Downside to multicornered presidential race

Letter from Edwin Yeo Tee Yeok

While the prospect of a multicandidate contest for the Presidency looks to be an exciting spectacle, I am concerned that the splitting of votes among the candidates could result in a situation where the winner garners fewer than half of the total votes cast.

In such an event, one would be hard-pressed to justify a “people’s mandate” for the Elected President since more than half of the electorate would not have voted for him.

Such an Elected President may find it hard to gain respect, especially if the contest had been heated, with emotions running high, or if he had won by a small margin.

Imagine the following scenario:

The President is escorted to the podium during the National Day Parade, but only fewer than half of the spectators welcome him.

I hope this does not happen and that Singaporeans will be mature enough to respect the election outcome.

Leaders, banks should

stop the stampede

Financial markets can create their own dangerous dynamic, as Warren Buffett pointed out after Standard & Poor’s downgraded United States debt securities on Aug 5. Buffett was on the mark.

The downgrade triggered panic selling around the globe on Monday, leading to demands for more collateral from investors, who sold still more shares to meet the margin calls.

The resulting drop in equity prices, coming on top of last week’s more than US$4 trillion (S$4.86 trillion) plunge in global stock market value, will probably dampen consumer confidence and increase the chances of another recession.

With fear begetting more fear, and with US and European economies in a precarious state, government leaders on both continents have only one sane path: To prevent recession and restore faith in the financial system. This is easier said than done, particularly in an American election year. But here’s how we can get started.

To begin, congressional leaders in both parties should name within days — and not wait for the Aug 16 deadline — the 12 members of the supercommittee called for in the recent debt-ceiling accord.

To hasten the process, Senate Majority Leader Harry Reid of Nevada and Senate Minority Leader Mitch McConnell of Kentucky should name the Senate’s Gang of Six to the panel.

That group, composed of three Democrats and three Republicans, proposed shaving US$3.7 trillion from the national debt over 10 years, including US$1 trillion in tax increases.

The plan, which won broad bipartisan support when it was released in mid-July, could quickly become the supercommittee’s recommended course with just one more vote, presumably from a Democratic House member named to the panel.

New Zealand has net foreign debt of 130 per cent of GDP, and Australia 60 per cent, yet they still get a top rating from the credit rating agencies and their currencies have been very strong despite experiencing external deficits during a boom in their commodity export prices.

6.5% inflation limits

Credit steroids got us where we are

In the wake of the hugely disappointing budget deal and the Standard & Poor’s debt downgrade, maybe we need to hang a new sign in the immigration arrival halls at all United States ports and airports It could simply read: “Welcome. You are entering the United States of America. Past performance is not necessarily indicative of future returns.”

THE NEW YORK TIMES

Thomas L Friedman won the 2002 Pulitzer Prize for commentary, his third Pulitzer for The New York Times.

Thomas L Friedman

Only way out of this hole is for United States to

rebuild its muscles of growth the hard way

Because our country is now finding itself in the worst kind of decline — a slow decline, just slow enough for us to keep deluding ourselves that nothing really fundamental needs to change if our future is to match our past.

Our slow decline is a product of two inter-related problems.

First, we have let our five basic pillars of growth erode since the end of the Cold War — education, infrastructure, immigration of high-IQ innovators and entrepreneurs, rules to incentivise risk-taking and start-ups, and government-funded research to spur science and technology.

We mistakenly treated the end of the Cold War as a victory that allowed us to put our feet up — when it was actually the onset of one of the greatest challenges we have ever faced.

We helped to unleash two billion people just like us — in China, India and Eastern Europe. For us to effectively compete and collaborate with them — to maintain the American dream — required studying harder, investing wiser, innovating faster, upgrading our infrastructure quicker and working smarter.

Instead of doing that at the scale we needed — that is, building muscle — we injected ourselves with massive amounts of credit steroids (just like our baseball players). This enabled millions of people to buy homes they could not afford and to fill jobs in construction and retail that did not require that much education.

Our European friends went on a similar binge.

All this debt blew up in 2008 in the US and Europe, and that led to the second problem:

Homeowners, firms, banks and governments are all now “de-leveraging” or trying to — meaning that they are saving more, shopping less, paying off debts and trying to dig out from mortgages that are under water.

No one better explains the implications of this than Professor Kenneth Rogoff, a professor of economics at Harvard, who argued in an essay last week for Project Syndicate that we are not in a Great Recession but in a Great (Credit) Contraction:

“Why is everyone still referring to the recent financial crisis as the ‘Great Recession?’” asked

Prof Rogoff. “The phrase ‘Great Recession’ creates the impression that the economy is following the contours of a typical recession, only more severe — something like a really bad cold ... But the real problem is that the global economy is badly over-leveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation ... ”

“In a conventional recession,”

Prof Rogoff noted, “the resumption of growth implies a reasonably brisk return to normalcy.

The economy not only regains its lost ground, but, within a year, it typically catches up to its rising long-run trend. The aftermath of a typical deep financial crisis is something completely different ...

It typically takes an economy more than four years just to reach the same per capita income level that it had attained at its pre-crisis peak ...

“Many commentators have argued that fiscal stimulus has largely failed not because it was misguided, but because it was not large enough to fight a ‘Great Recession’.

But, in a ‘Great Contraction’, problem No 1 is too much debt.”

Until we find ways to restructure and forgive some of these debts from consumers, firms, banks and governments, spending to drive growth is not going to come back at the scale we need.

Our challenge now, therefore, is to de-leverage the economy as fast as possible, while, at the same time, getting back to investing as much as possible in our real pillars of growth so our recovery is built on sustainable businesses and real jobs and not just on another round of credit injections.

Regarding de-leveraging, Prof Rogoff suggests, for example, that the government facilitate the writing down of mortgages in exchange for a share of any future home-price appreciation.

Regarding growth, we surely need a much smarter long-term fiscal plan than the one that just came out of Washington. We need to cut spending in areas and on a time schedule that will hurt the least we need to raise taxes in ways that will hurt the least (now is the perfect time for a petrol tax rather than payroll taxes) and we need to use some of these revenues to invest in the pillars of our growth, with special emphasis on infrastructure, research and incentives for risk-taking and start-ups. We need to offer every possible incentive to get Americans to start new businesses to grow out of this hole.

If juggling all these needs at once sounds hard and complicated, it is.

There is no easy, one-policy fix.

We need to help people de-leverage, cut some spending, raise some revenues and reinvest in our growth engines — as an integrated strategy for national renewal.