does indeed have a self-correcting mechanism that tends to eliminate inflation, its beneficial effects on inflation are sometimes swamped by strong infationary forces such as the rapid increases in aggregate demand. On the other hand, the self-correcting mechanism cannot always be relied upon. Thus, the Gov should play its role in fighting inflation, the evil of macroeconomics. But the question is how should the Gov’s ability to fighting inflation through fiscal and monetory policy? Don’t forget, the cost of reducing inflation by restrictive fiscal and monetory policies is a temporary rise in unemployment! Infation can be caused either by rapid growth of aggregate demand or by sluggish growth of aggregate supply. Thus, the Gov have many choices to make such as rising taxes, cutting Gov spending (for example, cut down the Ministries’ allowance), adjusting the open market operations and so on-can be used to decrease aggregate demand. However, some people favor Gov policies that encourage the growth of aggregate supply. Some possibilities include reduce taxes on earned income to encourage people to work harder; reduce taxes on corporations to encourage more investment, and thus faster growth of the capital stock; reduce taxes on interest and dividends to encourage more saving; and provide greater support for research and development (perhaps through tax incentives) to improve technology and then speed up the growth of productivity. These four policies all share the same goal: expansion of aggregate supply.
The conclusion, no matter which policies may possibly play the role in the fight against inflation, particularly in the long run, the Gov “must seek to reduce inflation at a lower cost in lost output and employment” (Jimmy Carter, January 1980). Consequently, a number of suggestions have been offered for eliminating the inflation. Some of these plans have actually been tried, others are still untested ideas. They range from governmental exhortations to hold down infation to outright prohibition of wage or price increases. They include efforts to improve the functioning of labor markets, plans to enlist the tax system in the battle against inflation, and institutional changes designed to rob inflation of its social costs. Although each of these ideas is worthy of consideration, the Gov must understand in advance that none is a panacea. The war on inflation, the evil of macroeconomics will last years, not months.
Source of Reference:
Economics – Principles and Policy (1982)
By William J. Baumol & Alan S. Blinder
伟伦 - Believer of Pure Land (Sukhavati) Buddhist Sect
服膺三民主義的中華民國國民黨精神黨員
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