Thursday, December 30, 2004

Sudden policy changes 

Yet another Singaporean complains about sudden policy changes made by the government. This time, it is over the new rules involving the cash downpayment for the purchase of HDB resale flats.

The reader sent a letter to The Straits Times saying:

I notice this has been the trend recently — trying to guide how people spend by changing monetary policies. Worse, most of these new policies are to make up for deficiencies in planning, such as allowing too many private condominiums to be built and so creating an oversupply. Such a reactive mode does not help in any way and is detrimental to thousands of Singaporeans financially.
When a government policy proves to be wrong, it is understandable that it should change its policy. But not all changes to policy stem from mistakes. Sometimes, circumstances change; policies then need to be changed along with them. In fact, many policies are actually crafted with subsequent periodic adjustments in mind.

Unfortunately, change is painful for many people. Unfortunately, also, it cannot be avoided. The question is only who gets hurt by change, and who gets the blame for it.

Which leads to a suggestion by the aforementioned reader to let supply and demand “resolve small deviations naturally”. I am sympathetic to this suggestion because I am biased towards free markets myself.

But I doubt this provides a satisfactory solution. Markets, especially asset markets like housing, are naturally prone to bubbles and crashes. People who suggest a totally free, unregulated market appear to have forgotten the panics, crashes and economic misery that prevailed in the past before modern regulatory regimes were put in place. In those days — as in the immediate aftermath of the Enron and WorldCom scandals — governments were criticised for lack of regulation.

This, of course, is not to suggest that things have become perfect with the advent of financial regulation. Only that a reversion to the past, laissez-faire regime may not be the solution either.


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