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Saturday, February 17, 2007

RH: Why Inflation should be 0 or even Negative

From: Robert Ho (ho3@pacific.net.sg)
Subject: RH: Why Inflation should be 0 or even Negative


View this article only

Newsgroups: soc.culture.singapore
Date: 2003-05-16 05:06:34 PST

RH:

1. I have lately wondered why there should be any inflation at all,
by which I mean the Positive Inflation, however calculated, or even
the few percent of rises in the Consumer Price Index.

2. Why do I make this startling assertion, treading on grounds in
which I have no expertise, although that has never stopped me
thinking?

3. My thinking is this:

If you think back over the last, say 15 to 20 years, and think about
the costs of doing business, you will probably come to the conclusion
that costs of doing business have declined rather than risen.

For example, let's take a typical office department.

There would be several stenographers, who will take shorthand notes of
the executives' correspondence, replies to letters, etc.

Each of these stenos would have her own filing cabinet to file the
physical letters, documents, papers, etc. Each cabinet takes up
valuable office space. So do the stenos' desks, typewriters, files,
etc.

Other people in the department office would be secretaries,
assistants, etc, who would collect letters, open letters, distribute
these to various executives' in-trays, etc, file them in cabinets when
they are done, type replies, etc. Even lick stamps and seal envelopes.

Today, all the above are practically eliminated.

No stenos. Only a Boss's secretary or two. Very few filing cabinets.
No typewriters, only personal computers that cost about the same as a
professional typewriter, and getting cheaper by the month.

In short, with the coming of the pc, offices were freed of the
space-consuming filing cabinets. With executives reading their own
email, hardly any paper letters and correspondence are needed. Or
stenos and secretaries. And what's more, pcs get cheaper and cheaper
to purchase.

Of course, some may argue that although pcs now cost about what it
used to cost a professional typewriter, or even less nowadays, the
software can be quite expensive, that what you save on the physical
mail, etc, you now spend on pc email systems.

OK. But remember what software used to cost just say, 10 years back?
In those days, a simple piece of business software could cost a
million bucks, which today, would cost a few hundreds. So, even the
software has gotten cheaper by the month. Same for servers, IT people,
etc. You can now get a good IT person for the cost of a junior
executive.

OK, let's take another example. Telecommunications. In the old days,
an international call could cost you a hundred dollars for a half
hour's business talk. Today, that would be mere tens of dollars. Talk
has become cheap. And don't forget, with fast email, many
international calls need not even be made.

Then, how about business travel? In the old days, a business trip
abroad would cost a bomb in airticket prices. Same for the business
hotel room. Today, you probably get a better business hotel for a lot
less than before.

Other office necessities like the copier machine and fax machine and
the telephone system are all now cheaper than before, or was not even
available before. So, doing business has become easier, faster, more
efficient and also cheaper.

There are many more examples of this phenomenon which I cannot think
of at the moment. But the phenomenon is clear -- the costs of doing
business has been going down. Across the board.

Which brings us to the question -- why aren't prices going down to
reflect this?

I can only think of one answer -- greed.

No business will voluntarily reduce prices even when its cost of doing
business has gone down. It will only reduce prices when there is real
competition from real competitors. And in Singapore, with the
Government controlling practically all the important sectors, and even
many unimportant ones, like Delifrance formerly by Keppel, there is no
real competition. Singtel, M1 and Starhub, for example, are all
ultimately owned by the Government.

This may explain why the transport system in Singapore relentlessly
increases prices even though the cost of doing business is declining.
Bus and MRT fares are raised regularly and everybody's assumption is
that COSTS GO UP. This can be challenged. I don't think that costs
always go up and that therefore, fares must always go up. Most often,
the Management of these bus and train companies spend recklessly on
new-fangled 'improvements' and 'high technology' systems whose costs
are then passed on to the travelling public who are expected to pay
more on a regular basis, as a matter of course, without question or
challenge.

If my little thesis is right, fares should be maintained or even
lowered. Why should the public be expected to regularly pay more?
Business costs, as we have seen, have been going down.

Now, the CPI is calculated based on a basket of products and services
BUT SINCE THE COSTS OF DOING BUSINESS IS A PHENOMENON ACROSS THE BOARD
IN EVERY OFFICE AND DEPARTMENT, EVERYTHING FROM SUPERMARKET GROCERIES
TO VEGETABLE MARKET GREENS SHOULD COST LESS, NOT MORE.

For example, take the vegetable wholesaler who does business with the
Malaysian Cameron Highlands vegetable farms. He now has the telephone,
fax machine and probably even a pc to help him conduct business. Thus,
his business costs should go down.

Even the vegetable farms he deals with probably enjoy reduced costs of
doing business, from the basic telephone and fax to cheaper and better
lorries and petrol and highways to transport these greens to
Singapore.

Thus, even the CPI should be going down, not up.

The frightening fact about this matter is that, everyone, from the
millionaire Ministers down to the humble housewife buying groceries,
TAKES FOR GRANTED REGULAR INCREASES IN PRICES OF EVERYTHING.

As I have pointed out, this erroneous thinking and attitude can be
challenged. Why should prices always go up? Why shouldn't prices stay
the same or even decline?

Like everything else in Singapore, ultimately, raising the prices of
everything is a deliberate Government decision. I don't think it is
due to rising costs. Sure, employees have to be paid more, but even in
this area, there are lots of Malaysians, and lately Indians, Chinese,
Filipinos, etc, all coming to Singapore to work for a lot less. So,
employee payroll costs can and have been contained or even lowered.

Thus, inflation in Singapore, at least, should be 0 or even negative.
There simply are no good reasons why the people should keep paying
more and more every so often.

Robert Ho
16 May 03
UK 1306 S'pore 2006
Post a follow-up to this message
Message 2 in thread
From: Robert Ho (ho3@pacific.net.sg)
Subject: Re: RH: Why Inflation should be 0 or even Negative


View this article only

Newsgroups: soc.culture.singapore
Date: 2003-05-17 09:44:47 PST

ho3@pacific.net.sg (Robert Ho) wrote in message news:...
> RH:
>
> 1. I have lately wondered why there should be any inflation at all,
> by which I mean the Positive Inflation, however calculated, or even
> the few percent of rises in the Consumer Price Index.
>
> 2. Why do I make this startling assertion, treading on grounds in
> which I have no expertise, although that has never stopped me
> thinking?
>
> 3. My thinking is this:
>
> If you think back over the last, say 15 to 20 years, and think about
> the costs of doing business, you will probably come to the conclusion
> that costs of doing business have declined rather than risen.
>
> For example, let's take a typical office department.
>
> There would be several stenographers, who will take shorthand notes of
> the executives' correspondence, replies to letters, etc.
>
> Each of these stenos would have her own filing cabinet to file the
> physical letters, documents, papers, etc. Each cabinet takes up
> valuable office space. So do the stenos' desks, typewriters, files,
> etc.
>
> Other people in the department office would be secretaries,
> assistants, etc, who would collect letters, open letters, distribute
> these to various executives' in-trays, etc, file them in cabinets when
> they are done, type replies, etc. Even lick stamps and seal envelopes.
>
> Today, all the above are practically eliminated.
>
> No stenos. Only a Boss's secretary or two. Very few filing cabinets.
> No typewriters, only personal computers that cost about the same as a
> professional typewriter, and getting cheaper by the month.
>
> In short, with the coming of the pc, offices were freed of the
> space-consuming filing cabinets. With executives reading their own
> email, hardly any paper letters and correspondence are needed. Or
> stenos and secretaries. And what's more, pcs get cheaper and cheaper
> to purchase.
>
> Of course, some may argue that although pcs now cost about what it
> used to cost a professional typewriter, or even less nowadays, the
> software can be quite expensive, that what you save on the physical
> mail, etc, you now spend on pc email systems.
>
> OK. But remember what software used to cost just say, 10 years back?
> In those days, a simple piece of business software could cost a
> million bucks, which today, would cost a few hundreds. So, even the
> software has gotten cheaper by the month. Same for servers, IT people,
> etc. You can now get a good IT person for the cost of a junior
> executive.
>
> OK, let's take another example. Telecommunications. In the old days,
> an international call could cost you a hundred dollars for a half
> hour's business talk. Today, that would be mere tens of dollars. Talk
> has become cheap. And don't forget, with fast email, many
> international calls need not even be made.
>
> Then, how about business travel? In the old days, a business trip
> abroad would cost a bomb in airticket prices. Same for the business
> hotel room. Today, you probably get a better business hotel for a lot
> less than before.
>
> Other office necessities like the copier machine and fax machine and
> the telephone system are all now cheaper than before, or was not even
> available before. So, doing business has become easier, faster, more
> efficient and also cheaper.
>
> There are many more examples of this phenomenon which I cannot think
> of at the moment. But the phenomenon is clear -- the costs of doing
> business has been going down. Across the board.
>
> Which brings us to the question -- why aren't prices going down to
> reflect this?
>
> I can only think of one answer -- greed.
>
> No business will voluntarily reduce prices even when its cost of doing
> business has gone down. It will only reduce prices when there is real
> competition from real competitors. And in Singapore, with the
> Government controlling practically all the important sectors, and even
> many unimportant ones, like Delifrance formerly by Keppel, there is no
> real competition. Singtel, M1 and Starhub, for example, are all
> ultimately owned by the Government.
>
> This may explain why the transport system in Singapore relentlessly
> increases prices even though the cost of doing business is declining.
> Bus and MRT fares are raised regularly and everybody's assumption is
> that COSTS GO UP. This can be challenged. I don't think that costs
> always go up and that therefore, fares must always go up. Most often,
> the Management of these bus and train companies spend recklessly on
> new-fangled 'improvements' and 'high technology' systems whose costs
> are then passed on to the travelling public who are expected to pay
> more on a regular basis, as a matter of course, without question or
> challenge.
>
> If my little thesis is right, fares should be maintained or even
> lowered. Why should the public be expected to regularly pay more?
> Business costs, as we have seen, have been going down.
>
> Now, the CPI is calculated based on a basket of products and services
> BUT SINCE THE COSTS OF DOING BUSINESS IS A PHENOMENON ACROSS THE BOARD
> IN EVERY OFFICE AND DEPARTMENT, EVERYTHING FROM SUPERMARKET GROCERIES
> TO VEGETABLE MARKET GREENS SHOULD COST LESS, NOT MORE.
>
> For example, take the vegetable wholesaler who does business with the
> Malaysian Cameron Highlands vegetable farms. He now has the telephone,
> fax machine and probably even a pc to help him conduct business. Thus,
> his business costs should go down.
>
> Even the vegetable farms he deals with probably enjoy reduced costs of
> doing business, from the basic telephone and fax to cheaper and better
> lorries and petrol and highways to transport these greens to
> Singapore.
>
> Thus, even the CPI should be going down, not up.
>
> The frightening fact about this matter is that, everyone, from the
> millionaire Ministers down to the humble housewife buying groceries,
> TAKES FOR GRANTED REGULAR INCREASES IN PRICES OF EVERYTHING.
>
> As I have pointed out, this erroneous thinking and attitude can be
> challenged. Why should prices always go up? Why shouldn't prices stay
> the same or even decline?
>
> Like everything else in Singapore, ultimately, raising the prices of
> everything is a deliberate Government decision. I don't think it is
> due to rising costs. Sure, employees have to be paid more, but even in
> this area, there are lots of Malaysians, and lately Indians, Chinese,
> Filipinos, etc, all coming to Singapore to work for a lot less. So,
> employee payroll costs can and have been contained or even lowered.
>
> Thus, inflation in Singapore, at least, should be 0 or even negative.
> There simply are no good reasons why the people should keep paying
> more and more every so often.
>
> Robert Ho
> 16 May 03
> UK 1306 S'pore 2006

RH:

If I may add a postcript to the above, which was banged out in
something of a hurry, I would like to point out that SINGAPORE IS NOT
A TRUE MARKET EC0NOMY BUT A P.A.P ONE.

By that I mean that EVERYTHING is due to a PAP decision. There is
little market forces that 'automatically', using the 'invisible hand
of the market', determine prices, supply and demand, etc.

I believe that it is fair to say that the PAP has so much control over
the economy, having, not only the usual governmental powers to set
rates and financial instruments, etc, but also the real powers of its
Government Linked Companies (GLCs) to play a major and active role in
the economy.

This means that like every economic instrument and indicator, WHAT THE
P.A.P BELIEVES AND THINKS ABOUT THE ECONOMY, WILL HAPPEN OR BE MADE TO
HAPPEN.

Thus, if the PAP believes that prices should rise by the usual 2-3%
CPI every year, IT WILL HAPPEN. Because they actually have the power
to make it happen. Unlike real market economies.

This means that it is important to disabuse the PAP of the idea or
notion that inflation is a fact of life, like the sun rising and
setting. We have to disabuse the PAP of the notion that inflation
inevitably goes up and as long as it is confined to a decent 2-3%,
then it is all right.

If this little posting raises the interesting idea that in Singapore
at least, inflation should and could be 0 or even decline, then the
powers that are will begin to make the decisions that will make it so.

If the PAP realises that inflation should be 0 or -ve, then they will
not allow the public transport sector to spend recklessly on their
sexily high-tech 'improvements' from installing TV screens in buses to
new card readers with all the attendant hardware and software needed
to create a transport-by-smart-card society.

What is happening at present with the public transport sector is that,
the bus and train companies give themselves a big budget for
'improvements'. This, of course, can only be supported by regular
increases in the fares for bus and train. But the PAP thinking is
that, "Oh, it is OK to raise fares regularly because it is only
natural Inflation."

Thus, they will work in their budgets for TV screens in buses,
smart-card readers for buses and train gates, smart card top up
machines for commuters to top up their cards when the credit is low,
the software to make these all work, and even exotic schemes like GPS
tracking of buses so the control room can tell at any second where
each and every bus is, etc, etc.

All these costs money and if money is regularly provided for these
'improvements' then fares also rise regularly AS LONG AS EVERYBODY,
ESPECIALLY THE PAP, THINKS THIS IS OK. If the PAP begins to think that
maybe, fares have no right to rise every so often, then fares will not
rise. The provisions for these fancy high-tech, sexy, 'improvements'
will be reduced and FARES WILL BE KEPT LOW AND NOT RISE.

Thus, it is important for the whole of Singapore to challenge the very
concept of Inflation. Why it should even happen in Singapore. If we
can get this into the skulls of our million dollar ministers and CEOs
of GLCs, etc, we just may have helped to keep the costs of living
bearable.

Now, I have probably revealed my ignorant understanding of economics.
Any economist out there wants to take over and complete the arguments?

Robert Ho
17 May 03
UK 1745 S'pore 0045

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