The Intangible Tsunami of Optimism

The smartest market economists (not including the ambiguous Moody's analysts) have once again failed to see the elephant in the room that is now called Malaysia Baru (their other failures  being wrong calls on Brexit and Trump's election).

With their typical analytical tools, they are only able to point out the fiscal and political challenges the Malaysian economy is currently facing following the "shock" victory of the Pakatan Harapan coalition party.

But what many economists fail to see is the deep change that is working its way into the psyche of a healing nation.

A nation that, for 6 decades, has suffered under the weight of the former regime's misguided policies, which in the last ten years, went from bad to worse in the hands of kleptocrats (or glorified thieves in plain words).

There are 5 intangible factors that are driving the revival in the confidence, optimism and animal spirits of Malaysians.

1. Relief from a climate of fear and freedom of expression

2. Faith in institutions

3. Restored dignity in the world at large

4. Meritocracy

5. Mandate of integrity given to the new government

Over time, whether in a period of one year or three years, these factors will inevitably impact positively on the productivity and morale of the human capital of Malaysia.

Academic research has proven that faith and trust in strong democratic institutions has enhanced the economic well-being and vitality of nations. 

The only problem is that these factors are not measurable by any economic variable. 

And because of this conundrum, economists can only deal with the short-term effects of tough fiscal reforms that are required to wean the economy from sleazy and easy money poured into bloated construction projects.

Former Khazanah chief economist Prasenjit Basu recently  shared his view on Malaysia:

"I’m maximum bullish on Malaysia. I predicted a year ago in my published research (on May 12th 2017) that Mahathir-Anwar would win the election, and reiterated that on 30th April 2018 with a forecast that PH would win 120 seats (I was 2 short!).

A new multiracial compact will remake Malaysia, attracting lots of reverse-flight capital and overseas Malaysian talent back to the country. Penang will regain its position as the IT hub of SE Asia."