Monday, June 29, 2009

Lessons on Rising Healthcare Cost....

Recently Obama announced a overhaul of the American healthcare system that will cost taxpayers $1trillion over a period of 10 years. Although the amount is less that what it cost to fight the Iraq war it is strongly opposed by Republicans [Link]. Whether these changes will come is still uncertain as the politicians haggle over it. What is wrong with the American healthcare system?

1. It has lost its universality. A good healthcare system has to deliver healthcare services to everyone but in the US, 45 million Americans are uninsured.

2. Healthcare cost is the highest in the world and keeps rising.

3. It is extraordinarily complex.

The American system hold many negative lessons for us just as French system which is ranked No. 1 in the world has many positive lessons for us. A good healthcare system has to be simple, universal and among the top healthcare systems in the world govt play a big role in healthcare. Unlike many other industries where free market principles yield the best results, it is not the same for healthcare. Recently, due to the H1N1 spread we received some feedback on our system - a H1N1 patient expressed surprise that he got a $1000 bill for his short stay in hospital[Link]. The MOH explained that the bill is already 80% subsidised (the unsubsided bill is $5000!) as means testing is suspended for all H1N1 cases - everyone gets the full subsidy. A writer to ST forum wrote that he was quite angry that he had to pay $214 for an ambulance and H1N1 testing[Link]. "Why should being responsible cost $214?"....the writer asked. Singapore is now leading Asia in the number of new cases[Link]. Even in a pandemic situation, the PAP govt cannot shed its ideological constraints and insists that sick Singaporeans paying for testing. It would have been alright if Singaporeans all have jobs and are rich enough not to be deterred by the costly test but we have an unemployment rate of 4.9% and 30% of Singaporeans workers are in the low income category. It would have been more effective to waive the cost of testing to stop the spread of H1N1 but the PAP govt will not do it because of its ideology.... I'll talk more about this ideology later but lets see what happened to the American system to understand how a govt can steer a good healthcare system in the wrong direction and end up with a costly mess.

I will continue and finish this post later and relate the above and what is happening in Singapore and why we should watch our govt healthcare policies closely ....those of you with comments please feel free to post them.

I'm back....

If you watch the pinky video I posted on the American healthcare system, the root cause of rising healthcare there is due to the following:

1. Allowing healthcare to be driven by market forces.

2. Treating healthcare as a commodity.

3. Creating a system concerned with maximising profits over treating people.

The Americans created a complex system that involved many profit oriented private entities and the free market forces allocates healthcare based on who can pay for it. Before I get on to describe the state of healthcare in Singapore, lets take a look at some of the systems around the world :

"In the Japanese health care system, healthcare services, including free screening examinations for particular diseases, prenatal care, and infectious disease control, are provided by national and local governments. Payment for personal medical services is offered through a universal health care insurance system that provides relative equality of access, with fees set by a government committee. People without insurance through employers can participate in a national health insurance program administered by local governments. Since 1973, all elderly persons have been covered by government-sponsored insurance" [Link]

"The best thing about the Japanese medical system is that all citizens are covered. Anyone, anywhere, anytime — and it's cheap." [Link]

In Taiwan, they pay $20/month for insurance and if you're too poor or over 65 years old, the govt gives you money to live on and part of it goes towards this $20. [Link] This $20 (or higher for the higher income) is all they pay. It takes care of tests, hospitalisation and outpatient treatment.

In Taiwanese soap operas there is plenty of crying over life's numerous human tragedies but I challenge you to show me scene in a Taiwanese show where they cry because they they can't afford medical treatment.....it just does not happen because nobody walks out of a hospital there with a $10,000 bill.


One of the important lessons learned as seen on the above video from the healthcare systems of many countries is when private insurance is allowed to step into system the govt has to play it tough and disallow them from 'cherrypicking' who they want to cover and force them to accept everyone otherwise you end up with a pool of uninsured people and the system loses its universality.

Universal coverage so that not a single person is left out and full coverage so that little or no money comes out of pocket of individuals when they get sick - this is to makes sure that the poor won't avoid seeking treatment when they are sick - are common characteristics of some of the better healthcare systems in the world. In many of these systems the govt plays a central role as the single payer [Link] - this gives govt tremendous incentive to keep healthcare costs down by implementing the right policies and regulations.

In Singapore, the govt implemented MediSave in 1984 and MediShield in 1990. The MediSave is just a compulsory savings scheme in which CPF contributors set aside 6-8% of their income for the purpose of paying their future medical bills and those of their family members. Hmmm...the govt wants to make sure people can pay up as hospital bills go up. However, as hospital bills became bigger it became clear that MediSave wasn't enough so the govt came up with Medishield which was supposed to be a "catastrophic illness insurance scheme". There are several problems with MediShield. The first being it is it is not universal in nature. When it was introduced, it did not cover newborns and children and this gap was only closed 18 years later in Dec 2007 [Link], however, newborns with congenital health issues are still not covered (correct me if I'm wrong). MediSheld does not cover those with pre-existing conditions. People who have suffered certain mental conditions are uninsurable[Link]. If you think MediShield protects you from high bills all the time, it is time you do some checking. MediShield together its co-payment and deductible also has limits for various treatments and an annual limit [Link]. I've posted in this blog a number of medical cases in which the bills exceeded $100K - these occur with a higher frequency that what most Singaporeans think. Take the case of Charmaine Lim. Many Singaporeans are now familiar with the extremely sad story of this 4 year old who was diagnosed with stage four neuroblastoma. She is halfway through her treatment in NUH and the bill was reported to have already reached $80K[Link]. Unfortunately, the standard chemotheraphy available in Singapore gives her a 20% chance of survival. She needs US$350K for an alternative treatment in the US that raises her odds of survival to 50% (please donate, I'll be ashamed as a Singaporean if we can't raise enough for this little girl).

Means testng was introduced in the beginning of this year while Singaporeans were still struggling with the economic crisis[Link]. Means testing will hit middle class families whose members get seriously ill the hardest because it causes their medical bills to rise by 75% especially when the patient has a congenital problem and is uninsurable. In the past, they can try to keep the bills down by staying in "C" class but with means testing their medical bills can escalate by 75%. It makes no sense that means testing is done when the patient is admitted does not take into account the final bill the person has to pay. What means testing effectively does is to reduce the govt expediture on health care and pass the cost to middle class Singaporeans.

Why is healthcare cost rising so much faster than Singaporeans' income? Why is it rising so much faster than inflation?

The PAP govt's ambition to make Singapore a medical hub for the rich people in this region and the middle east resulted in an influx of 400,000 medical tourists into Singapore[Link]. A growing proportion of our medical sector is privatised to serve these tourists for profit. What this has done is cause price of limited healthcare resources to rise. So the PAP on one hand is passing rising cost of health care to Singaporeans and on the other going after profits in medical tourism that is causing our healthcare costs to escalate. 400,000 medical tourist is a huge number relative to the population of Singapore and when private companies such Parkway and Raffles Medical pursue these medical tourist profits healthcare in Singapore start to become commoditize like in the US and costs will be driven by market forces (rich Indonesians, middle easterners, ,...) and the system will become concerned with maximising profits over treating the sick. What is worrying is not where we are today but the path we have taken and where we will be in the coming years as cost continue to rise faster than income and the govt passes the a larger portion of the cost on to Singaporeans. As private sector medical hub grow and expand due to medical tourism and increased wealth of a small segment of our society, it will draw on our limited capacity and healthcare costs will rise faster than the average wage of Singaporeans. What the govt is now doing is looking into allowing MediSave to be used for overseas hospitalisation[Link]. The claim is they are doing this to give Singaporeans more options but I think for many Singaporeans they will have no option but to seek treatment where the health care standard is lower because the health care costs will be driven up beyond their means here.

Sunday, June 28, 2009

Down with fever....

I have been down with a bad sore throat, cough and fever since Thursday. The GP who treated me gave me panadol, antibiotics and lozenges and told me to rest for a few days at home. I have been oscillating between okay and lousy for the past few days. I tried to find out from the Ministry of Health website[Link] whether I'm suppose to report somewhere for testing but can't find simple instructions on what to do (anyone can advise?). I take it that the GP did the right thing to send me home instead of to the hospital for testing. I wonder how practical it is to test every single person with the H1N1 symptoms - its is exactly like regular flu and every year hundreds of thousands of people get the flu. Sending every person with a cough and fever will cause the hospital to be flooded. My guess is the the GP sent me home instead of the hospital because I have not been overseas. I wonder if this criteria makes sense. I take the MRT in which humans are packed like sardines and there are people on the train who come from the airport and I eat at a canteen where the people go overseas regularly for assignments. I think my chance of being an H1N1 case is 50-50. So far H1N1=flu so I'm not too worried.

I don't think it is practical for the H1N1 to be contained in Singapore where the population density is so high and so many people travel on the crowded public transport. We are vulnerable to disease spreading and are always among the worst hit when something like SARS or H1N1 comes around.

I think the real tipping point will be next week when school children return from their holidays. The H1N1 has an incubation of 1-7 days so avoiding people who look sick or have a temperature might not be enough to stem its spread. Since the H1N1 outbreak, I've avoided being close to people who are sick on the train, bus and canteen....yet I'm down with this flu. In an air con environment flu viruses travel more than a meter and fluids left by the sick person on the MRT pole or handle can spread the virus long after he leaves the train.

Wednesday, June 24, 2009

Illusion of Superiority and Dangers of Elitism....

After making one of the biggest investment blunders ever seen anywhere in the world losing $58B in taxpayers money, the next step was not to acknowledge mistakes were made and changes were needed but to fudge the performance comparison to tell the ordinary citizens that they have surpassed Warren Buffett, the greatest investor the world has ever known.

A few years ago, Professor Lee Wei Ling gave a speech about (childhood?) dylexia and being one to speak her mind honestly all the time, she mentioned that her father was also dylexic. I think she was trying to say that such a minor defect was no hindrance to accomplishments later in life. The Straits Times editor allowed this to slip through and the next day the whole country knew its great leader had a small defect. In many other countries, this would have been viewed positively as leaders are seen not too different from ordinary human beings except that they have a greater desire to serve and lead. However, it is not the same in a country with greater and lesser mortals. So how did Straits Times do the damage control? They couldn't say that Professor Lee had lied about her father. They fixed it by having a front page article entitled "Albert Einstein was dylexic" with a big picture of Albert Einstein the following day. There is scant evidence that Einstein was dylexic [Link] but it didn't matter because the whole idea was to equate our leadership with the greatest mind of this century. .....in the same spirit they compared Temasek's performance to that of Warren Buffett. Gee if Temasek is as better than the greatest investor in world, all of us should just stop asking questions and show some appreciation for their good work and we should leave the PAP govt to check itself because lesser mortals have nothing to contribute to govt.....

The story told time and again about the economic miracle in Singapore being the result of helicopter vision of its leaders who planned for Singapore's economic development. The ability of these men goes beyond basic competence and honesty...they were visionaries who actually confidently charted Singapore's economic development right to where we are today. The 'great success' is a direct result of their visionary planning. Today's Straits Times has an article about hot selling books in China about Singapore's (or rather PAP's) policy and planning. All these help to perpetuate a myth of superior leadership being primarily responsible for Singapore's success. If you recall in 60s, 70s and right up to the 80s, the PAP implemented population control policies. If you look at documents from that period, the reason for this policy was they were afraid that they could not create enough jobs if the population continued to grow so they pressured parents not to have too many children. If the PAP had envisioned and planned the economic miracle that expanded the economy to its current size why were they implementing a disastrous population control policy that eventually led to a population bottleneck now being fixed by imported labour? Singapore's success is as much a surprise to the leadership as it is to everyone else and a result of a number of incidental converging factors but it is now spun into a story of how superior leadership created this economic success. Forgotten are the men and women that formed the number one workforce in world for amost 3 decades from the 70s right up to the 90s - a workforce that never go on strike, willing to work the 3rd shift, never asked for better pay, not averse to hardship - one that attracted billions in foreign investments. The PAP played up its superior leadership so much that the hard work of a few million Singaporeans meant little in its version of Singapore's success story. You never ever hear any PAP leader say that the hard work of ordinary Singaporeans played a big role in Singapore's success. The problem with the PAP was it believed in its own myth and tried to prove it by transplanting its 'software' to Suzhou. What they were trying to prove with taxpayers' resources was downright diabolical - that PAP leadership (policies and plans) can work somewhere else without Singaporeans i.e. Singaporeans don't matter. Unfortunately (for the PAP), the Chinese had other ideas they started their own industrial park that attracted more investments and grew faster. The Suzhou Industrial Park started making money after the Singapore consortium lowered it stake and the Chinese took over....yet it is spun into a success of Singapore's 'software' [Link] something that can work anywhere ..... the PAP wants to prove ordinary Singaporeans are not important and all that mattered are its policies and plans. This myth is now drives policies - the generation of workers that helped to create Singapore's miracle are now asked to work harder and longer unable to retire gracefully, the PAP leadership pays itself an astronomical salary as the income of many Singaporeans fall close to 3rd world levels.
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In May 2009, PM Lee spoke of 3 gaps that divide Singapore - foreign talent, income gaps and race[Link]. He left out the most important gap in Singapore - the gap between the leaders and ordinary people. The greater-lesser mortal gap, a dangerous gap driven by myth and illusion, that creates an imbalance in policy making, disregard for the truth (just look at the spin) and prevents Singapore from getting closer to the ideals of 'a democratic society based on justice and equality'. If Singapore is to continue progessing, we will need honest leaders who will do the right thing and leaders who believe in our pledge.

Sunday, June 21, 2009

Recession pain...where....?

The other day while having lunch with a young colleague, he told me frankly that he couldn't figure why people made such a big deal out of this recession. The shopping centers are packed with people because of the Great Singapore Sale, the recent PC Show chalked up record revenues and people who have been waiting at the side to buy property and cars came out in droves as the prices fell. Recession what recession? If you're lucky enough to have a secure job, little financial obligations and plenty of cash in he bank, you can go through this recession unscathe and for many people when they are alright....everything in the world a-okay....they can't see the pain because they are unaware of it. The other I was listening to 93.8Live and Talkback had discussion about the GSS - whether we should all be spending money during the recession or we should cut down. A young woman called up to say that there are no poor people in Singapore because the govt gives everyone at least a 3-room so we should all go out and spend more more during the GSS. I don't think she is so naive to think the govt "gives" these flats free of charge - she probably meant to say that 3 room flats are so affordable everyone can afford one so we should not worry to much and go out to spend. If you don't really care, you can actually live in your own little corner of Singapore without being bothered by what goes on elsewhere in Singapore.

"1998 to 2005, when an estimated 126,000 people in Singapore were laid off and forced to sell their flats when they could not meet their mortgages" - Straits Times 20 June 2009[Link]


When I was in secondary school, one of my friends asked me if I wanted to go to his home located about half a kiliometer from mine. I had been aware of the row of rental 1-room flats but had never gone into one. When I got there, there was this strong smell of alcohol and urine in the lift. When I got to my friend's place, I realised the 1-room flat actually had no rooms and hardly a kitchen. My friend's family - him, his mom and 3 sisters - were packed into the same space. They optimised the little space with bunk beds. My friend's dad had a heart attack and passed away when he was in primary school and the family descended into poverty. His was a decent family put together in a block with drunks, half-crazy neighbors and gamblers. Clawing their way out of poverty was made harder by the living environment they were in. They got out 10 years later in the 90s when the children grew up and had jobs. One of the 4 children made it to university against the odds. We cannot make everyone rich in our affluent society but there is more we can do to make sure that poverty does not become a vicious cycle. Sometime in the early 90s, it looked like the HDB could tear down all these 1 room flats as we reach for the Swiss standard of living. However, despite the GDP growth of the past 10 years, poverty has made a comeback and these 1-room flats are again offered to Singaporeans who have fallen on hard times. We are supposed to have gotten richer but povery is just painful if not more painful today than it was 2 decades ago.

"I was very scared when police raided the flat opposite mine because the people inside were selling duty-unpaid cigarettes. I often see glue sniffers at the staircases,’ she says.
‘I hear about stabbing cases and there are loan sharks who come regularly to splash paint on doors,’ says the concerned mother, who makes her daughter stay with a family member on weekdays.
‘I tried complaining to the town council about the rubbish and inconsiderate actions since I moved in. But it still happens,’ he says with a sigh.
They also point to the drunks, drug abusers and loan sharks who occasionally lurk in the stairwells. To avoid trouble, many residents just padlock their doors. Even on weekends, when most are home, the corridors of Block 2 are unnervingly silent.
- from article "Old Block, New Faces", Straits Times 20 June 2009.

If you go to Orchard Road today, you will see thousands of shoppers many carrying multiple bags from various brand name shops and see the long queue of people outside Tung Luk or Crystal Jade whose problem is they have money to spend but just can't get a seat at these restaurants. But for every Singaporean shopping at Orchard today, there are 10 that you don't see who don't have money to shop. Many will move down the economic ladder during this recession and add to the numbers from the previous 2 recessions. The problem is the way down and the way back up is asymmetric - without social safety nets in place, it is harder for family to climb back up. The insistence that those who have fallen economically(sometimes through no fault of their own) have to be made to suffer and live in degraded environments will disadvantage the children in the family. 30 years ago, the reason to not to help the poor was that we lived in a poor country that cannot afford it....30 years later, the govt is rich but poverty is a growing problem among Singaporeans and the solution is still the same old 1-room flats, piecemeal assistance and the suffering of the poor is no less today than what it was in the past. Today, Singapore has resources to do more yet the PAP govt choose go for a minimalist approach so long as the suffering is silent and invisible, the PAP govt will see no urgency to do something very different from what they have done.

Saturday, June 20, 2009

Straits Times : Temasek better than Warren Buffett....

UPDATE: Someone did point out the same flaw in the comparison [Link]. Equating Bershire's stock performance to Buffett's performance is flawed. Temasek is not a stock.


FURTHER UPDATE : Buffett's Annual report actually gives the return for the past 40 years as measured by the book value http://www.berkshirehathaway.com/2008ar/2008ar.pdf:

The first column gives the book value return, the 2nd gives the S&P returns and the 3rd gives the outperformance vs S&P. A simple calculation from 1999-2008 will give you 6-7% return based on book value.


Sometimes the spin become so tiresome, you really become sick of it. So when I read the 19 June 2009 article on how Temasek outperformed Warren Buffett, I was somewhat numb. Still, I was completely baffled by the report's claim that Buffett returned 0.7% for the period from 1999 to 2009. I'm a Buffett watcher and can't for the hell of it figure out how this 0.7% return reported by the Straits Times is computed. Bershire's book value grew 9.3% from 2002 and 2008[Link]...and its intrinic value grew about 15% annualised for the past 15 years.

Then today while discussing this with some investment kakis, one of them suggested the Straits Times could have used Berkshire's stock price from 1999 to 2009 to compare against Temasek's investment returns. This would be highly misleading. Unlike Temasek, Warren Buffett's company, Bershire, is listed and its stock price fluctuate based on speculation, the animal spirits and emotion of the markets. In 1999, if you recall, there was a stock market bubble due to the dot.coms, companies like Microsoft, Cisco and Berkshire saw their stock price shooting to the stratosphere. Microsoft's and Cisco's stock today is still lower than in 1999 even though their revenues and profits have grown. Comparing Bershire's stock performance to Temasek's investment returns is completely invalid Temasek is NOT a listed stock. Buffett himself warned that speculators have pushed Berkshire's stock price too high in 1999 and would see sub-par returns if they buy the stock. In March 2009, speculators pushed Berkshire's stock 12% below book value as they panic from the banking crisis. Berkshires stock price is not a good measure of Buffett's performance and is completely off as a measure of his performance when you use the euphoric highs of the stock market in 1999 and compare it with the panic lows of 2009. They should compare Buffett's investment returns (book value, intrinsic value) with Temasek's investment returns - apples to apples. Temasek also has assets transferred from Ministry of Finance/Singapore govt which became listed or were subsequently sold off - the gains from these should be excluded because they are not investments made by Temasek otherwise it will create the wrong impression of Temasek's investment performance.

I'm still not convinced by my friend's hypothesis that Straits Times has used Berkshire's stock price to created a highly misleading article because while it is a mouthpiece of the govt and frequently publishes propaganda, something like this would require such a lack of integrity..... So I'm still baffled by the claims that Buffett returned 0.7%....anyone has an alternative explanation?

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The Straits Times June 19, 2009

Temasek outdid benchmarks Long term, it did even better than Buffett

By Alvin Foo SINGAPORE investment agency Temasek Holdings may have taken a hit recently on some of its high-profile banking investments, but over the longer term it has outperformed key global benchmarks.

Figures obtained by The Straits Times show that over a 10-year period to March this year, Temasek outgunned several closely-watched equity indexes. It also beat other notable long-term investors such as Berkshire Hathaway, a top US investment company headed by billionaire Warren Buffett.

Temasek's performance has come under scrutiny in recent months after it suffered significant losses earlier this year on investments in Western banks Barclays and Bank of America (BoA). The state investment house delivered an annualised total shareholder return by market value of 5.4 per cent from March 1999 to March this year, assuming the value of its portfolio remained unchanged since November last year. That is the date of the last available update of the value of its investments. This compares with a return of 4.5 per cent in the same period for the MSCI Asia Pacific excluding Japan index, 3.1 per cent for the MSCI Singapore index, and -3 per cent for the MSCI World index, according to figures obtained by The Straits Times. MSCI indexes are key indicators commonly used by institutional investors to see how well they are doing relative to the market. Temasek's main investments are in stocks, with the bulk of its assets in Singapore and Asia, so these indexes are regarded as a useful gauge of its performance. Temasek's returns were also better than that of long-term investors like Swedish investment firm Investor AB, which delivered 3.7 per cent, and Berkshire Hathaway, which yielded 0.7 per cent. Last month, Finance Minister Tharman Shanmugaratnam told Parliament that Temasek has performed 'respectably' compared to relevant market indexes and reputable institutional investors.

Wednesday, June 17, 2009

MP Charles complains abt Singaporeans

"When you ask Singaporean residents for feedback, they will complain that they have to wait more than 15 minutes for the bus. But when you ask new immigrants, they are happy that the bus comes in under 30 minutes." - MP Charles Chong
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Sir, you mean no Singaporean has given feedback that they can hardly afford the last electricity rate hike? No poor family has given feedback that they have difficulty with their HDB mortgages?...when 1 in 7 have defaulted on these mortgages. No Singaporean has approach you for help because they are unemployed and can't support their family..... now that the unemployment rate for residents (PR + Citizens) is 5%, there are so many of them. Sir, nobody came to you to tell you that they lost their lifesavings buying structured products allowed into Singapore by the MAS. Nobody's son has been injured during NS. Nobody's front door has been vandalised by loan shark runners. Nobody is in need of assistance with medical bills. Nobody is need of assistance for caring for their aged parents. Nobody has asked for help to get a rental flat - the queue is 4 years long. Nobody in Singapore has genuine problems ....the only problem in Singapore is that the bus takes more than 15 minutes. to arrive....its arrival is enough to please someone from a 3rd world country where the buses sometimes never make it because they can breakdown anytime.
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I gather that MP Charles is trying to say Singaporeans are so unreasonably difficult to please even when the PAP govt has already done its job so incredibly well......yes the biggest problem confronting Singaporeans is the bus taking more than 15 minutes to arrive. When was the last time MP Charles took the MRT? I took it this morning. It was packed like a cattle truck but I'm not complaining because the old lady and the pregnant woman next to me probably had a more unpleasant journey.
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None of the bottom 20-30% low income people have any feedback for MP Charles although their incomes have remained stagnant as the cost of living rose. Maybe they don't want to tell MP Charles their problems because he can just say that the lower paid immigrant is happy just to have a job so why are all you whining about stagnant wages.
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My fellow Singaporeans, we pay our MPs $217K a year to tell us we whine too much abt insignificant things and that we are not as appreciative as the immigrants that come in through the floodgates the PAP govt opened. He is saying we, the ordinary citizens, are ungrateful people and new immigrants make better citizens...we are just not worthy of leadership as outstanding as the PAP.

More on the Importance of Income Equality....

The govt didn't make any headway on the problem of income inequality. Recently, it tried to advertise its accomplishments by spinning its non-achievements into success. The simple reason why it hasn't succeeded is because it has GDP growth as its top priority and closing the income gap is of secondary importance. But these 2 are sometimes conflicting goals and when there are tradeoffs to be made, the PAP favored growth over equality. The opened the floodgates for cheap foreign labor, lowered the marginal income tax rate for the wealthiest and puts the profitability of the GLCs above the interests of the ordinary citizens.

The following few paras are extracted from "The Case for Income Equality in Singapore"[Link].

Not so according to the Equality Trust, a London-based organisation which promotes the concept of equality. Based on research findings and academic papers, it argues that the detrimental effects of such inequality spills over to other areas and impact on the health and well-being of society in general.

On physical health for example,
… The most consistent interpretation of all the evidence is that the main route hinges on the way inequality makes life more stressful. Chronic stress is known to affect the cardiovascular and immune systems and to lead to more rapid aging. Inequality makes social relations more stressful (see section on Trust and Community Life), by increasing status differences and status competition…




Concurrently, on trust and community life,

“… Inequality divides people by increasing the social distances between us and widening differences in living standards and lifestyles. By increasing residential segregation of rich and poor, it also increases physical distances…”
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Interestingly, on the same organisation’s website, Singapore which has a high ranking of income inequality also has the lowest level of trust amongst people (see chart below).




On imprisonment,
‘… we have found strong links between imprisonment and income inequality…’
Again, Singapore has one of the highest per capita imprisonment rate (see chart below)




Crime, stress and distrust in addition to the economic effects. With high income inequality, GDP growth does not benefit a large segment of the population. For the lowest 20-30%, their income has remained stagnant for more than a decade and GDP growth usually results in higher cost of living and falling inflation adjusted wages.
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It is no longer enough for the PAP govt to tell us the have progammes in place address this because they told us that 10 years ago....a token sum here and there is not going to solve it as long as the PAP continues to pursue its lopsided policies focussing primarily on GDP growth. The PAP has to break out its ideological thinking that pushing for higher GDP growth will translate to a better quality of life for ordinary Singapore - it is not true and Singaporeans know this. If the PAP govt is not serious about closing the income gap, they will soon discover they have a serious problem at the next general elections.

Monday, June 15, 2009

History Channel : "Crash : The Next Depression"

I'm not sure how many of you caught this excellent documentary[Link] which was shown on the History Channel yesterday night (14 June 2009) at 8pm. The documentary will be repeated on 15 June (1pm) and 20 June (6am).


The documentary compares and contrast the current crisis with the 1930s. The similarities between the 1920s and the period leading to the current meltdown are striking:


1. Market deregulation. Faith in the free market became blind faith and govts deregulated markets to the point they couldn't understand what was going on. In the 1920s there was frequent illegal stock market manipulation and the US govt had no means to stop it because the SEC didn't exist. Today we have the shadow banking system which has grown into a dangerous monster.


2. Rising income inequality. The only period that had comparable income inequality compared with today was the period before the Great Depression.
The US govt of 1920s like George Bush kept reducing the marginal tax rate even as the income gap ballooned (In Singapore, the govt said they increased the GST to help the poor...but they used the GST hike to lower corporate tax rate and to lower the marginal income tax of high income earners).


3. Overvalued asset bubble funded by easy credit. In 1929, they had rampant stock market speculation fuel by easy credit such as margin loans and in 2006 there was a housing bubble fueled by mortgage securitization which led to subprime loans.
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The differences between now and the 1930s hopefully will lead to a better outcome. In the 1930s, the govt response to the crisis was to tighten credit and implement protectionist policies. Today we see Bernanke, the world's foremost expert in The Great Depression, and Geithner doing almost everything to ease the flow of credit. Their actions appeared to have limited the downside of the crisis but leaves the US with an unprecedented level of debt relative to its GDP. In the 30s, there was no FDIC to prevent bank runs, no SEC and no safety nets for the people. It was Roosvelt who put in place the social safety nets as part of the New Deal and the documentary explain why this was important - the crisis had affected families straining marriages, children were not properly nourished, crime rate rose and the people became increasingly desperate. The safety net help to prevent long term damage to the society and helped the people cope with the hard times. Even with The New Deal and massive govt spending in the 30s, the economy remained sluggish and sub par. What brought the US economy back on path of vigorous growth was World War 2 - it was only because of the war, the US govt could spend $3.7 trillion, a figure so large that it would be seen imprudent during peace time.
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You will also notice from the graph I put up that the periods of sustainable high growth is correlated with the periods when the income gap is low. History tells us that economic growth won't last without bring down the income inequality. We cannot just focus on economic growth and allow the income gap to balloon - solving the problem of high income disparity is equally important.
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It is hard to say what is going to happen in the coming years. While many people are saying green shoots are here, the recession will be over soon and the stock market and housing market are on the path to recovery, it is hard to see the economy going back to where it was before the crisis. The main source of demand for goods - credit driven American consumers - is gone and the financial sector which fuelled growth in developed countries has been devastated and will be re-regulated. We may have recovery, there is also a chance we may slip into stagflation ...there is also a chance the economy remains weak and we slip in and out of recession in the coming years. We cannot just position ourselves for good times and pretend that good times will always come back. This is our 3rd recession in 10 years and yet govt have no game plan for the people except retraining and more retraining. It is not enough for the govt to prepare for only the best case scenario - they have to take care of the plausible worst case. We do not know how long these bad times will last but we know that no reason for Singaporean families to suffer unnecessarily when they lose their jobs through no fault of their own. The S. Koreans, Hong Kong and Taiwan have learnt from the Asian crisis and put in place safety nets, healthcare programmes and financial support for the old.

Wednesday, June 10, 2009

Income Gap : Nothing achieved in 3 years!

A few days ago, a report entitled "$1.1B narrows income gap" appeared in the Straits Time to explain the 'progress' made in narrowing the income gap.

A ministrial committee released a 60-page progress report which found that these workers 'have come a long way' since 2006. When you don't have clearly stated goals, you can always define success as whatever you have achieved. Yes, the PAP govt has succeeded again:

One, wages have risen from $1,200 a month to $1,310 in 2008 for the bottom 20 per cent of full-time resident workers. It is very strange that nobody in govt knows what inflation is and nobody seems to know what real wages are. Are the workers better off because they now make $1,310? The inflation rate for the bottom 20% of workers was 9.5 over 2 years ,2007-2008. Over the 3 years, the CPI has gone up more than 10%[Link]. These low wage workers have to make at least $1320 in 2008 just to stay where they were economically in 2006. When the govt adjusts our CPF minimum sum upwards, they use inflation as a reason but when it comes to the wages of low income workers, they leave out inflation to show us they are doing a good job!

The pool of residents earning $1,200 or less a month has shrunk from 360,000 to fewer than 300,000. How can $1200 be used as the reference point? Again they did not adjust for inflation.

The GINI index fell from 0.489 in 2007 to 0.481 in 2008 for the 1st time in a decade. They have to go to the 3rd decimal place to find some improvement in the GINI and even though it improved slightly it is still the GINI co-efficient of a 3rd world country. Countries like Japan, Taiwan and S.Korea have GINI of around 0.3. One reason for the fall in the GINI could be the drop in income of wealthy individuals rather than the poor becoming getting richer. Recall in 2008, we had a financial crisis that caused sources of income of the rich such as rentals, dividends and bonuses of top executives to fall temporarily.
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If you read the report carefully, you will realise that while the PAP govt talks a lot about helping the poor and expresses concern for the poor, they do not match their words with actions. $1.1B is less than the amount of money Temasek lost in a single investment (Barclays). This problem has gone on for more than a decade and has worsened in recent years as the PAP opened the floodgates to cheap foreign labor. Now they spin the numbers to tell us that things have improved - where is the sincerity? But still we shouldn't too surprise as we voted for a govt whose first act was to adjust its own record breaking salary upwards - the interests of ordinary Singapore appears to be secondary for this govt...

Sunday, June 07, 2009

Temasek : Quite Amazing isn't it??

I have written so much about what is wrong with Temasek until I got tired of writing about it - nothing seems to change for the better. From Shin Corp to BoA, I thought I have seen worst of the worst. But only Temasek can beat Temasek when it comes to surprises. We have to hear about it from Reuters[Link] and Wall Street Journal that Temasek has sold its stake in Barclays and has lost more than 800M pounds. Temasek had earlier invested about 1B pounds in Barclays. Temasek explained that it took its losses in BoA because their investment thesis had changed from Merrill's specific businesses to the more diversified BoA linkage to the broader US economy"[Link]. How then do they explain the Barclays losses? They bought a bank that remained a bank so there is no change in thesis. Temasek will now have to invent a new explanation for selling its stake in Barclays at a huge loss. The one thing they will never do is admit they made an error in judgement getting into these risky investments that turned out to be bad. The 1st step in improving an organisation is to accept and learn from major mistakes - if they had done that when they lost money in those risky investments in Global Crossing or Shin Corp, they might have avoided the massive losses that came after that.

The other amazing thing that happened after $50B loss of taxpayer's money is our finance minister stepping forward to explain there is nothing wrong with these losses because Temasek had made gains of $100+B if one measures its gains from the 2003 trough to the 2007 peak. Tharman explained that the annualised gains are 15% compared with the 6% gain in the MSCI Global Index. Tharman had chosen 2003 instead of, say, 1999 as the starting point because that was the market bottom and the absolute returns would be larger than if he had chosen another starting point. It is not clear why he has chosen to compare with the MSCI Global Index when a large part of Temasek's portforlio is in Singapore and the STI gained 16% in the same period. It is also not clear how profits Temasek booked from the sale of strategy assets that are not listed on the market such as the 3 power stations that were sold to the Chinese, Malaysians and Japanese for a total of $12B (They explained that the purpose of the sale was to create competition - but you really have to wonder how that can happen when each party now owns a portion of the total capacity ...what incentive is there compete when they have unable generate for any significant gain in market share?). It is indeed surprising for me to see an elected representative who is supposed to serve Singapore citizens trying to defend Temasek by using an arbitrary measure of performance. The correct way to measure Temasek's performance is to look at its return from active management vs the returns from passive holdings. The value add of the 350 people hired by Temasek is in the deals it actively cuts and the decisions its managers make. So far the outcome from many of these major deals don't seem to be good.... Much of the returns from its passive holdings in Singapore Blue chips requires little management and decision making....are achieved just by holding on to profitable GLCs.
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The attempt to spin away Temasek's losses leaves much to be desired. Every explanation just leaves more unanswered questions. It is time for elected officials to take stock and make a genuine effort to ensure that the massive losses we have seen do not recur in the future. They either do that or we have to elect the people who will do the right thing in the next elections.

Saturday, June 06, 2009

Great Singapore Sale : Miracle Laundry Ball

I became a participant of the GSS earlier today and met a young salesman trying to sell something that will help me to "save on the cost of detergent + water and will result in cleaner laundry". The product turned out to be a plastic ball with beads inside that you put with the laundry instead of using detergent . The salesman showed the big a folder full of scientific studies that showed the ball performed better than detergent. He had newspaper cuttings and a documentary to back up his product. He claimed that many laundry mats in Hong Kong have switched to using this plastic ball instead of detergent to save costs. The ball which uses "nano technology" can be used up to 1000 times and costs $59. I didn't have time to watch his video but found something on the Internet about it:




$59 for a ball that can be used with 1000 batches of laundry would save me something like 9 years of detergent. Wow. Irresistible. When something is too good to be true, I usually have to do some checking but the other shoppers around me were completely convinced and snapped up the ball like hot cakes.

A quick check on the Internet yielded the following:

"The Laundry ball is a pseudoscientific product whose sellers claim that when placed in a washing machine it will clean clothes without detergent.[1] The product is often sold by participants in multilevel marketing schemes.[1]"
- Wikipedia article[Link]

"The Oregonian newspaper (not available online last time I checked) ran an expose on this product a couple months ago, which was in trouble for making unfounded claims from the Oregon Attorney General's office. It does nothing but bounce around in the wash, possibly providing slightly more agitation, but cannot and does not provide any change in the "ionic makeup" of the wash water. This is chemically impossible. It is one of those "if it sounds too good to be true it is" products. You could go purchase a toy ball and put it in your washer, it would be the exact same thing. Don't get scammed!!" - The Dollar Stretcher [Link]

If this product does not work and the authorities do nothing to stop these sales people from selling it, we are going to have many people in Singapore walking around with bad smelling clothes. Many people appear to believe the claims and it is selling like hot cakes.

Thursday, June 04, 2009

Does the stock market predict economic recoveries?

"The stock market predicted 10 of the last 6 recoveries" - George Soros.
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I wanted to write about this but Mr. Wang beat me to it[here] and The Singaporean Skeptic[link] wrote a short and useful explanation using Baysian Inference. The short answer from my experience is almost every economic recovery is preceded by a market rally but not every rally is followed by an economic recovery and when the economic recovery does not come, the market simply goes back down. But lets go a bit further than this short answer.....

Take 1929 as an example:

The market rebounded sharply with a 50% rally in 1930 only to see a 3 year bear market. Market technicians will tell you that the DOW rebound to touch the 200 moving average but fail to cross it to confirm a bull market (I'll talk about the significance of this notion later).

In Sept 2001 the stock market had been falling for about 18 months since the dot.com bust and appeared to have stabilised. Unfortunately due to the 911 terrorist attacks, the market fell through its bottom. Many contrarian investors felt at that time that the worst of the worst had happened and the market rallied for six months from Sep 2001 to March 2002 only to fall to new lows in late 2002 when the economic recovery did not meet investors' expectations.

George Soros once explained that while stock markets may not be reliable predictors of the real economy, you can actually get market downturn that is so bad that it causes a recession. If all of us. around the world,believe the recession is going to be over soon and we go out to buy some stocks, look for property and take part in the Great Singapore Sale, we can actually take the global economy out of the doldrums. There is a complex relationship between the market and the economy. When the stock market rises, it helps the economy because companies can raise money by doing cash calls in the stock market to ease their cashflow problems or do acquisitions. If the stock market or property market rises high enough, consumers will regain confidence and start spending. In other words, when markets have large moves, they actually start influencing the real economy which they are suppose to predict. George Soros decribes this interaction in his Theory of Reflexivity [see speech to MIT Department of Economics]. .

So how much must markets rise before you know if a rally is for real or a fake? Many technicians believe the 1930 rally failed because the market did stay above the 200 day moving average. I'm a complete skeptic of most of what is known as technical analysis because they create all these indicators without the supporting evidence that they are accurate. But lets take 200 as a rule of thumb and the fact that when market indices are above the 200 day MA means that stocks are above the average buying price of the past 200 days - that might create some wealth effect and confidence from Soros' Theory of Reflexivity. The S&P500 and the DOW Jones Index(?) crossed the 200 day MA on Monday and the traders on CNBC were all very excited over this "confirmation" of the bull market. If you take out the chart of the Dow or S&P and put in the 200 day MA, this crossing of 200 day MA did market signal the start of many major bull markets. However, there were also periods when the index crossed it and did nothing for a few months - again the theory is not perfect and you can't bet your whole lifesavings on it.

One thing is certain - if the economy does not meet the rising expectations of investors, the selloff come really fast...in 2002, the market give up all the gains of a 6 months rally within 2 months...it fell 3 times faster than it rose. ...to make money you really had to get out faster than you got in....

Wednesday, June 03, 2009

Elitism 501 : Dear Leader has found his successor!

Elitism 401 is found here.

The Dear Leader of N. Korea has found his successor. After searching the whole of N. Korea, it turned out the most suitable person happens to be be Kim Jong Il's youngest son Kim Jong Un.

Before you shout the "N" word, let me explain clearly why his selection is completely meritocratic. Yes, it is all based on meritocracy and I can prove it! The junior Kim is the best educated N. Korean of his generation having attended private school in Switzerland and the top military school in N. Korea while many of his peers have shrunken brains due to malnourishment. The only other people who come close in terms education are his siblings but they lose out when other factors are considered. Kim Jong Un is his father's favorite and has been groomed for the job. No other person is as familiar with the inner workings of this secretive govt and he is the only one who will be able to run the place. Lastly, he is a splitting image of his father which means they may be able to reuse those gigantic ubiquitous portraits found all over N. Korea possibly saving the impoverished state millions. Since he look so much like his father, it is easy for the masses to transfer their adoration from the father to the son. There is nobody more qualified than Kim Jong Un to take over his father's job therefore meritocracy is alive and well in N. Korea!!!!!.....Meritocracy is alive and well but the people of N. Korea are not.
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Meritocracy is only part of the bigger picture. For meritocracy to work well and deliver the benefits to the people, other factors have to be in place. Meritocracy delivers when there is competition and a level playing field. Opportunities have to be made available to as many people as possible. Elitism which narrowly selects a small number people to be lavished with quality education, opportunities and special grooming leads to an unhealthy form of meritocracy such as the one we see in N. Korea. You can alway argue that the selected person is the best one for the job - but do the pre-conditions for a healthy meritocracy exist? ...Are opportunities available only to a small number of elites selected and groomed for the job? Is there secrecy in the system that prevents others from stepping forward?
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Elitism is the enemy of a healthy meritocracy because it takes away the element of competition. So when our leaders start advertising that their system is good because it is meritocratic, you remember that even in N. Korea they have meritocracy. In Singapore where they have replaced our democracy with a select and groom process in the PAP ...and then promote these people to MPs by using GRCs and estate upgrading threats, we have ended up with an elitist system. The selection is from a small group composed largely of scholars who have been lavished with education and opportunities. At the end of the day, I guess what you see is what you get. Singaporeans are told they have the best possible leaders thrown up by the system...and the N. Koreans too can be told they will be getting the best possible leader under their system.

Monday, June 01, 2009

Talking Point : Come on Sylvia, you can do better than that!

I like Sylvia and appreciate what she does - it takes time, dedication and some amount of courage to do what she is doing. Also, I'm just a blogger while she is in parliament and has her views heard nation wide on various policies. Overall, I think she has done well. The Worker's Party has taken a strategy that is different from, say, the SDP. As a weaker force, there are many ways to play the game. SDP has chosen direct strikes and taken the direct hammering that comes along - you can believe there are nothing but brave and determined souls in the SDP. The WP has taken a different strategy lying low, rising to make take shots when the case is clear and there is significant support for the alternative viewpoint e.g. standing up against the GST hikes, Minister's pay hikes, etc. The idea is they can win at elections when conditions are right and they need to avoid trouble until they get there. There are problems with both strategies. The SDP will find it very hard to recruit people until something goes very wrong with Singapore....the risk of joining them is just too high for most people. The WP's problem is if they play too soft, people will start to wonder what is the difference between them and some of the PAP backbenchers. I think while Sylvia clearly expressed some of the differences she had with with the ruling party on those system tweaks, she played it too soft....and I think she missed the big elephant in the scheme of things...

First, Sylvia should be an angry woman. She is the chairwoman of a political party which was denied a permit to host a cycling event a few months back[Link]. The PAP frequently uses such tactics to limit the activities of its political opponents. There is no level playing field and there is nothing in the recent tweaks that levels the playing field. The PAP govt links the estate upgrading to votes which is blatant pork barrel politics. Doesn't Sylvia feel disadvantaged when she cannot offer the $500M upgrading that the PAP candidates can? ...and what about those repressive laws like printing presses act, public order act, film act, broadcasting act, OSA, ISA etc that stifled the citizens freedom to gather and exchange ideas..and created a climate of fear. The lack of a freedom of information act? The lack of respect for human rights?

Come on, Sylvia, the system has been unfair and unjust to the Worker's Party and the ordinary citizens of Singapore. We want to vote you in to change the system not to support it and perpetuate it.