However, in his most recent acts, over just a period of weeks, he has outdone all other Finance Ministers from any relatively open economy across time and geography by departing from both major schools of economic thought of the last century.
On Thursday, the Bank Negara chief, Zeti Akhtar Aziz, admitted that the central bank needed more time to assess the extent inflation would rise to this year. This was barely 1 week after her expressed view that inflation can be managed with confidence, even if it hit a 10-year high this year. In my view, there are 3 elements likely to cause such high inflation expectation here:
- Government policy that have direct or indirect impact on prices. (Due to conflict of interest on my part, I'll let you draw your own arguments for and conclusions on this)
- The on-going negative impact of government policy flip-flops, resulting in reduced interest in investments or even retained deposit savings, both foreign and local, for fear of instability
- Government's competency (or incompetency rather!) in mitigating the negative impacts of the global financial crisis, that now may have a found a second contributor as the UK and Spanish property bubbles have burst (notice how there are no more 'Profitable Plots' ads anymore on TV?)
Note the strong influence of government on domestic inflationary pressures? It would appear Pak Lah has managed to defy the monetarist priority of managing inflation so much that even Bank Negara has had to revise its earlier confident view of inflation management within days! Eat your heart out Milton Friedman! Imagine if Bank Negara is forced to try to manage things with higher interest rates?But then one wonders... perhaps Pak Lah is planning to go Keynesian? After all, this theory whereby government spending (fiscal policy) helps pump-prime the economy, a Tun Dr M favourite, has been used with great success globally since the 1930s depression era. Pak Lah can even get political points by distributing 'pump priming' projects to UMNO leaders prior to the general assembly.
However, Pak Lah had earlier announced, in response to the ever-ignorant opposition calls, to cut government spending by about RM2 Billion. No, no, no, no, no! This is not Keynesian! Sure, there is a benefit in the government cutting ministerial allowances, but cutting back on functions and small projects is counter-Keynesian! The government should instead re-allocate long-term spending to increase the number of projects, large and small, with high, immediate impact!
OK, I admit, some of the cut-backs are good, besides being good politics, like cutting back on the allowances for outfits for events (why did we have this in the first place?!) and budgets for restructuring (aren't these supposed to save money??!!). However, as spending on new assets, conferences, etc. increases circulation and business activity, the net benefit of cancelling many of these to the national economy, even if the funds go to subsidies support, may be negative!
Rather than cut back on small projects, why didn't Pak Lah cancel silly long-winded, slow and low return on investment projects like the 2nd Penang Bridge and re-allocate the savings on this to projects like the one he launched yesterday on increasing padi production. Instead, he has just cancelled a collection of small projects to fund another collection of (otherwise rather excellent) small projects, with a net loss from the effort to re-allocate the funds as a minimum!
Surely Pak Lah's friendship with Patrick 'Badawi' Lim is not worth spoiling Pak Lah's Keynesian efforts to boost the local economy! Pak Lah has already made monetarism unworkable in Malaysia by pushing inflation potentially beyond the control of Bank Negara. Will he now defy Keynesian economic theory by only half-applying it for the benefit of his friends and family?
If he does so, Pak Lah will certainly earn another accollade worthy of inclusion in the history of world finance, for being the first PM & Finance Minister who is both Anti-Monetarist and Anti-Keynesian... shall we call it Economic Irrationa-Lah-ism?