Soaring prices: Government of the day and its policies to be blamed?

Over those years, majority of the people live in Malaysia have been frequently complaining bitterly about how expensive things are and how the stuffs used to be cheap.

Ironically, we always expect the stuffs to be cheaper as the production is more efficient instead otherwise. The consequence is people keep on complaining how expensive things are and the implication is majority of the people cannot afford most of the things. Not surprisingly, this is common phenomena in our society.

In an attempt to put out the fire but if it is not efficiently and professionally done, worst still, the impulsive action were politically exploited; it could have like pouring water onto the fire which caused more damage than what originally triggered the anger of the people. The consequence is the "paradox of tolerance" could not have existed as the ability to be tolerance eventually is destroyed by the "intolerances".

The economy of Malaysia recorded a sterling growth of 5.7 % in the 1^st quarter of 2017 and the World Bank revised upwards the GDP forecast from 4.9 % to 5.2 % for the year of 2018. 

The 2018 Federal Government Budget in its latest economic report, the Treasury discovered that 42.6 % of the government revenue came from income tax while 22.8 % came from the GST indirect tax.

Over those years, the people have been frequently blamed directly at the government of the day and the implementation of the policies for discriminating against and provided little protection to maintain the standard living of the households especially the standard of living of people on low and middle incomes groups. It caused many families and individuals from lower and middle income households are worst off.

The authority has also failed to take into account different housing costs of different households, the higher cost experienced by house living in city and remote areas and the different levels of spending on health care across households.

The underestimated the effects of the soaring prices greatly affected the low and middle income households. It is near impossible for working class groups to purchase houses, it seem to be an impossible dream. They have to cope with higher cost of living with expenses on essentials rising, and frequently resulted in a lack of the ability to purchase.

In addition, underestimated the average effects overall that households are not made worse off which caused the dissatisfaction toward the authority. In fact, the people living standards of many low and middle incomes household are reduced and worse off.

Ironically, the social action taken by the authority for social compensation is not socially justified, as well as the disappointment of the redistribute effect frustrating to justified expectation. 

It’s undoubtedly true that the government of the day and its policies were blamed to hold responsibility for the failure to take into account the different spending and saving patterns of the middle and low income households. Moreover, the “price watchdog” is not function effectively to protect the middle and low income expenditure which causes the deteriorated of the living standards.  

According to the Organization for Economic Co-operation and Development (OECD), an effective tax policy is the one that collect revenue to finance public expenditure on transfer, health and education that favour the low income households as well as on growth enabling infrastructure that can increase social society. 

The soaring prices that cause cost of living keep on rising is due to inflation  - that is persistent increase in the average price level. Undeniably, modern economies inflation is a common phenomenon  to activate the economy growth. Ironically, most responsible Central Bank deliberately targeted a low rate of inflation of 2 % in consistent with sustain economic growth. 

On the other hand, a zero inflation economy could cause problems to the economy as a whole as the economy is stagnant. The secular stagnation means that the economy has stopped growing. For instant, consumers and companies are saving more that the economy needed. 

The ultimate target economist insisted seems to be incomes rising faster than prices and cost of living. If the cost of living increase 2 % but the average incomes are rising at 5 % a year, than the real income is increase by 3 %, despite the increased of cost of living, the consumers are better off. However, if prices are increase but incomes remain the same, then the real income is falling, and consumers are effectively worst off as they can not off to buy as many goods. This is the situation frequently complaining bitterly by the majority of the people. 

As we know, cost of living is the cost of maintaining a certain standard of living. Changes in the cost of living over time are often operational in a cost of living index. Differences in cost of living between areas often used to measure in terms of purchasing power parity rates. It also used to compare the cost of maintaining a certain standard of living in different geographic areas.   

 

Prices increase is the product of the dynamic economy. Globally prices have been increasing; therefore price increase itself is not a local phenomenon and political issue but unduly soaring prices caused, almost invariably on both a local and a national level with direct effect on living conditions.

The index for Food and Non-Alcoholic Beverages spiked 4.7 % in Kuala Lumpur and 4.5% in Selangor. The persistent increase in the average price level caused the low and middle income groups feel the pinch as the monthly basket of goods sharpest spikes in prices which resulted that they must pay higher prices for the same goods and services. They can’t afford to buy as many goods used to buy before. The items that saw sharpest spikes in prices are non-other than transport and food which is the essentials and major goods and services for the groups concern.

It is relevant also to note that another fueling price soar is the high petrol price. As usual, unscrupulous businessmen will jump on bandwagon and raise prices by a large quantum than actual cost increase. Lax enforcement by the relevant authorities encourages them to do so. In addition, the higher price of rice globally and the depreciated value of the ringgit also contributed to a price hike.

Theoretically, under free market competition, no one has the power to influence or set price. The demand and supply determines the price of a product and the price determines what to produce and who can afford to consume. The supply and demand mechanism besides being the natural consequences of economic forces provides the most efficient economic outcomes possible.

 

When the price of the items that is normally purchased increases or decreases, the consumer tends to buy less or more of it. This is because an increase in price makes the consumer poorer and requires a larger portion of income to purchase the same amount that buy at the lower price. Price increases decrease real income and vice versa, this is referred as income effect. 

As the price of a good falls, the good becomes relatively cheaper and consumer often substitutes the good for other goods that are relatively expensive. This is substitution effect. 

More often than not, the governments of the day have been setting maximum or minimum prices since ancient times. Conjunctionally, the Old Testament prohibited interest on loans; medieval governments fixed the maximum price of bread. In recent years, the government in the USA has fixed the gasoline price, the rent on apartments in New York City and the minimum wage. 

At times governments of the day go beyond fixing specific prices and try to control the general level of prices, as was done in the USA during both world wars, the Korean War and by the Nixon administration from 1971 to 1973.

Even though price control fails to protect many consumers and might hurt others party of interest, but it hold out the promise of protecting group that are particularly hard pressed to meet price increases. Politically, to get their votes, the maximum price for bread is to protect the poor who depended on bread to survive, rent controls are to protect those who were renting when the demand for apartments exceeded the supply and landlords were preparing to “gouge” their tenants.

 

Unfortunately, the negative side effect of the price control is unwelcome by economist as it worsens the economy growth particularly it can distort the allocation of resources. If the government imposed the measure of price ceiling, it can cause shortages; on the other hand, price floors which prohibited prices fall below a certain minimum can cause surpluses.

 

Under present circumstances, although the Ministry of Domestic Trade, Co-operatives and Consumerism is responsible towards the consumer protection affairs but the special team are mainly check on cases of extreme profiteering especially by middlemen. 

There was an obvious disparity between production costs and retail prices as middlemen are taking advantage by charging more than they should.  The enforcement of the Ministry was blamed because too long the ministry has been lax in the enforcement causing prices to soar due to profiteering. The middle and low income groups have been particularly affected by poor economy performance.   

Undeniably, the economy system inevitably fails, taking entire corrupt system down with them and often leading to immense suffering. Inevitability, one way to try and prevent the tragedy is through exploiting the highly trained economic experts. Famous economists or the successful businessmen are by far the best personnel to play a vital role in formulating economic policy and managing the economy of the country. Politicking has no business in the economy.

 

As Abraham Lincoln once said that, you can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” 

The famous quote by Abraham Lincoln pertaining good government is “Government of the people, by the people, for the people, shall not perish from the Earth."