Wednesday 4 April 2012
Friday 30 March 2012
Thursday 29 March 2012
Wednesday 28 March 2012
Congratulations to all 2011 students of SMTDLM for their excellent SPM results. You are all magnificent. We wish you all the best in your future undertakings. Remember, this is only the beginning of your adventure in life. So, always keep God in your hearts and never fear the future.
With love, from all English teachers of SMTDLM
The Economy
Stimulus Story
In the midst
of the European sovereign debt crisis, I would like to share with you a story
that I came across a few years ago about the economy and how it is stimulated
through spending. Here's the story:
The story started with a rich tourist came to a town in which everyone living there was in debt. The tourist put down a 100 dollar note for the hotel owner as a deposit while he went round to check the conditions of the rooms. With the 100 note on hand, the hotel owner quickly ran to pay off his debt – his supplier, the butcher. The butcher received the money and he quickly settled his debt with the cowherd. Next, the cowherd used the receipt to pay off his debt with his supplier of feed and fuel. And this supplier ran to pay off his debt to his creditor - the prostitute, and finally, the prostitute went to the hotel owner and settled her debt with the hotel owner with the same 100 dollar note.
The hotel owner then put the 100 dollar note back on the counter as it was the deposit of the tourist. The tourist decided not to stay and took his money back.
After all these drama, amazingly, the whole town is now without debt and everyone looks to the future with a lot of optimism. In the final sentence of the story, it says: “This is how the United States Government is doing business today.”
“Does the story make any sense?” I’m sure most of you are pondering hard about this story. In fact, I’m truly amazed that this little story has embraced a number of important economic concepts that I’m going to explain next.
First, the story has brought out one major economic theory - the Keynesian mulitiplier theory. The initial 100 dollar note has changed a number of hands, from the hotel owner, to the butcher, to the cowherd … and back to the hotel owner. Starting with 100 dollars, the economy has created 600 dollars worth of market transactions. In order for the Keynesian multiplier theory to function, the initial 100 dollars has to be an autonomous (independent) injection in the form of investment, government spending or exports to the economy. In this case, the rich tourist’s 100 dollar note is treated as exports because the rich man is a foreign tourist, the money is considered as an outside independent source of injection to the economy. (For simplicity, I have left out the multiplier formula here)
Next, we come to the most important concept of the multiplier theory that says that the injection of money creates round after round of spending. In other words, the cycle of ‘one man’s spending creating another man’s income’ repeats itself round after round just like the story.
The story started with a rich tourist came to a town in which everyone living there was in debt. The tourist put down a 100 dollar note for the hotel owner as a deposit while he went round to check the conditions of the rooms. With the 100 note on hand, the hotel owner quickly ran to pay off his debt – his supplier, the butcher. The butcher received the money and he quickly settled his debt with the cowherd. Next, the cowherd used the receipt to pay off his debt with his supplier of feed and fuel. And this supplier ran to pay off his debt to his creditor - the prostitute, and finally, the prostitute went to the hotel owner and settled her debt with the hotel owner with the same 100 dollar note.
The hotel owner then put the 100 dollar note back on the counter as it was the deposit of the tourist. The tourist decided not to stay and took his money back.
After all these drama, amazingly, the whole town is now without debt and everyone looks to the future with a lot of optimism. In the final sentence of the story, it says: “This is how the United States Government is doing business today.”
“Does the story make any sense?” I’m sure most of you are pondering hard about this story. In fact, I’m truly amazed that this little story has embraced a number of important economic concepts that I’m going to explain next.
First, the story has brought out one major economic theory - the Keynesian mulitiplier theory. The initial 100 dollar note has changed a number of hands, from the hotel owner, to the butcher, to the cowherd … and back to the hotel owner. Starting with 100 dollars, the economy has created 600 dollars worth of market transactions. In order for the Keynesian multiplier theory to function, the initial 100 dollars has to be an autonomous (independent) injection in the form of investment, government spending or exports to the economy. In this case, the rich tourist’s 100 dollar note is treated as exports because the rich man is a foreign tourist, the money is considered as an outside independent source of injection to the economy. (For simplicity, I have left out the multiplier formula here)
Next, we come to the most important concept of the multiplier theory that says that the injection of money creates round after round of spending. In other words, the cycle of ‘one man’s spending creating another man’s income’ repeats itself round after round just like the story.
But the story
says each of them “pay back” their individual debt, not “spending” as stated in the multiplier theory. I would
argue that the spending has been
performed before each one received the 100 dollar note, which means they spend first and pay later. Just like most of us
are doing now.
So, did the people in the town really get rid of their debt? The answer is “Yes!”
Because during each round of spending, income is created at the receiver’s end. This means that no matter what is the source of income (be it borrowed money or earned money), the economy is stimulated in the form of more economic activities created by the many rounds of spending. As long as the rate money earned is faster than the rate of debt increased, by theory, we can settle the debt. But in real world, most government in the world is building their debt at a much faster rate than the collection of taxes because in a democratic society when the government is elected based on people's votes, the ruling party tends to run into budget deficits. Hence, this is how most of the governments in the world are doing business today!
So, did the people in the town really get rid of their debt? The answer is “Yes!”
Because during each round of spending, income is created at the receiver’s end. This means that no matter what is the source of income (be it borrowed money or earned money), the economy is stimulated in the form of more economic activities created by the many rounds of spending. As long as the rate money earned is faster than the rate of debt increased, by theory, we can settle the debt. But in real world, most government in the world is building their debt at a much faster rate than the collection of taxes because in a democratic society when the government is elected based on people's votes, the ruling party tends to run into budget deficits. Hence, this is how most of the governments in the world are doing business today!
Thursday 22 March 2012
Lifting the
seedlings to promote growth
Once upon a time, there was an inexperienced
farmer in ancient China
One day he planted some rice seedings in his paddy field. He was very eager to see them grow. Day after day he would go to his paddy field to watch how the seedings were doing. Of course there was nothing discernible. He became impetuous. "Why not I do something to promote their growth," he said to himself.
Thinking it was a good idea to lift the seedings a little bit so that they looked taller, he went into the field and lifted all the seedings an inch higher.
He thought he was smart to have done that. He went home happily and bragged to his family about what he had done, little realizing that he had just devastated all the seedings.
So don't become overly impatient or enthusiastic and do something as stupid as what the farmer had done.
One day he planted some rice seedings in his paddy field. He was very eager to see them grow. Day after day he would go to his paddy field to watch how the seedings were doing. Of course there was nothing discernible. He became impetuous. "Why not I do something to promote their growth," he said to himself.
Thinking it was a good idea to lift the seedings a little bit so that they looked taller, he went into the field and lifted all the seedings an inch higher.
He thought he was smart to have done that. He went home happily and bragged to his family about what he had done, little realizing that he had just devastated all the seedings.
So don't become overly impatient or enthusiastic and do something as stupid as what the farmer had done.
Monday 19 March 2012
The Lottery of Life – Would You
Re-Draw?
Lots of people I meet complain that they don’t have the luck to
achieve the success and wealth that they want. “If only I was luckier, life
would be a lot easier and I would be a lot happier”, they would say. Many
people pray of the day they could draw that lucky ticket and win that million
dollar lottery that would change their life.
What many people do not realize is that the fact that they have
been lucky enough to be one of the few winners of the biggest lottery of
all….the lottery of life! They were lucky enough to draw the ‘right ticket’ and
be born where they are.
Imagine that 24 hours before you were born, God gave you a bowl of
100 tickets. You had to draw one ticket that would determine your sex, country
of birth, wealth, intelligence etc.. What would have been your chance to end up
where you are now?
Let;s look at the odds. If you were to take the entire earth’s
population and shrink it to 100 people (represented by 100 tickets), with all
existing human ratios the same, it would be made up of the following:
49 would be female, 51 would be male
80 would live in low-cost housing. 20 in comfortable housing.
67 would be unable to read. Only 33 would be literate
1 would have a university education. 99 would not be able to attend university
50 would be malnourished and 1 dying of starvation
33 would be without access to a safe water supply
16 would have access to the Internet
17 would live in a developed country. 83 live in underdeveloped countries
80 would live in low-cost housing. 20 in comfortable housing.
67 would be unable to read. Only 33 would be literate
1 would have a university education. 99 would not be able to attend university
50 would be malnourished and 1 dying of starvation
33 would be without access to a safe water supply
16 would have access to the Internet
17 would live in a developed country. 83 live in underdeveloped countries
If you were given the chance to turn back time and go back to 24
hours before you were born, would you choose to return your current ticket and
re-draw a new ticket from the 100 again? If not, then consider how lucky you
are!
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