I wrote a letter about wage inequality and recession. This is the problem faced by America. Singapore will face the same challenge. If wage inequality is not reduced to a more sensible level, we will also face a economic recession or other type of economic and social problems.
www.easyapps.sg/sgep/latest.aspx.
Some people pointed out that one reason for the near collapse of world financial system in 2008 was due to the asymmetric reward system, especially in banks' proprietary desks.
ReplyDeleteIn Singapore, the Senior members of the government are paid based on GDP growth and the pay of a few top earners. Policies leading to higher GDP growth and higher pay of top earners will push up the pay of the Senior members. They will not be dis-incentiviced by a wider pay differential between top earners and bottom earners. Unless, of course, if that leads to voters revolt.
Actually, the income inequality is already worse in Singapore compared to the US.
ReplyDeleteSingapore Gini Coefficient = 48.1
USA Gini Coefficient = 45
Taken from
http://en.wikipedia.org/wiki/List_of_countries_by_income_equality
I refer to the article by Mr TKL on "Wage inequality and recession", the 2nd last para which states:-
ReplyDelete"Some people think that, being small, the
government will be able to prop up the
property market in Singapore. I do not agree."
I truly hope that the writer is correct, but I tend to diasagree with the assessment.
80% of ppl here own HDB flats. Some bought at low prices eons ago and their values appreciated tremendously. Others bought recently at high prices. In either case, their possession is worth a lot of money. Property ownership is the main thing keeping them rooted here, besides their CPF monies.
Imagine what would happen if their flats' prices were to fall say 30% or more. There will be mass furore. The govt just would not let this happen, as it would be a big political price to pay. I say that the govt will at most allow a 10% downward correction in HDB prices. Should market forces suppress the prices even further, this govt will step in and prop up the prices. A property price collapse here is unthinkable, regardless of what happened in USA recently, and in the UK many years ago.
I also fail to see how a high Gini coefficient can cause a property price collapse. Referring to the Wikipedia article on Gini, countries like Namibia, Lesotho, Siera Leone etc have a much higher Gini than sg. Have property prices in these countries collapsed? To my understanding, property prices in most 3rd world countries are already relatively cheap compared to sg. Is there a link between Gini and property price collapse?
Yes the government might not let it happen they will try to reinflate the real estate bubble, but if America has failed why do you think singapore will succeed? Any do you really think that reinflating the bubble will be better for those with housing, the pap have to get the credit from somewhere. Either they issue more government debt, or they raise taxes( like GST to 20%). I really hope they will not do such a foolish thing, japan has tried to reinflate their housing and stock market bubble for 20 years with no avail and the results is that they are causing a new generation of under employed youth and with a public debt approaching 200%.
ReplyDeleteA high Gini coefficient does not directly equate to a property collapse but it indicates that the mass majority of the population might not have an adequate amount of salary. In 3rd world countries, the property have not been inflated by speculation and easy money, most of them might not even own any housing in the first place. But in developing or developed countries, speculation in property lead to an unsustainable housing market whereby the middle and lower class because of stagnant or decreasing salary cannot afford the mortgages anymore. (But a low Gini coefficient does not equate to no property price collapse either, it just means that most of those people with underwater mortages might be able to muddle through without defaulting or foreclosure of their house. )