Our Bottomless stock market

The local Chinese papers had front page stories on our collapsing stock market today, with both the Apple Daily and Chinese Times observing that the 4 day fall in the stock market this week had totaled 633 points -- a sardonic comment on Ma's 6-3-3 promise, which Ma said this week was meant to apply for any time up to the last year of his second term. The Taipei Times reported today:

The Presidential Office yesterday defended President Ma Ying-jeou’s (馬英九) “6-3-3” economic policy, saying it was announced before the global economic downturn, that Ma had not abandoned it and that it would apply until 2016.

Presidential Office Spokesman Wang Yu-chih (王郁琦) said that the administration would strive to achieve its goals in spite of the global economic slump.

“2016 is the year by which we plan to achieve all three goals. It does not mean that we have to wait until 2016 to accomplish them all,” he said. “As long as the global economy recovers, it is possible that we can achieve some of the goals earlier.”

Wang made the remarks in response to media inquiries about Ma’s comments that his “6-3-3” campaign pledge was unlikely to be realized anytime soon, but he hoped it could be achieved by 2016 — the end of a possible two terms in office.

The “6-3-3” economic policy refers to the goal of achieving annual GDP of 6 percent, average annual earnings of US$30,000 and an unemployment rate of less than 3 percent.

As of this writing, at about 1:00 on the 5th, the market has continued to fall another hundred points or so. The DPP is calling for a cabinet reshuffle, but it is hard to see what a new cabinet can do about the skidding global economy and falling investor confidence. Why did the stock market fall again yesterday? The Taipei Times reported it was due to Ma's comments on his economic promises:

The TAIEX plunged 172.3 points, or 2.61 percent, to close at 6,412.63 on turnover of NT$91.19 billion (US$2.81 billion), Taiwan Stock Exchange data showed.

Analysts attributed the fall chiefly to panic selling by domestic investors after President Ma Ying-jeou (馬英九) said a day earlier that he could not honor his campaign pledge to achieve economic growth of 6 percent and raise annual per capita income to US$30,000 during his four-year term.

Winson Wang (王榮旭), a stock analyst at Marbo Securities Consultant Co (萬寶證券投顧), said foreign fund managers could not be blamed for the market’s bearish performance yesterday, as they sold only NT$7.7 billion in shares.

“Rather, domestic investors calculated it was better to sell their stock now since the government has no intention of fixing the economy in the near future,” Wang said by telephone.

This was followed by calls to lower the corporate income tax and similar moves. Short-term solutions......



Speaking of leadership and taxes, remember when Vincent Hsiao was touted as the experienced economic development specialist who would take us all to the promised land? He's been working on the tax reform that will lower taxes on business. The Ma government has been arguing that the tax regime should be altered, and industry groups have been using the Milton Friedman Foundation as the apparent source of some simpleminded ads (picture above) that claim that low taxes (left) lead to high economy (right). A commentary the other day in the Taipei Times discussed the proposals:

The Chinese National Federation of Industries (CNFI) is running a TV commercial urging tax cuts to stimulate the economy. The federation has spent large sums on propagating spurious theories in a tedious campaign to brainwash the public and pressure the Cabinet’s Tax Reform Committee in an attempt to manipulate the direction of tax reform. Is the commercial telling the truth?

First, it claims that low taxes equal economic growth, and that high taxes equal economic decline. If this theory is correct, shouldn’t tax havens such as the Virgin and Cayman islands be the world’s most developed economies?

The commentary is long, but points out that high-tax environments are coincident with good economic growth and high living standards, and noting that low tax regimes, like the US, are known for high income inequality and rising government debt. It also rebuts claims that Taiwan's taxes are higher than either Singapore's or Hong Kong's. Well worth a read.

[Taiwan]