Return to The City of Whispers & Ancient Stones

I lived in Paris with my parents, in the Cité des Arts. My father was an artist; his paintings were strange, dreamlike, like things you see in a half-remembered story.  I went to primary school for two years. My classmates were younger - three years younger - because I had to learn French fast, even though I was already ten.

After a tough first year, Paris grew on me, though I stayed only two years, when I was ten and eleven.  I still see the sunset over the Seine and Notre-Dame, glowing across the river like a quiet promise.

The first year was hard. The French school was strict, much more than English schools, and I had to catch up. The next year we moved to a better apartment in a quiet neighborhood in front of the iconic river Seine.

I changed schools, and a kind, elderly teacher helped me find my step. I believed God sent her so I would not carry a bitter memory of the French. Every morning I walked half a kilometer, past the busy Rue de Rivoli, by the Arab spice shop and a small church with a red door in Saint-Paul.

At the Cite de Arts, I made friends - a Jewish boy Avril from next door, and a long haired Chilean boy Sebastian, older than me by three years. One day I saw him from my window, standing by the traffic lights at the Seine, wearing dark glasses and holding a white cane. He wasn’t blind. He was playing a game, pretending, waiting at the red light to be helped across. He laughed when I told him I saw. I wondered if his mother knew.

In late ‘73, the spike in oil prices broke the country. The boom was finished. It was called the Trente Glorieuses, 30 years of robust post-war economic growth. The paintings did not sell in Paris. There was too much art for sale. So we went back to Malaysia, and my father took work as a designer for his brother’s business.

Epilogue

After 50 years, I return to this city for a 5-day trip on 1st October 2025. I expected to be disappointed after reading how the place has changed for the worse with petty thieves, riots and illegal immigrants. But after going to the Louvre with my wife, Paris remains a city with grandeur in its stones, wide spaces and chilly air.   

We stayed at a wonderful, cosy apartment on Boulevard de Clichy with a street view on the 6th floor. The owner was an established screen writer who has tons of books on his bookshelf, including ones on Kubrick, Leonard Cohen and other French film directors. The one book that I read was a fantastic short story by Isaac Bashevis Singer called Gimpel the Fool.  

                                                 

On the French habit of sitting in cafes and drinking in bars after work, the people seem to either take the beauty of the city for granted or live in it fully. I told a taxi driver that the French seem happy. He replied they may look happy, but that was not true: some cope with stress using cannabis or sometimes cocaine. That, he said with a smirk, was happiness for them. 

The Ascent

On the day of departure, I woke at five in the morning. It was the last day. I had to see the church, the Sacré-Cœur. It sat at the top of the Montmartre. The walk was twenty minutes and I climbed about two hundred steps to reach the summit at six am, breathing hard. The steps had done their work.

They built the church for penance. A debt owed to Christ. France had been beaten by Prussia with 143,000 dead. They said it was the country's moral decline that did it. Oddly, that decline - the old one, maybe the new one - had been on my mind the whole trip. I stood in the cold stone and looked out. The debt remained.

If I had to give one word to describe the French character, it would not be “bon vivant,” but a cool, contented indifference. Whatever happens - good or bad - they say, “Ça fait rien.” It doesn’t matter. Perhaps that philosophical mindset is the root cause of it's moral, political and economic decline. 

Politicians may talk of war. It doesn't matter until one fine day, the foreign troops come marching in through the Arc de Triomphe like the Germans once did. Then the tears will turn into tearless mourning.  And the sun will still shine bright over this city of whispers and ancient stones.

The Know-It-All and The Know-Nothing Dilemma

The man who thinks he knows everything walks blind. He holds his head high, sure his view is clear. When the storm comes, when war comes, he is caught without a plan. The flood rises, the bombs fall, and he stumbles. His confidence is his ruin. He never saw the oncoming danger. 

I was told about this type of person - a shopkeeper in Madrid. He had read the papers and heard the talk about the civil war that was about to break out. He believed he understood politics and the war. But when the fighting came, he told his family it was nothing to fear. He kept his doors open, his shelves full, and his drink strong. When soldiers marched down the street and bombs fell close to his shop, he stood frozen in disbelief. His plans for the future unraveled before his eyes. His confidence was his undoing.

On the flip side, there is another type of character who is full of doubt. He knows he does not know enough. But this knowing does not help. It freezes him. He waits for others to move first. When the time comes, he stands still. The world crashes around him, and he stands still, powerless.        

In fact, I once heard of such a type. His name was Gonzalo, a quiet clerk in Barcelona. He lived in a small flat with a window that looked out onto empty streets. He had always doubted himself and everything else. When the war broke, he hesitated at every order to join the army. He feared acting wrong, saying wrong, moving wrong. When the city burned, he stayed inside, silent and waiting. He was powerless because he could not summon the will to act.

Both men met the war unprepared—one with bluster, the other with fear. Neither was ready to live or die well. Both men were caught by events that sneaked into their lives like a thief in the night. One was caught by pride, the other by fear. Neither was ready.

If you know your time can end at any moment, what then? You cannot know all. You cannot know nothing. You must stay awake. You must face the day with eyes open, steady and strong. Watch people and the world as it is. And with the fullness of wisdom at your disposal, do what is right. Act as if your destiny has prepared you for this moment.

This is survival. This is the truth.

The Great Reflation by Anthony Boeckh

Will the world enter into an era of deflation or inflation? This is the key question that will determine what type of investment portfolio will perform well. For the man-in-the-street who does not invest or have little interest in economics, the current global economic situation is of utmost importance to his well-being (economic and social) in the next five years.

Hence, Anthony Boeckh's new book The Great Reflation comes as a very timely read from an expert market economist who was the former editor/publisher of the widely admired Bank Credit Analyst reports. The first chapter of the book summarises well the inflation/deflation conundrum in simple language:

"..Inflation and deflation are both sides of the same coin. The more advanced an inflation, the greater the threat of deflation and debt defaults. In this chapter, we discussed how each bust triggers a political response and the authorities revert back to reflationary stimulus - easy money and fiscal deficits. ...Experience shows that it has taken increasing amounts of money, credit and fiscal deficits to generate each recovery. And then inflation, with a lag, accelerates once again."

Indeed, this is the credit boom and bust cycle we saw with the boom period between 2003-2007 and the bust period 2008-2009. Although the global and US economies have staged some recovery since the fourth quarter of 2009, the recovery was driven largely by (1) fiscal stimulus (2) inventory restocking which languished during the worst of the downturn in production.

Boeckh ends the chapter with these words:

"The Fed could easily tigthen too much too soon or it could do too little too late out of fear of triggering another bust in housing, stock prices and the economy. The reality is that the Fed has little room to maneuver because the underlying structure of the economy and financial system is rotten. The problem is too much debt..Debt got us into the crisis and has not come close to being sufficiently liquidated to avoid another one (crisis)."

The Economic Push For Political Change in Malaysia

Malaysians are more rational than we normally give them credit for. There is a new wave of political change that is sweeping through this country and this change is driven by forces that go beyond the mere frustrations of citizens with corruption and poor governance.

If there is just one powerful idea that has strong economic and social benefits for Malaysia and which has been the key to the electoral success of Pakatan Rakyat, it is the idea of removing racial discrimination in employment and business opportunities for all citizens, regardless of race.

Why is this solution to Malaysia's economic and social problems so powerful, rational and academically justified?

For many Malaysians (see a recent government-commissioned poll), it is almost intuitive and common sense to accept that equal opportunities and market incentives for all will bring more economic prosperity for the country than the costs of carrying out this liberalised policy.

The difference between the situation 5 years ago and now in 2008/2009 is that more and more citizens across the racial and class divides are becoming convinced of this solution. The voting outcomes of the General Election of 8 March 2008, the by-elections of Permatang Pauh on 26 August 2008 and Kuala Terengganu on 17 January 2009testify to this wave of public opinion that is in favour of economic and political change. Intelligent voters have made their voices loud and clear that they want a drastic change in vision for the nation!

With Malaysia becoming a net oil importer by 2014 and the coming global economic storm, how can an outdated economic model like ours continue to thrive? I suppose we can still depend on oil export revenues before it runs out and low value-added manufacturing exports for the next five years. But honestly, what can Malaysia offer to the global economy dominated by new giants such as China, India and Russia? Palm oil and biodiesel?

Rational Racism

For me, as a practising offshore economist, I have found further confirmation of the urgent need for Malaysia to change its race-based politics and race-based economics policies. It was found when I read Tim Harford's book "The Logic of Life." Chapter 6, The Dangers of Rational Racism, in particular, talks about rational racism as found in America.

Supported by class room experiments and statistics, Harford explains that racism practised by American employers in their recuitment process against African Americans is quite rational because it saves employers time and trouble to treat African Americans as "part of a group that's known to be educationally struggling, rather than taking a closer look at their individual qualities."

The interesting part of the chapter that resonates on Malaysia is when he cites the work of University Chicago economist and Nobel laureate Gary Becker, who wrote The Economics of Discrimination. Becker found that while discrimination hurt the incomes of both the employer and unemployed, the extent of economic damage for the country as a whole depended on the size of the minority group relative to the majority group.

In America, 12% of the population consists of African Americans or blacks while the rest are mostly white. Even a moderate amount of discrimination against blacks by white employers diminishes the economic well-being of the blacks while the white majority do not suffer much economic collateral. Competitive pressures could take a long time to favour white employers who are colour blind in their employment practices.

However, Becker points out that in a different racial structure such as South Africa, where the blacks who formed 80% of the population, were ruthlessly discriminated against under the Apartheid regime, the practice of race-based economic policies caused major economic underperformance for the country as a whole.

Now coming back to Malaysia, where the minority group forms a whopping 40% of the population, it is clear that the impact of the removal of race-based economic policies will have tremendous economic benefits for the whole country. Currently, employment policies that maintain certain race-based quotas have interfered with the efficient system of market incentives. Moreover, this inefficiency (or misallocation of human capital) is magnified in non- profit maximising organisations like the civil service and most government-linked companies where the racial profile of employees are disproportionately represented.

Prognosis: There are two types of economic leakages in the Malaysian labour market arising from the current race-based economic policies. First, there is a brain drain of professionals (both non-Malays and Malays) who have left the country to earn higher salaries overseas. Many of these people have either migrated or are permanent residents in their host countries.

Second, there is the economic leakage caused by low morale in the workforce as workers are not motivated to compete with the best and the brightest peers (locally and globally). It also does not help that foreign multinational companies perceive Malaysian workers to have generally suppressed their own productivity through low self-confidence.

Conclusion: Given the challenging economic environment that Malaysia finds itself, I think the time is already overdue for race-based economic policies to be dismantled so that the labour force gets a breath of fresh air and free market incentives are provided for each and everyone to compete with the best brains and the most hard-working peers. (In fact, Becker's hypothesis was that free markets, through the profit maximizing incentive, are the best way to combat racism and bigotry).

Rational racism is no longer rational when the minority group is 40% of the population. The economic wealth generated from meritocratic labour and capital policies will be large enough for all Malaysians to share for many years to come. Not least because foreign investment capital (which seeks the highest returns at the lowest costs) will come to invest in a more vigorous and motivated Malaysian workforce.

P.S. The problem with labour economics is that changes in policies take time to reap positive results in terms of higher productivity and wages. This is why Pakatan Rakyat, which has a mandate to change labour laws, should continue to be a viable alternative government. This will put political pressure on the incumbent policy makers to push through economic reforms or else be replaced by a more efficient government. However, the real pressure for reform is not political but economic as long-term inflation at 5-6% beyond 2009 will reduce the purchasing power of wage earners.