I have always been a fan of market capitalism. I believe that it is extremely efficient in the allocation of resources. It is also all powerful. Almost nothing can stand in the way of the market….
The Bank of England once tried to maintain its peg exchange rate.. but was forced to remove the peg due to excessive speculation brought about by people like George Soros…. Such efforts are futile when they stand against the wishes of the market….
Most of the time, market capitalism is good for the people. However, I think there are cases where market capitalism fail….
- People who are does not have EQ and IQ and only has raw muscles
- Rising Food Prices
People who are does not have EQ and IQ and only has raw muscles
There has been more and more people who are complaining about how difficult it is to live in Singapore. High rents, high food costs, high transport costs, blah, blah, blah…. Honestly, they have a valid point. Costs is indeed spiraling up everywhere… and wages are not keeping pace… and that is especially true in the case of low-skilled jobs.
The reason?
There are cheaper sources overseas… This is nothing new. In fact, foreign labour has long been exploited to handle jobs which Singaporean abhor like maids, construction ….. Without their help, there is no reason why you should be sitting there so comfortably in your apartment reading this blog….
Just that recently, it has gotten into jobs that Singaporeans themselves are interested in… and that is when we feel the pinch. When designing jobs, IT jobs, manufacturing jobs are all going overseas… that is where we feel the pinch. And there is no reason economically for the firm to consider locals… due to the wage disparity.
So market forces will move these jobs overseas… and those locals who can only do these jobs will be forced to compete with the abundance of labour in CHINDIA… resulting in meager wages. To make things worse… they are living in a high costs country. So meager wages in a high costs country … now that is problematic….
But why high costs?
Again market forces. Because there are people in Singapore with the necessary skill sets to upgrade and do skills that is relevant to the economy… resulting in super normal wages. These buggers with super normal wages… will have great spending power… buying loads of stuff here and there… thus inevitably driving up costs….
So if you are Singaporean… and you cannot bring yourself to upgrade, you are finished.
Theoretically, it would be better for you to move to the 3rd world country to do those same jobs… ‘cos at least… your costs of living will be less….
Rising Food Prices
Now.. this is an interesting problem. The previous problem can be solved by hardworking people. You work harder to upgrade, earn more… and can enjoy a higher standard of living. But what of the rising food prices?
No. I am not talking about the doubling of rice in Singapore. That is really just BS. It has zero consequence to our Singapore society and all those propaganda about doing this and that… I feel is just our government way of showing that they care and garnering votes in the process. It is like a PSLE student scoring a B in the exams.. and their parents go about consoling them… and telling them that they can catch up in the Secondary School.
What I find really interesting is… the prospect of mass starvation. And this problem is going to be caused by a system which I have always admired… the capitalistic free market system.
One of the major problems of the capitalistic free market system is that its definition of efficient allocation of resources is to the highest bidder. They believe that the person who pays the most… will have the greatest utility for the good. Of course, we all know this is BS. As a rich person is willing to pay thousands just for marginal utility.. while the poor may only be able to afford a dollar to feed himself (maximum utility as the alternative is starvation)
This problem has existed all along… as it is common to see people driving big cars, living in big houses, having large harems… while there are beggars scattered all over the place…
However, the problem has occurred to such a great extent now… that it might have an impact of basic necessity….. This was never a problem… because when people are hungry, they can just plow the land… grow food and feed themselves. The land can support our earth of say 10 billion people?
Until suddenly, they found another use for land. Suddenly, people realize that the same land which is used to feed people can be used to feed their cars. Then it became a problem. Now land for food had to compete with fuel for cars. Common sense will tell you that… giving a person food is far more important than pumping gasoline into the car tanks. Thus food for people should generate more utility.
However, the failure of the capitalistic system… is that it measures utility by price and price alone.
As such, rich people in the developed world started bidding a high price for gasoline resulting in a diversion of arable land to the production of biodiesel. If there is no intervention, market forces will generate a food shortage… resulting in the starvation of masses. To make things worse, food demand is generally inelastic…
Lets think about it in numerical terms… imagine in our world… we have 2 groups of people. The rich and the poor. The rich people consume 100 units of food at 1 dollar per unit and consume gasoline at 10 dollar per unit. The poor guys on the other hand will only consume 1000 units of food at 1 dollar per unit.
Then the world suddenly realise.. hey we can use biodiesel to make gasoline. It is cheaper and greener…. to produce one unit of gasoline, we just need to use one unit of food. So they started shifting acres to produce gasoline…
When they move the production over to gasoline, it will immediately trigger in a shortage of food. Theoretically, based on our fictitious economy, all the hundred units of gasoline will be produced by biodiesel at any price less than 10. As can be seen above, it will result in an immediate shortage of the food in the poor country… resulting in starvation….
However, let us examine another interesting point. At what price will the food rise to? And what effects will it have on the economy. Assuming that the rich are only interested in protecting their own interests… and that the demand for food is inelastic.. and that the poor will spend all their money on food….
At a price of 3 dollars, u can see that the costs to the rich is 600 dollars. It is still lower than the initial 1100 dollars that they spend.
So is the case at 4 dollars. They are only being charged 800 dollars.
So is the case at 5 dollars.
Only at 5.50 will the costs be equivalent for the rich. However, the poor would have suffered tragically. An the world economy as a whole would have suffered. Due to a sudden spike in demand for an inelastic good, it has resulted in the poor countries suffering an additional 4950 -1000 = 3950 in costs. And these are poor people.
In real life… it will be low wages.. .and rising food prices.. resulting in zero savings.. if not starvation. And these charges will be used to subsidize the rich people on their gasoline.
And most importantly… the economy will be… worst off. Initially, producing the goods to satisfy both the rich and poor will only costs 2100.. but now it costs 6600. Market economy always try to find a way to minimize the costs of production.. but sometimes… it just gets cranky….
Food prices are here to stay… and God help the poor… ‘cos this time… they cannot help themselves….
Recently I wrote something about how free markets will divert more land from the production of food to biodiesel resulting in people dying from starvation. I thought it was something quite new. Currently, I am idling around at Gloria Jeans cafe at Orchard Cineplex waiting for my girl to finish off her other engagements…. sitting next to me is an issue of The Economist, reading "The silent tsunami"….
