Light blogging, if any

Off to Dakar, Senegal tomorrow. Will come back in the 28th. If any, blogging will be light. In the meantime, here are fun stuff:

Tyler accuses Brad as an Austrian economist. Brad, of course, denounces it. But those who really are in Austrian school -- and who adore Mises more than Hayek, tell us that this cartoon now has a video version. Enjoy (or hate) it.

Paris Club communique

It reads as follows (my emphasis):

"During their meeting held on January 12, 2005, Paris Club creditors discussed the situation of the countries affected by the tsunami. Considering the exceptional scale and the devastating effects of this catastrophe, and in order to allow these countries to dedicate all available resources to address humanitarian and reconstruction needs, and in addition to the substantial commitments of their governments and citizens to provide assistance, they shared the view that, with immediate effect and consistent with the national laws of the creditor countries, they will not expect debt payments from affected countries that request such forbearance until the World Bank and the IMF have made a full assessment of their reconstruction and financing needs. In the light of that assessment, and in consultation with affected countries, Paris Club creditors will consider what further steps are necessary. The precise response to affected countries will be determined in the light of their individual requests taking into account the situation of each country."

Rizal Ramli made a point

Unusually, Rizal Ramli makes sense:

"IMF's expertise is in planning fiscal and monetary policies, not in assessing damages.... Couldn't we do the assessment?"

Thank to Rizal for the pointer.

Mbak Ani's clear vision

Very well-written article, by the State Minister of National Planning (in Bahasa). She lays out the government plan in dealing with the tsunami's aftermath in three phases: emergency, rehabilitation, and reconstruction. She also clarifies some confusion (also in Bahasa, a piece by Prof. Sadli) regarding the aid inflows.

No to a foreign military base!

This whole debate around the presence of a thousand foreign troops in Aceh is missing the point.

The pros argue, the destroyed Aceh is a world's problem. It should not be collapsed into nationalism sentiment whatsoever. Aceh needs all kinds of help, including those from foreign militaries. (On the radio I heard this morning, somebody said even the help from satan should be welcome!). So there shouldn't be any deadlines for the presence of foreign troops in Aceh. On the other hand, the government has asked them to leave Aceh in three months. The government worries that the foreign troops could be harmed by the GAM separatists -- a very bad political statement.

Both sides of arguments don't make sense. While I tend to agree with the government decision, it should have given a more reasonable justification. And that would be, the possibility of international takeover of Aceh, which would very likely be led by the U.S. The U.S. once had bases in the Philippines' Subic and Clark for their operation in East Asian region. But they get kicked out in 1992. They need a replacement to "serve" the region -- they've been everywhere else. They have been trying hard to get another strategic location. Indonesia is very strategic geographically. And add to that, it is increasingly becoming international military interest ("terrorist-haven" as sometimes the western media picture it). So,? You do the math. (I suspect the government takes this seriously, but they just can't say it -- too sensitive an issue?)

Of course you might say, c'mon. Look at those massive aid coming in, much of which from the U.S. I know. Aid is one thing. Military takeover is another. This is not about stupid nationalism. But I'm skeptical with the U.S. move. Some of you argue, we cannot rely on our own government, so why don't we open the access to foreigners as wide as possible. True, our government is slow and lame. But letting more than a thousand foreign troops there is just thrilling to me (and I never trust Bush's words about peace. You see the evidence against him everywhere). I hope I am wrong. As a note, by the way, all we get so far from the debt negotiation is debt moratorium, not debt relief. What we they give us is time, not money. Please don't say we owe them a region.

Will the government decision harm the aid inflow? It might. But it's better than having Aceh replacing Clark/Subic. I agree with setting the timetable for the foreign troops (I think civilian volunteers are fine, though). But the government should find a way not to lie to the public of what it's concern really is. At the same time, the government should be more decisive in coordinating the aid allocation as well as the reconstruction projects. So far it seems so messy: who's in charge? Alwi Shihab, JK, SBY, or whom?

God, save this country.

Aside: Now some of you might think I'm for conspiracy theories based on my foregoing assertion. No, don't ever think I also believe that the tsunami is caused by American experimental bomb under the sea. No, I never buy such crap!

Addendum: Just heard it on the radio. Things are getting worse. Alwi Shihab literally said, this is about nationalism and dignity. "How can we stand being looked at as a country that always needs helps? It's a shame if we cannot manage it ourselves". My goodness, he had no idea what he was talking about. Or, maybe he did. He's just a lousy politician.

The next Julian Simon

I confess I haven't read Huber and Mills' Bottomless Well. But thanks to Tyler Cowen at the Marginal Revolution, I now know what it is about (yes, I trust Tyler's reading). In Tyler's words:

1. The cost of energy as we use it has less and less to do with the cost of fuel. Increasingly, it depends instead on the cost of the hardware we use to refine and process the fuel. Thus, we are not witnessing the twilight of fuel.

2. "Waste" is virtuous. We use up most of our energy refining energy itself, and dumping waste energy in the process. The more such wasteful refining we do, the better things get all around. All this waste lets us do more life-arrirming thing better, more clearly, and more safely.

4. The competitive advantage in manufacturing is now swinging decisively back toward the United States...[information technologies]

6. The raw fuels are not running out. The faster we extract and burn them, the faster we find still more. Whatever it is that we so restlessly seek -- and it isn't in fact "energy" -- we will never run out. Energy supplies are infinite...

Of course the above is hated by many environmentalists. Somehow this reminds me of the famous bet between Paul Erlich and Julian Simon.

Monsanto-gate

Monsanto has been bribing Indonesian top officials and their family. The Jakarta Post reported:

"... People from Monsanto met with a senior environment ministry official on several occasions.
... an employee of the consulting firm which represented Monsanto visited the senior official at his home and gave him an envelope containing $50,000 in $100 bills.
... Monsanto made at least $700,000 in illicit payments to at least 140 current and former Indonesian government officials and their family members.
... The largest single set of payments was for the purchase of land and the design and construction of a house in the name of a wife of a senior Ministry of Agriculture official, which cost Monsanto $373,990.
... Other improper payments included, among others, payments to a senior official of Budget Allocations at the National Planning and Development Agency (Bappenas), totaling $86,690, and payments to other Ministry of Agriculture officials, totaling $8,100.
... Officials of the South Sulawesi office of the agriculture ministry also received approximately $29,500 from Monsanto.

I guess this would either a) send some vip's to jail or b) just vanish in the air.

RIP: Robert Heilbroner

The author of the ever-illuminating Worldly Philosophers, Robert Heilbroner died today in New York. Another great loss.

Early warning system

I agree with Posner, we should build one:

"...[P]oor countries may not have the resources to create tsunami warning systems or take other precautionary measures that wealthy countries could afford to do. I would rephrase the point as follows: the budget for disaster prevention will depend on the competing claims on public and private funds. The more urgent those competing claims, the rationally smaller will be the budget devoted to disaster prevention..."

"...But to keep matters in perspective, although per capita incomes in the nations affected by the recent Indian Ocean tsunami are roughly 10 times less than the per capita income of the United States, the four countries principally affected--Indonesia, Thailand, India, and Sri Lanka, have an aggregate GDP of hundreds of billions of dollars. A tsunami warning system might cost only a few million dollars a year..."

RIP: Gerard Debreu

Professor Debreu died today. Condolences.

Moratorium or relief or what?

My two-cent op for those debating on debt moratorium:

1). Debt moratorium is not the same as debt relief. The former is temporary suspension, and the latter is permanent reduction/deletion or simply rescheduling.

2). G2G-based moratorium for official debts is very possible. But only for those under bilateral agreement. Those signed under the Paris Club are subject to discussion -- and a tough one, most likely. In the meantime, debt relief is still possible but less likely (unless Indonesia poses similar importance to donors the way Mexico was to the U.S. back in the Clinton years).

3). It's almost impossible to get relief (not to mention moratorium) for commercial debts. After all, corporations are no charity. (They will donate some money of course, for image-building).

4). So what now? Here's what I would suggest : 1) Demand debt relief (as so promised by U.K., Italy, and Belgium) -- I could imagine this would be relatively more manageable for bilateral agreements. But it would be extremely tough for multilateral: Paris Club is a cartel and the brain-child of the IMF; remember GOI has said no to the Fund; hence no more Paris Club dinners, 2) Demand debt moratorium (from Germany, U.S., Japan, Canada, and France).

5) If you are concerned with our rating, points in # 4 above will not hurt (read S&P Bulletin today) insofar the debts we are talking about are official debts. When it comes to commercial debts though, things are not pretty (see # 3, and in addition, unlike the case of official debts, this one is subject to lowered rating).

6) Yet, some would understandably cry out: why oh why are we still talking about the damn ratings in the midst of this sad sad sad catastrophe? Well, because those herds called Corporations out there always wake up in the morning and look at the S&P ratings before deciding where to put money today. And the thing is, it's commercial debts that are more volatile. Unfortunately, we are not sure if can play the Mexican way...

Tsunami's impact

Tsunami's impact (source: Citigroup: Hanna et al, 2005)

The above graph (click to enlarge) shows that the impact of the recent Tsunami on financial markets is not gigantic. (Thanks to Anton Gunawan for the article).

On the economics of the Tsunami see the interesting discussion of Posner and Becker today. They both agree that despite the great uncertainty of such catastrophe, a good early warning system should be provided. Becker goes on to offer solutions. In the long run: invest on education; and in the shorter run: good access to market insurance. But, as Becker admits, these both are not easy to do, especially by low income countries. And of course, moral hazard problem. See a rejoinder by Lynne Kiesling.

My take: Yes, the economic costs of the Aceh's Tsunami might not be gigantic. However, this event requires extremely careful response from the government. Yes, we expect (and have been promised) huge amount of foreign aid. Both in the form of grant or of debt forgiveness. Good diplomacy is crucial, because no such thing as a free lunch (recall: Rubin-Summers-Greenspan's unpopular determination to help Mexico in the Clinton years)

Education: basic first!

Returns to and costs of education (graph by Todaro)

Over examining a doctoral dissertation, a collegue and I were involved in a discussion. The examinee modeled public education provision and how it affects (or affected by) interregional movement of students. One of the results seems to imply that higher education should be centralized. Despite the fact that the dissertation treats education as consumption-only, not an investment (one serious weakness, I think), the collegue rightly argued that it is the basic education that needs centralization more than higher education. He backed up his argument with G. Psacharopoulos' finding that the returns to investment on basic education is greater than that on higher education. The referred study is a classic, and the finding seems to be a stylized fact these days (Psacharopoulos has updated again the paper in Education Economics, 12(2) Aug 2004 -- subscription required). I would have stated my agreement with him.

But instead, I misunderstood my collegue's point, and rather, raised another related point, namely: the the social returns to investment on higher education is lower than its private returns. Of course I had in mind the graph above (from the Mike Todaro's Economic Development that in turns also cites Psacharopoulos). In particular, what I really meant was that in the case of higher education, the net private returns exceeds the net social returns. This is shown in the graph above where the expected private returns and private costs diverge; while the social returns and social costs converge (and later, cross and reverse).

So, basically my collegue and I were in agreement as far as the public policy on education was concerned. That is, if the government is to centralize public education, it should do it to basic education first (In fact, I even tend to think, for higher education, no centralization should be encouraged).