AM I upset that I barely have US$50 in my bank account at times and Bill Gates has US$50 billion in his? That's billion with a b. That's 5 and then 10 zeroes behind it. Yes of course I do feel the injustice of economic imbalances at times, but I do not agree with those who are decrying that the government should tax the rich heavily so that "equity" is restored.
Equity, which means fairness, and equality are two different. Making the world more equitable could mean making it less equal. Making the world more equal does not necessarily mean it is more equitable.
I agree with the fundamental principles of progressive taxation, whereby the heaviest tax burden should fall upon the fattest bank accounts. Those who make more money out of society should give more back in taxes, which in theory, should go towards the betterment of society as a whole.
However, I cannot help but disagree with those who call for taxes so heavy that it will bring the rich down to the level of the masses. The argument is simple. Why should they own multiple houses and cars when we need double income to support our mortgage?
When I say the argument is simple, it's a euphemism for hollow. More often than not, the superrich do society a lot of good. They work hard, just like everyone else, but are gifted with some level of brilliance to do something extraordinary - which explains their wealth. Bill Gates and Steve Jobs revolutionized information technology. Warren Buffet has the right eye for the right stocks. In Singapore, UOB's Wee Cho Yaw built an empire out of his father's bank.
While we can call them evil capitalists who exploit the poor proletariat (i.e. us), there is no denying that they have made a positive contribution to society. As a whole, we have moved forward because of them. We need people like these to continually have their sparks of brilliance to propel society forward so that we can all enjoy a higher standard of living.
To ensure they have the incentive to produce, we need to let them make money - and keep most of it. So tax them, and tax them more because they earn more, but don't overdo it. After all, these people make the biggest contribution to society. Never kill the hen that lays golden eggs.
*Acknowledgment: This post is the result of a discussion with founder and president of uJ*designs, Mr Elisha Ong Yu Jie.
Saturday, December 6, 2008
Monday, December 1, 2008
Exercise Caution With Stimulus Packages
IN THE wake of the worldwide financial crisis that has led to a global recession, governments have decided it is necessary (or perhaps fashionable) to announce fiscal stimulus packages. The world's biggest economies, i.e., the United States, Europe, Japan and China, have all announced their own packages. While the details may differ, the essentials of packages remain. Government spending is increased and taxes are cut.
While it is every government's responsibility to soften the blow of the meltdown, I strongly urge that they use fiscal packages with caution. Governments need to pay for their spending. In an ideal world, government funding would come from tax collections. Governments collect a surplus in good years and spend it during the bad years.
We live in a world that is far from ideal. The United States and Europe have consistently run budget deficients - even in the boom years. In the absence of sufficient tax collections, governments have resorted to borrowing. As it stands, the United States owes more than US$10.6 trillion in debt.
Whether personal or governmental, debt is always reduced by one of two ways. They are either written off (usually due to bankruptcy), or paid off with future income. Hence, borrowing out of a recession is actually eating into a country's future income. Every dollar borrowed will have to be repaid, with interest, in future. As it stands, the United States government is already borrowing to repay past debts. This recession will take the country further into the red.
While fiscal expansion would do the countries good, caution should be exercised when working them out. Governments need to take a broader perspective and remember that debt will eat into the next generation's income and wealth.
While it is every government's responsibility to soften the blow of the meltdown, I strongly urge that they use fiscal packages with caution. Governments need to pay for their spending. In an ideal world, government funding would come from tax collections. Governments collect a surplus in good years and spend it during the bad years.
We live in a world that is far from ideal. The United States and Europe have consistently run budget deficients - even in the boom years. In the absence of sufficient tax collections, governments have resorted to borrowing. As it stands, the United States owes more than US$10.6 trillion in debt.
Whether personal or governmental, debt is always reduced by one of two ways. They are either written off (usually due to bankruptcy), or paid off with future income. Hence, borrowing out of a recession is actually eating into a country's future income. Every dollar borrowed will have to be repaid, with interest, in future. As it stands, the United States government is already borrowing to repay past debts. This recession will take the country further into the red.
While fiscal expansion would do the countries good, caution should be exercised when working them out. Governments need to take a broader perspective and remember that debt will eat into the next generation's income and wealth.
Saturday, November 15, 2008
editorial from the new york times that does share some opinions. :))
http://www.nytimes.com/2008/11/15/opinion/15sat1.html?th&emc=th
http://www.nytimes.com/2008/11/15/opinion/15sat1.html?th&emc=th
Wednesday, November 12, 2008
The White House Should Bail Detroit Out
THE big three Detroit automakers General Motors, Ford and Chrysler's plead for a bailout package by the government has gathered more steam now that President-elect Obama has thrown his weight behind them.
The question that begs answering right now is whether the automakers are worth saving. There has been talk of GM not lasting till the end of the year. That sounds like a very weak company. Clearly, the Americans have lost the comparative advantage in the automobile industry. Free trade proponents would cry for the industry to be closed and for the workers to be moved to other industries where America holds the competitive edge.
Bring a free trade proponent myself, it might seem surprising that I support a Treasury-backed bailout of Detroit. However, John Maynard Keynes himself, was a strong advocate for protectionism. We must keep in mind that the benefits of free trade come in the long run, but the benefits of protectionism, in this case, bailing the big three out, are immediate and practical. Keynes lived in the times of the Great Depression, hence his famous adage, "In the long run, we're all dead."
While we may not live in as depressed times as the 1930s, things seem to be heading downwards, and what started in the money economy is set to hit the real economy, and hit it hard. The auto industry accounts for close to half a million American jobs, and with those half a million jobs, millions of American livelihoods. With the downturn, it would be a near impossibility for the rest of the economy to accommodate these half a million workers, should the big three collapse. Even if only one collapses, it seems likely to be GM, which accounts for 266,000 jobs - by no measure a small number.
The government should allow Detroit to dig into the $700bn that has been set aside for the financial sector. However, the government must keep a keen eye on the way the money is spent. After all, the money belongs to the American taxpayer. Hence, in the event of the bailout, GM, Ford and Chrysler have a responsibility towards the taxpayer. Executives should not be lavished with generous bonuses. Wasteful inefficiency should be cut. Detroit needs to be forced to progress towards lower costs and higher fuel-efficiency.
As the economy picks up, Detroit should pick up together with it. When the rest of the economy is booming and the automakers are still struggling to survive, as they have been in past years, that would be the time to apply the theory of comparative advantage and allow the demise of some of the great symbols of American industry.
The question that begs answering right now is whether the automakers are worth saving. There has been talk of GM not lasting till the end of the year. That sounds like a very weak company. Clearly, the Americans have lost the comparative advantage in the automobile industry. Free trade proponents would cry for the industry to be closed and for the workers to be moved to other industries where America holds the competitive edge.
Bring a free trade proponent myself, it might seem surprising that I support a Treasury-backed bailout of Detroit. However, John Maynard Keynes himself, was a strong advocate for protectionism. We must keep in mind that the benefits of free trade come in the long run, but the benefits of protectionism, in this case, bailing the big three out, are immediate and practical. Keynes lived in the times of the Great Depression, hence his famous adage, "In the long run, we're all dead."
While we may not live in as depressed times as the 1930s, things seem to be heading downwards, and what started in the money economy is set to hit the real economy, and hit it hard. The auto industry accounts for close to half a million American jobs, and with those half a million jobs, millions of American livelihoods. With the downturn, it would be a near impossibility for the rest of the economy to accommodate these half a million workers, should the big three collapse. Even if only one collapses, it seems likely to be GM, which accounts for 266,000 jobs - by no measure a small number.
The government should allow Detroit to dig into the $700bn that has been set aside for the financial sector. However, the government must keep a keen eye on the way the money is spent. After all, the money belongs to the American taxpayer. Hence, in the event of the bailout, GM, Ford and Chrysler have a responsibility towards the taxpayer. Executives should not be lavished with generous bonuses. Wasteful inefficiency should be cut. Detroit needs to be forced to progress towards lower costs and higher fuel-efficiency.
As the economy picks up, Detroit should pick up together with it. When the rest of the economy is booming and the automakers are still struggling to survive, as they have been in past years, that would be the time to apply the theory of comparative advantage and allow the demise of some of the great symbols of American industry.
Tuesday, November 11, 2008
Young Workers Need Resilience
YOUNG, sheltered and pampered, the younger generation of workers, commonly dubbed Generation Y, are in for a shock as a worldwide recession hits.
I'm referring to those born in the late 1970s and 1980s who have recently entered the workforce. Born into relative prosperity, this generation has not seen much hardship. Most of them were not in the workforce during the Asian Currency Crisis of 1997. Fresh out of school, they received multiple job offers with good perks. Retrenchment was not a word in their dictionaries.
However, with the financial crisis set to turn into a worldwide recession, many will start to realise their jobs are not as secure as they are used to. To weather this storm, this generation needs to show they have a characteristic often associated with past generations - resilience.
In Taiwan, the term "Strawberry Generation" was coined to describe this generation. Strawberries bruise easily and rot quickly thereafter. Hence, it was felt that the young could not take hardships. What will set the survivors apart from those who fall behind during this crisis will be the ability to bite the bullet and wait for the crisis to subside.
Measures that some need to take would be taking up lesser positions with lower salaries. Common to the older workers during previous recessions, this is a big nono for the young worker.
Ultimately, the one who can swallow the bitter medicine gets the remedy.
I'm referring to those born in the late 1970s and 1980s who have recently entered the workforce. Born into relative prosperity, this generation has not seen much hardship. Most of them were not in the workforce during the Asian Currency Crisis of 1997. Fresh out of school, they received multiple job offers with good perks. Retrenchment was not a word in their dictionaries.
However, with the financial crisis set to turn into a worldwide recession, many will start to realise their jobs are not as secure as they are used to. To weather this storm, this generation needs to show they have a characteristic often associated with past generations - resilience.
In Taiwan, the term "Strawberry Generation" was coined to describe this generation. Strawberries bruise easily and rot quickly thereafter. Hence, it was felt that the young could not take hardships. What will set the survivors apart from those who fall behind during this crisis will be the ability to bite the bullet and wait for the crisis to subside.
Measures that some need to take would be taking up lesser positions with lower salaries. Common to the older workers during previous recessions, this is a big nono for the young worker.
Ultimately, the one who can swallow the bitter medicine gets the remedy.
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