Thursday, March 6, 2014

Economic fallacies from the S&M show

I was listening to this week’s S&M show podcast on BFM: The Business Radio Station website and I was shocked at some of the economic fallacies brought up by the people on the show. The S&M show is where Salvatore Dali from Malaysia Finance and a few other guys discuss stuff about investment & business. I follow the show every week because I find it entertaining and the people on the show make sense for the most part. This week, the show was about bankruptcy laws in Malaysia. And while I agree with them that bankruptcy laws shouldn’t be so tough, some of the stuff they said about economics are just plain wrong.

One guy argued that more lenient bankruptcy laws could cause banks to tighten lending rules and that could choke the economy. I was like come on dude, it’s a bad thing if the laws cause banks to loosen their lending standards and make a whole bunch of bad loans. Just look at the United States where the government incentivises banks to make bad loans. They got a fucking asset bubble and had to go through a financial crisis when the bubble burst. When you lend to people that are not credit worthy, you’re misallocating resources and that can never end well. To be fair, there was another guy on the show that was against loose lending standards. Note: I personally don’t think that Malaysian bankruptcy laws encourage banks to make bad loans

A dude on the show later brought up that countries which are more capitalistic have higher inequality. Another guy said that inequality is a hallmark of a capitalistic society. To be honest, I don’t give a shit about inequality. Only people that are filled with envy worry over the fact that there are people who are richer than them. We should be happy if there are more rich people around (assuming they got their wealth through legitimate means) as they had to create a lot of value to get rich. What matters shouldn’t be how rich or poor you are compared to other people, it’s your standard of living that matters. And it’s a fact that the standard of living of people in general is higher in countries that are more economically free. I had rather be relatively poor in Singapore or the United States than be relatively middle class in a lot of other countries.       

They also complained a little bit about how Malaysia doesn’t really have a significant social safety net which could cause bankrupts in the country to really suffer. As an example of the people who would suffer without safety nets, one guy talked about how a fresh grad could get his life ruined if he’s declared bankrupt because he can’t afford to pay his credit card bills. I think that it’s a good thing that Malaysia doesn’t have significant social safety nets. I don’t want to be subsidizing losers who are too lazy to find a job. Safety nets are bad for the economy over the long-term as it incentivizes people to shirk personal responsibility and transfers wealth from productive people to bums. Look at how messed up Europe is with their big government and large safety nets. It’s not that I hate poor people or anything when I argue against safety nets. In fact, poor people will be better off if they lived in a capitalistic country with no safety nets. The country that has come closest to free market capitalism was the United States in the 19th century. Back then, people from all over the world flocked to the U.S. not because of safety nets (there were hardly any) but because they were free in the U.S. to keep the fruits of their labour and rise as far as their minds, effort and ambition would take them. Most of the people who are willing to work in a free economy will be able to find jobs and support themselves. Private charity is more than enough to take care of the small percentage of the population who can’t support themselves. Unfortunately, the American economy started to grow much more slowly as they moved towards bigger government and started putting safety nets in place. I don’t know when it will happen, but America will crash if it continues with its current socialist policies.               

I have nothing against anyone on the S&M show. In fact I find them entertaining. I just disagree with some of the economic beliefs that they hold. And to be fair, they’re not the only ones who believe in this mumbo jumbo. Most people don’t really understand economics because they listen to econ professors with socialist leanings and people like Paul Krugman who thinks that Keynesian economics actually work in real life. Anyway, thank you for reading. I’m currently working on an analysis of another Malaysian REIT. It will probably be up during the weekend so check back then if you’re interested. Till then, take care and stay rational.



  1. Dude,

    Thanks for your comments. Just because ppl do not agree with your views does not mean their economic views are fallacies. In particular with the fluid subject such as economics where one can be a monetarist, Keynesian, etc... who is to say who is right. You have taken a stand and you can defend it, but don't say other views are rubbish, its smacks of condescension, and I agree with a couple of your points, if you did not claim other ppl's views as fallacies, then it would have been good feedback..

    1. Hi, thanks for the reply. Based on the field of economics there's historical evidence that free market works (and it's the only moral system, but that's philosophy so I won't talk about it). Yes I may sound condescending when I say some economic theories are rubbish, but that's what I believe (based on common sense and historical evidence) and I won't go out of my way to sugar coat stuff so people don't get offended. For example, I think its absolute BS when people think that consumption drives the economy or that money should be printed because "some inflation" is good.

      I hope you don't take it as I'm hating on you, I'm not. I don't know you personally so I can't form an opinion on you. My article was strictly challenging ideas.