Thursday, October 21, 2004

Three points on SBY

So, finally we have this new president, SBY. Bye, Megawati, it's time for you to stop pretending. I have bigger hope for SBY-JK -- much bigger than to Mega. But I won't spend time comparing them here (but as a note, I believe, high expected utility always comes with higher risk -- JK is a risk factor). Just three quick points on interesting issues lately.

First, this whole objection toward "pro-IMF cabinet" is really off the mark. Not many times I am against PKS' (Justice Party) stand. But I guess, this is one. I have written elsewhere about my take on globalization and eventually the IMF. To me, the Indonesian bad experience with IMF's programs in the past was partly OUR fault (worsened later on by people like Rizal Ramli). On the other hand, the IMF's share to that problem was due to a malpractice by its staff. So, banishing the Fund for having incompetent staff in managing Indonesia is like banishing a whole hospital that happens to have some careless nurse. Do you think all nurses in such hospital are careless?

Second but might as well be related. Some analysts have brought the issue up to the tension between growth and unemployment. Corollary: macroeconomic stability versus fiscal stimulus. This, too, is a misnomer. I don't understand why some economists really hate fiscal stimulus -- even when it is needed. Many anti-Keynes economists don't know that JMK clearly argued for BOTH fiscal- and monetary policy depending on the situation. The supply-siders (read: Friedmanites), in contrast, think there should be NO fiscal policy AT ALL (it's funny: many times they even forget that "tax cut" -- one of their mantras -- is in fact fiscal policy!). These people should really start to realize that demand management matters, too. Lots of empircal evidence out there. Reaganomics-Thatcherism has its time. But not all the time: Bush has proven it. Think about this: supply-siders' backbone is Say's Law ("supply creates its own demand"), fine. But, they also say they believe Walras Law (that "ALL markets clear). It doesn't take too much time to see the flaw: Imposing both laws together is theoretically impossible. Say's Law only concerns with goods and labor markets. Walras Law adds the third one, namely money market. Saying that "supply creates its own demand" basically imposes that goods- and labor markets clear (because Investment = Savings should be paired with Labor Demand = Labor Supply). But if that's the case, while you ALSO hold Walras Law, then money market should also clear (Money Supply = Money Demand) -- Now, look around: do you think all markets clear? I don't. I don't buy Say's Law, because it implies that the cause of unemployment is EXCESS aggregate demand for goods (and, this is funny too: they call that "voluntary unemployment". To me, it sounds like an oxymoron). I don't think so. I think the cause of unemployment is more of INSUFFICCIENT aggregate demand. This is where fiscal stimuli is needed. Remember: you can also use monetary policy in OTHER situation. I am not against monetary policy.

Third. SBY waited too long before announcing his cabinet last night despite his promise. The doubter has come back?

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