My two courses this semester

Program: Undergraduate Economics
Course: Introductory Microeconomics (ECON 10100), aka "Pengantar Ekonomi 1 - PE1"
Instructors: Mari E. Pangestu and Arianto A. Patunru (TA: Rizky N. Siregar)
Classroom: A1-10, FEUI Depok, Mondays, 8-11am
Texts: Mankiw (Principles of Economics, 2008), Parkin (Economics, 2010)
Topics: concepts of economics, supply, demand, elasticity; basic consumer and producer theories, market structures, input markets, efficiency and public policy.

Program: Graduate Economics
Course: Advance Microeconomics (ECON 90103-3), aka "Ekonomi Mikro 3"
Instructor: Arianto A. Patunru (TA: Palupi)
Classroom: PLN-Room, Pascasarjana FEUI Depok, Wednesdays, 13-1530pm
Texts: Mas-Colell et al (Microeconomic Theory, 1995 plus a bunch of journal articles)
Topics: General Equilibrium and Welfare Economics

Office hours: Depok, Mondays before 1pm, Lecturers Room, Department of Economics, FEUI Depok.

Yes, it is sad that our domestic economy is disintegrated. (Mercantilist campaign continues, anyway)

In what seems to be its campaign against everything import, Kompas again runs a headline today with a bombastic lead and heroic tone urging the stop of food import (27/8). They even use (unjustly, to my impression) Faisal Basri's concern about disintegration of domestic economy as their ammunition to call for mercantilism. I've been in close contact with Faisal Basri lately and we both (and many others) are very concerned about the disconnection across regions in Indonesia. Bang Faisal many times illustrates this problem with the fact that it is far easier to go from Palangkaraya to Pontianak (two cities in Kalimantan) via Jakarta (in Java), than directly. In my papers, I put more emphasis on the fact that our logistic costs are one of the highest in the world (14%, cf eg Japanese's 4%). In addition, a study my colleagues and I did in 2008 on land transportation also concludes in the negative: we are very inefficient due to legal and illegal collections on the street, poor infrastructure, and difficult topography. Finally, our ports are lame and have little incentives to improve since under the current, existing system, one port management (Pelindo) who books a loss should not be worried as it will be subsidized by the other Pelindos (the new shipping law addresses this issue with improvement policy but it is yet to be in effect). Add to that the many hurdles in customs. All and all, the big archipelago is really not an integrated economy, it is merely a constellation of many islands and regions with stark differences in prices, and hence standard of living. What is the solution? As I argue here and elsewhere, it requires logistics reform which includes serious improvement (and repair) on infrastructure especially port and road. I was in Kupang last month with my research team. We saw one obsolete weight station whose capacity was only 10 tons. As a response to that, all big, seemingly overload trucks were not allowed to pass through the station -- they were asked to make a small detour around the station. Only smaller trucks are to be weighted. It's funny and saddening. In another occasion, our researcher who rode with a trucker in a nightshift observed how the truck driver threw a matchbox filled with a 10,000 rupiah bill to an empty inspection station. When asked why he did that despite there was no one asking for it, the driver simply said "it's a custom". Again, nonsensical and saddening. All this contributes to our high cost economy. And again, it calls for reform in the logistics.

But Kompas takes all this problem about disintegrated domestic economy as part of their argument to call for import bans. Yes, they cited Faisal Basri as saying that three months ago we should have imported sugar and now it seems too late because suppliers have increased the price. That is probably true. But then they are back to their whole anti-import campaign. This is misleading. It confuses between facts (say, of the crisis) and recipe for longer term economic development. We have been with this problem in logistics and transportation for a long, long time. It needs improvement regardless of the crisis. Yes, we were hit by crisis but happened to be more resilient partly because coincidentally our exposure to trade is relatively low. But the entire world can not step back to relying only on domestic economies. Because at the same time production network and trade-in-tasks are growing. We don't want to miss the train. Nobody wants. But hey those are two different things. The crisis needs a short-term solution, deviating from normal, longer term development (eg. stimulus). This chain of arguments that (a) A crisis hits us, (b) We're fine because we don't trade too much, (c) Therefore the best way to go is to suppress trade even more and to go domestic instead, (d) So, stop import (while export is okay), and (e) While we're going to autarky, we need to address the logistic and infrastructure issue -- is misleading. It mixes up short term problem and longer term solution.

And banning food import? Even if we were all mercantilists now, have we forgotten that our food import is merely USD 5 billion while our non-oil/gas export stand at more than USD 100 billion? Have we forgotten that we are a giant in the world CPO market?

Gold standard? Now? No way

Yesterday, as I was having sahoor, an academic cum cleric gave a talk on tv about sharia economy. He mentioned that one of the features of sharia economy is "gold or dinar standard". I'm not sure what he meant by putting gold and dinar side-by-side (maybe he thought now the dinar system is still fully gold-backed, and therefore the two are interchangeable).

A couple of days ago I participated in a seminar held by MOF. At lunch, an official, out of blue, asked my opinion about that same idea, ie gold standard. My response was "I don't think we will ever go back to gold standard. That BI storage will not be able to house the entire gold backing the money in circulation".

Today, Paul Donovan of UBS Investment Bank gives a more sophisticated answer (The Jakarta Post, 25/8). Bottomline is the same: There is not enough gold in the world. Here's his reasoning. Assume that globalization is steady with global trade stays at 20% of the world's GDP. If the the world's nominal GDP grows at 6-6.5%, then the supply of reserve currency should also rise by 6-6.5% to keep the international trade intact. Now, if we are to go back to gold standard, trade growth will not stay at 20%, let alone expand: it will shrink, as the supply of gold rises at 1.5% growth rate.

Dare to stop import?

Misreading of the crisis aftermath (Indonesia has been quite resilient -- Indonesia's exposure to trade was quite low -- therefore, stop trading, go domestic) is getting pervasive. Kompas yesterday (24/8) ran couple of articles with anti-import tone. Today it continues, featuring Kadin chief in its headline (25/8). As quoted by Kompas, Hidayat says "If the government does not have the guts (to stop food import) and instead play blame gain among each other, we would not be self-sufficient in the next five years".

As I said repeatedly here, our conception of self-sufficent is false. We reached the so-called "rice-self sufficiency" briefly on the back of heavy protectionism.

Interesting paper of the week: Deaton on Aging, Religion, and Health

Aging, religion, and health
by Angus S. Deaton - #15271 (AG HC)

Abstract:

Durkheim's famous study of suicide is a precursor of a large contemporary literature that investigates the links between religion and health. The topic is particularly germane for the health of women and of the elderly, who are much more likely to be religious. In this paper, I use data from the Gallup World Poll to study the within and between country relationships between religiosity, age, and gender, as well as the effects of religiosity on a range of health measures and health-related behaviors. The main contribution of the current study comes from the coverage and richness of the data, which allow me to use nationally representative samples to study the correlates of religion within and between more than 140 countries using more than 300,000 observations. It is almost universally true that the elderly and women are more religious, and I find evidence in favor of a genuine aging effect, not simply a cohort effect associated with secularization.As in previous studies, it is not clear why women are so much more religious than men. In most countries, religious people report better health; they say they have more energy, that their health is better, and that they experience less pain. Their social lives and personal behaviors are also healthier; they are more likely to be married, to have supportive friends, they are more likely to report being treated with respect, they have greater confidence in the healthcare and medical system and they are less likely to smoke.But these effects do not all hold in all countries, and they tend to be stronger for men than for women.

http://papers.nber.org/papers/W15271

On Local Tax Law

The newly approved Local Tax Law stipulates the following 5 taxes allowed for provincial governments: vehicle tax, vehicle title-transfer tax, vehicle fuel tax, surface water tax, and cigarette tax. As many as 11 taxes are allowed for district/city governments: hotel tax, entertainment tax, advertisement tax, street-light tax, non-metal mineral tax, parking tax, ground water tax, swallow-nest tax (!), building and property tax, land and building rights entitlement tax (for lack of better translation). The law also allows 30 kinds of 'retribution' (user charges), grouped into 3 types: general service retribution (eg marketplace services), business service retribution (eg terminal and auction place services), and specific licence retribution (eg route permits). Finally, there is a progressive tax on second or more vehicles (with a tariff from 2 to 10 percent).

The above is based on a column by Harry Aziz, Bisinis Indonesia, 24/8). The author was the head of special committee for the draft, from the House side. He mentions that the reasons for progressive tax on vehicles are: inelatic demand of vehicles (I wonder what hi numbers are), fairness principle, local competition principle. He also adds that the collected tax should be earmarked to local infrastructure development. A tall order indeed.

Donate, no. Sell, yes

A small article in Kompas (27/8) talks about Indonesian Red Cross' difficulty in supplying blood for the needy. They oftentime have deficit than surplus as "there is more demand than supply". Yearly demand for blood is 4.3 million packs, while supply only stand at 1.2 million on average.

So stop relying on donation. Start blood market.

Info: Courses and Office Hours

The new academic term starts next week. I am assigned to teach Introduction to Microeconomics (undergraduate, co-teaching with Dr. Mari Pangestu) and Advance Microeconomics (PhD program). Info for students, I will be in Depok every Wednesday (Pascasarjana, 1-3pm) and Monday (not every week, as I'll take turns with Bu Mari; Departemen Ekonomi, 8-11am).

Separating underwriters from brokers

The government via the stock market regulator (Bapepam) is going to revise the Capital Market Law. The revisions include separation of investment management units from underwriting and brokering functions (The Jakarta Post, 22/8).

Not surprisingly, most securities firms react negatively as majority of them mix the two functions. The president director of Trimegah Securities for example reportedly said that the policy would "put pressure on our efficiency programs". He said that Bapepam should instead focus on enforcing good corporate governance.

I think his argument is ill-founded. What the Bapepam is doing is exactly an effort to enforce good corporate governance.

Monitoring sermons except those by...

The Jakarta Post reported that police would monitor provocative sermons given in mosques and mass gatherings (JP, 22/8). It is to avoid provocative and misleading preaches by clerics that can motivate violence and terrorism.

OK, what have they done to Ba'ashir? Was Ba'ashir's commending the bombers not provocative enough?

Are we going back to financial repression?

As if the strange deposit rate-cap policy isn't enough, Tony Prasetiantono calls for cut on profit margin (Kompas, 22/8). According to him, the agreement (to force deposit rate down to 8 percent and gradually closer to BI rate) will not be enough, because it only "affects the cost of fund". Sounds as if cost is not part of profit calculation, eh?

Add? For what?

So the World Bank urges GoI to increase budget allocation for infrastructure (Bisnis Indonesia, 21/8). Good. If only there is no problem in procurement and disbursement. Alas, everybody knows, GoI has not been capable in efficient handling of money. Even for the stimulus intended for infrastructure project (yes, stimulus for infrastructure -- funny), by end of July they could only spend less than 10 percent of it.

Force it down, eh?

As reported in Kompas (21/8), banks (mainly state-owned) agreed to cut deposit interest rates gradually to get closer to the BI rate. They think this will help "normalize" the movement of deposit and credit interest rates. I'm skeptical. First, as a depositor, one would seek for the highest real rate. If local banks set it low, she would transfer her money to some bank abroad, or convert it to other form of asset. Second, any agreement like this (between banks, in a moral suasion sort of way) is deemed to fail. One or two banks will eventually cheat and the rest will follow. Third, they miss the point. Banks' rates deviate from BI rate not because they just want to be different. It's because they still perceive a sizable risk. Attacking the rates is missing the culprit as it is the risk that needs to be minimized, through a more efficient credit bureau for example. Lastly, if the banks and the government and Bank Indonesia think that this forced rate is good for banks in general, they will be disappointed. Thus far, market has been segmented such that big depositors go to big banks and get interest rate higher than BI rate. The smaller depositors go to smaller banks and are paid interest below BI rate. Forcing big banks' interest down will attract the upper level of smaller depositors and therefore hurt the smaller banks.

Kudos to Pelindo I

I have been criticizing the management and system of the state-owned Indonesian Port Corporation (Pelindo), esp. on their cross-subsidization scheme. That is, if one Pelindo (we have four) books a loss, the others should subsidize it. This system creates no incentive to self-improve.

So, the news in the Jakarta Post (21/8) that Pelindo I has inked a joint commitment with private firms and local governments on a port development program is a good news.

SME prefers foreign banks

Kompas (20/8) reported that small and medium enterprises prefer foreign banks to local ones because of easiness in paperworks as well as lower interest rates.

Chair of Indonesian Young Enterpreneurs, Erwin Aksa, urged Bank Indonesia to be critical to this situation, or it will kill the local banks.

Typical.

On Ahmadinejad

So he's sworn in. I'm grateful my country is no Iran.

Less expansive? Good!

The 2010 state budget plan is considered less expansive by many, and some call it contractive. I take it as a sign that GoI will focus more on efficiency. That is, to reduce problems in budget preparation, approval process, procurement sluggishness. So it's a good thing.

@ SMERU

Was at SMERU Research Institute to wish all the best to Sudarno Sumarto for his sabbatical leave to Stanford; and to Asep Suryahadi for his new position as the new Head of SMERU.

Mas Darno, you'll be missed. Keep up the good work. Kang Asep, congratulations. Looking forward to working with you.

Bloghopping eq, moved again

Now it's Becker-Posner, Jim Hamilton, Cafe Hayek, EconLog, MargRev, Mankiw, Krugman, Env-Econ, and the new addition: Scott Sumner.

The best definition of inflation

"The rise in aggregate nominal income required to keep aggregate utility constant"

That is by Scott Sumner.

Congratz, Bang!

Congratulations to Darmin Nasution for his appointnment as Senior Deputy Governor of Bank Indonesia and the chairman of Indonesian Economists Association.

Bang Darmin was a former head of LPEM. We once taught a parallel course on Indonesian Economy (with Faisal Basri -- also a former head of LPEM) at the extension program of FEUI back in 1997. I love Bang Darmin's sense of humor. He's also very tough. Rumor around the office boys and janitors has it, Bang Darmin once challenged somebody for a fist fight over a parking lot in Salemba Campus. He won without the fight, needless to say.

Being Normal

SB Joedono, a former head of LPEM gave us his wisdom. "The most difficult thing to do is to become normal".

Thanks, Pak Billy.