The New Mahathirnomics

Mahathirnomics

Speaking at the Global Leadership Forum in Kuala Lumpur yesterday, Mahathir has warned of potential risks if Malaysia depends too much on external trade to power its economy. Mahathir observed that Malaysia's current economic policies and economic well-being may be exposed to risks faced by its trading partners. Mahathir advised that in order for Malaysia to remain competitive, Malaysia has to try to reduce the percentage of trade contributions to the country's GDP and that the government must look into the domestic contributions to fuel it's own economy. Mahathir suggested that both the public and private sectors should increase their non-trade contributions so as to generate domestic trade within and this would act as a shield against possible trade falters with the external partners.

Mahathir is of the opinion that Malaysia has to trade more with North-East Asia, South-East Asia, India and China and to reduce it's current 20% trade with the US.

In essence, economics well-being is about trading, the buying and selling, and the generation of wealth from those trades. Every country have to trade with each other and the essence of trading is profit generation and competitiveness.

Economics is a social science that studies the production, distribution, trade and consumption of goods and services, and how unlimited wants conflict with limited resources. Economics is said to be positive when it tries to objectively predict and explain consequences of choices, given a set of assumptions or a set of observations. Conversely, economics is said to be normative when it recommends one choice over another, or when a subjective value judgement is made. Traditional economics emphasized optimal satisfaction of material wants under conditions of scarcity, and this concept is the core of economic analysis today.

Mahathirnomics seem to be centered on International Trade, Macroeconomics and Political Economy.

International trade is the exchange of goods and services across international boundaries. In most countries, it represents a significant share of GDP.

Macroeconomics examines an economy as a whole with a view to understanding the interaction between economic aggregates such as national income, employment and inflation.

Political economy is the study of production, the acts of buying and selling, and their relationships to laws, customs and government. Political economy is centrally focused on the development of the polity. It pays particular attention to whether the polity is running a surplus or a deficit. Political economy, then, studies the mechanism of human activity in organizing material, and the mechanism of distributing the surplus or deficit that is the result of that activity.

This is another chapter of the mahathirnomics which our economist, Economic Planning Units (EPU) and Bank Negara will need to ponder. Pak Lah is going to have a difficult time to chew this poignant theory enunciated by the ex-pm.

In observation, Mahathir seemed to be lamenting over the lack of government-led economic priming activities (enunciated by John Maynard Keynes) that could fuel the domestic economy, the current regime's focus on the substantial built up trade supluses (over the last 80 months or so) and it's dependence on foreign trade to boost the country's GDP numbers at the expense of shrinking domestic development expenditure. Essentially, Mahathir is unhappy of the suffocation policy enunciated by the current regime which has partly paralyzed the bumiputra entreprenuers.

In Keynes's theory, general (macro-level) trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous improvements in potential output, Keynes asserted the importance of the aggregate demand for goods as the driving factor, especially in downturns. From this he argued that government policies could be used to promote demand at a "macro" level, to fight high unemployment and deflation.

A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels.

But many economists still insisted that business confidence, not lack of demand, was the root of the problem, and that the correct course was to slash government expenditures and to cut wages to raise business confidence and willingness to hire unemployed workers. Some economist suggest that "nature would take its course," solving the Depression automatically by "shaking out" unneeded productive capacity.

Pak Lah's current policy seemed to rule along the later theory.