"The first and most important thrust in the Resilience Package is jobs for Singaporeans. We will introduce a Jobs Credit scheme to help employers to keep their workers. We will also strengthen our subsidies for training and provide additional support for lower-income workers who face a reduction in pay during the downturn. Finally, the Government will also expand recruitment across ministries and statutory boards, for all levels of employees, and including mid-career professionals" - Singapore Budget 2009 Statement.
There are things we already know have happened and will happen. There has been a demand collapse and job losses will come. Just scanning through public announcements of companies, you can tell there will be massive job losses. Even Microsoft is retrenching - can you imagine that? Microsoft is not short of cash, it is not short of innovative ideas for expanding its business yet the fall in demand is so bad it will retrench thousands of employees around the world for the 1st time since Bill Gates started the company decades ago. The newspapers keep drilling home the message that the job credit will save jobs. It may save some jobs but it is also giving money to many companies that don't need it. For example, the SMRT declared record profits again....giving them cash is not going to encourage them to hire another driver for each train. No doubt the job credit will have a positive impact on the economy but it is not going to come close to solving the joblessness problem. The govt can create jobs by recruiting more people to its ministries. It is good thing but I wonder how our ministries can recruit more people than it already has or needs ...I guess for defense and security related, the headcount is elastic you can argue that a policeman is needed for every void deck. In fact I was thinking since the govt is so allegic to giving handouts to the jobless, the other way is to put almost every jobless person on its payroll. You get a handout, you're on the govt's payroll and you do something - look for Mat Selamat in Ubin, search for him in MacRitchie....stand at the SMRT station to scan for potential terrorists...or better still sign on to serve in the Navy, Police etc. Judging from those outlandish, surrealistic Navy ads, I think the Navy probably have the hardest time looking for people. Now they can stop making me watch those ridiculous ads because they should be able to recruit people easily:
I'm sure the guy who came up with those ads can find a job in Hollywood easily...if not MediaCorp should hire him.
Going through the analysis from various economists a much clearer picture has emerged on what is going on and some consensus is emerging on what the solution should be:
1. The global economy is in a recession with a high risk of going into a deflationary spiral (falling prices, falling investments, job losses --> lower prices, more job losses).
2. There is a fear that the global economy will go into what Japan did in the 90s (known as the Lost Decade) or the US during the Great Depression.
3. There are 2 schools of thought - the monetarists view and minority Austrian School on what to do next.
4. Bernanke & gang belongs to the monetarist camp believe that these events were caused by the monetary contraction. The approach is to shore up money supply.
5. The Austrian School economists believe that all the bad things we are seeing are caused by credit expansion and the inevitable collapse of this expansion. Their belief is the Fed caused all these problems by interfering with the money supply. The Great Depression was caused by money supply expansion in the 1920s and the current crisis is caused by Greenspan. Their suggestion is to do nothing and take the pain..and get rid of the Fed and stop interfering with the money supply. You see supporters such as Marc Faber (aka Dr. Doom) and Jim Rogers who asked for his govt to allow all the banks to collapse.
Since the Austrian guys are saying doing nothing which is easy but awfully painful, if you want to do something it has to be to shore up the money supply with the monetarist approach. For govts that want to do something, the tips from Lost Decade & Great Depression are:
1. Do what you need to do early. The same measures are less effective if you spread it out. The PIMCO experts say that the global economy just had a heart attack - you want to shock it back to life with a defibillator now. Doing it later is useless because the economy would be dead, you can't revive a dead man.
2. Do not be afraid of doing too much. You can tackle the side effects of doing too much later.
3. Don't do things reactively like the Japanese did.
4. Do everything you can. Shore up the banks. Slash interest rates. Govt spending. Tax cuts. Spare no effort.
The window of time is small and the effort required is huge. The American people gave Obama the mandate to get these big things done fast and he has gone about doing it. However, there are limits to what is politically acceptable and possible. Obama is now pushing a $850B stimulus to be implemented fast. However, based on a number of models, the size of package required to revive the US economy is closer to $2T. $2T is politically impossible to get done....economics being an inexact science the argument can always be made by politicians for doing less. Because of politics, he probably has to split the stimulus doing $860B first.. making it less effective. Doing things slower will mean doing more. As the US economy weakens, the banks' balance sheet will deteriorate further and they will need to do more to shore up the banks some estimate $1T is needed here. Without political will, US will just descend into a firefighting state like the Japanese - you enter a trap a vicious cycle and you just can't get out. This one can be a long one just like what MM Lee said yesterday but a lot depends on what Obama can get done. He seems to understand what is needed but he is hindered by political opponents who operate on ideology or just don't want to see him succeed.