This is a follow-up to my post on Prof. Tommy Koh’s article.  In that article, Prof. Tommy Koh touched a lot on how Singapore could learn from Europe (namely Denmark, Finland, Norway and Sweden) about Income Equality, Raising Fertility Ratios, Environmental sustainability and Preservation of heritage.

There was an interview with Mr Yeoh Lam Keong in the Straits Times last Friday. Mr Yeoh was the chief economist for the Government Corporation of Singapore (GIC) and spent 26 years of his life there. Go ahead and read the full article here.

As capitalist as I am, I believe that capitalism should not be taken to the extreme. In our basic economics class at the polytechnic, we teach students that resources are limited and finite. If that is right, then why are some resources being used to produce certain goods that bring a fleeting moment of excitement and pleasure? Could the raw materials used to build a supercar (like a Ferrari) be used to build motorcycles that poor farmers need so that they can bring their goods to the market? Maybe. But that’s not what classical economic theory will tell us. Classical economics tell us that the invisible hand of self-interest that ensures that resources are best allocated.

Economics do not just tell us about that free markets should be worshipped without restraint, which is why it is refreshing to hear from someone like Mr Yeoh who has the pedigree to comment on government policies. After all, society should not be just about producing (flipside: consuming) manufactured stuff. There are the intangibles like relationships with friends and family, nature, stimulating conversation etc.

At the heart of the income inequality problem is this: even if consumption is good, think about how much more rich people can to consume even if they had most of the money? Would a person earning fifty times more than the average person buy fifty times as many goods as the average person? I do not think so. For businesses, it is the middle class that matters. In case anyone is wondering, it is not my argument. This is Nick Hanauer, a billionaire and early investor in Amazon.com, who made this point in arguing for higher taxes on the super-rich. (watch the full thing here)

Therefore, these problems are inter-related. If we want to combat against the falling Total Fertility Ratio, we also have to tackle the problem of income inequality. Will tackling that cause lower or negative growth? It may not be if we can stimulate more consumption among the middle class on local goods and services.

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