Are you populist already?

Easy. Says Sowell:

If you want cheering crowds, don't bother to study economics. It will only hold you back. Tell people what they want to hear-- and they don't want to hear about supply and demand.

No, supply and demand is not too "complex." It is just not very emotionally satisfying.

HT: Mankiw.

Technorati's flaw?

What is going on with Technorati? It keeps responding with proxy error notification or things like that. Most annoyingly, it calls this blog 403 Forbidden. What the heck is that?

New paper (in Bahasa Indonesia)

Ekonomi Perubahan Lingkungan Pariwisata di Tanjungpinang: Aplikasi Model Utilitas Random

Luhur Fajar Martha (Litbang Kompas)
Arianto A. Patunru (LPEM-FEUI)
Dorodjatun Kuntjoro-Jakti (FEUI)

Jurnal Kebijakan Ekonomi Vol 2(3): 203-223, April 2007 (ISSN: 1858-2311)

Abstract:

This study examines the impact of visitors on changes in the quality of the Tanjungpinang tourism environment and measures the economic loss/profit from these changes. Using a random utility model applied with conjoint analysis, this study combines revealed preference and stated preference data to expand the depth of the analysis. The qualitative approach consists of interviews and field observations to complete the quantitative approach. The research found that (a) changes in the natural environment will impact the number of visitors in Tanjungpinang; (b) the potential decrease in compensating surplus from visitors as a result of loss to the natural environment in Tanjungpinang is Rp 5.04 billion per month, while the potential increase in compensating surplus from visitors as a result of additional natural environment positive amenity is Rp 7.94 billion a month; and (c) there exists a potential for a decrease in Tanjungpinang regional government revenue as a result of damage to the natural environment.

Keywords: environment, tourism, random utility, conjoint analysis

The Politics of Rice 30

Is it, world food crisis, that serious? Yes, apparently. Here some excerpts from The Economist (The silent tsunami, April 19th):

Famine traditionally means mass starvation. The measures of today's crisis are misery and malnutrition. The middle classes in poor countries are giving up health care and cutting out meat so they can eat three meals a day. The middling poor, those on $2 a day, are pulling children from school and cutting back on vegetables so they can still afford rice. Those on $1 a day are cutting back on meat, vegetables and one or two meals, so they can afford one bowl. The desperate - those on 50 cents a day - face disaster.

The Politics of Rice 29

From Becker-Posner Blog, Posner condemns US farm bill:

There is no justification for the [US] Farm Bill in terms of social welfare. The agriculture industry does not exhibit the symptoms, such as large fixed costs, that make unregulated competition problematic in some industries, such as the airline industry, about which Becker and I blogged recently. It is true that crops are vulnerable to disease, drought, floods, and other natural disasters, but the global insurance industry insures against such disasters, and in addition large agricultural enterprises can reduce the risk of such disasters by diversifying crops and by owning farm land in different parts of the nation and the world. If a farm enterprise grows soybeans in different regions, a soybean blight in one region, by reducing the supply of soybeans, will increase the price of soybeans, so the enterprise will be hedged, at least partially, against the risk of disaster. Supply fluctuations due to natural disaster create instability in farm prices, but farmers can hedge against such instability by purchasing future or forward contracts. There is no "market failure" problem that would justify regulating the farm industry. All the subsidies should be repealed.

and he raises the paradox of protection:

The small number of American farmers is, paradoxically, a factor that facilitates their obtaining transfer payments from taxpayers. They are so few that they can organize effectively, and being few the average benefit they derive (the $50,000 a year) creates a strong incentive to contribute time and money to securing the subsidies. The free-rider problem that plagues collective action is minimized when the benefit to the individual member of the collective group is great.

to which Becker offers explanation:

I believe that the explanation for the very opposite treatment of farmers in developing and developed countries is interest group competition (see my "A Theory of Competition Among Pressure Groups for Political Influence", The Quarterly Journal of Economics (Aug., 1983), pp. 371-400. This analysis shows that small groups, like farmers in rich countries, often have much greater political clout than large groups, like farmers in poorer countries. The reason is that even large per capita subsidies to small groups, such as farmers in the US, impose rather little cost (i.e., taxes) on each member of the large groups, like urban and suburban residents of the US. As a result, these large groups do not fight very hard politically against the small per capita taxes used to subsidize farmers.

By contrast, a large subsidy to farmers in developing countries would require imposing high per capita taxes on their relatively small urban populations since farmers are a rather large proportion of the total population in these countries. Instead, the same political pressures as in developed countries lead poorer countries, regardless of the nature of their political systems, to subsidize the smaller urban populations at the expense of the larger farm populations.

Of course any serious econ student should have read that Becker paper. It sounds Olsonian, too.

Olsonian or not, the difference between the cases of US and Indonesia lies a lot on the composition of the farmer group. That is, when it comes to talking about Indonesian case, dividing farmers into net producers and net consumers is critical.

Ebert's blog

It has come to my attention that Rogert Ebert has been blogging, here. I was a regular visitor to Ebertfest, a film festival initiated by Roger and has been going on in Champaign, Illinois (that is in the historical Virginia Theater) for ten years. The festival is about overlooked, high quality films. I miss it (the last time I attended the festival, there was a great movie, El Norte and discussion afterward).

Domestic Trade Barriers

The study is out, here. This is a blog entry by Neil McCulloch. Here's an intro:

Road Transportation, Regulations and Charges in Indonesia

 

To assess the size and nature of domestic road transportation costs, The Asia Foundation, in partnership with the University of Indonesia's Institute for Economic and Social Research (LPEM-FEUI) implemented a comprehensive survey of domestic trucking costs along nine routes in Indonesia. The survey explicitly examined licensing costs, road charges and the costs associated with poor infrastructure. Through GPS tracking and interviews with firm managers and truck drivers, the survey identifies exactly who is charging drivers, where they are being charged and how much.

Bhagwati's new book: PTA is, again, bad

Of course, I haven't got one (it's out June). But I think I can guess what is written there.

Hikayat Lebah Ratu

The following has nothing less to do with economics. It just so happened that a friend invited me to come to his book launch. I thought I heard it wrong when he said he also wanted me to say something about his poems. I had no idea what to say. So I just mumbled:

Hikayat Lebah Ratu: Membaca Nirwan Dewanto

Arianto A. Patunru
Penyuka Sastra

Ketika Bung Nirwan Dewanto memberitahu saya rencananya meluncurkan Jantung Lebah Ratu, reaksi saya ada dua. Pertama, saya sadar: saya ini awam puisi, bahkan tidak mengerti dunia puisi. Kedua, judul koleksi Bung Nirwan mengingatkan saya kepada sebuah artikel dalam Journal of Law and Economics tahun 1973, "The Fable of the Bees: An Economic Investigation" (Hikayat Lebah: Sebuah Penyelidikan Ekonomi) yang ditulis oleh Steven Cheung.[1]

Hikayat Lebah-nya Cheung adalah kritik terhadap kisah. Tepatnya, penggunaan kisah untuk argumentasi. Ideologi mungkin bukanlah asing dalam perjalanan ilmu, termasuk ekonomi. Namun ia tidak musti sakral. Ia butuh bukti teoretis atau empiris. Argumentasi pun dibubuhi kisah dan hikayat. Mudahnya ekonom menutur kisah demi memperkuat argumennya mengusik Cheung. Dua puluh tahun sebelum Cheung ekonom James Meade berkisah dan berhujjah: pemerintah perlu memberikan subsidi kepada peternak lebah, karena lebahnya, selain membuat madu, juga menyerbuk apel di tetangga sebelah. Tanpa subsidi, jumlah madu dan nektar terlalu kecil.[2] Kisah itu setali tiga uang dengan kisah Arthur Pigou, tiga puluh tahun sebelum Meade. Tentang sebuah pabrik dengan polusi yang mengganggu masyarakat di sekitarnya tanpa ada kompensasi dari pemilik pabrik. Pigou berkata, pemerintah perlu mengenakan pajak polusi, agar udara kembali jernih. Tanpa pajak, jumlah sulfur dan karbon terlalu besar.[3]

Steven Cheung ragu. Benarkah kisah-kisah itu? Kuatkah mereka mendukung argumen-argumen di atas mereka? Cheung kuatir, Pigou dan Meade telah terlalu tergesa-gesa. Maka ia pun turun, bertemu bercengkerama dengan sejumlah peternak lebah dan petani apel. Dan ia menarik nafas. Tanpa pajak dan subsidi, pasar telah bekerja di antara peternak lebah dan petani apel. Dalam musim ketika penyerbukan tidak diperlukan, peternak lebah membayar petani apel agar lebah si peternak boleh berumah di kebun si petani. Dalam musim sebaliknya, petani apel yang membayar peternak lebah agar para lebah sudilah menyerbuk ke sana. Pesan dari Cheung jelas: jangan buru-buru memutuskan. Datang dan lihatlah.

Begitulah yang saya ingat.

Karenanya, ketika Bung Nirwan mengirimkan Jantung Lebah Ratu, saya kira saya akan membaca puisi-puisi lebah bernada Cheung: kepercayaan kepada mekanisme alam, yang dipertegas oleh mata dan telinga telanjang. Tentang kehatihatian memberi ruang kepada kesimpulan manusia. Puisi-puisi yang memberi kredit sepantasnya kepada lebah dan nektar: bahwa ada pasar di antara mereka.

Ternyata. Sungguh lebih dari sekedar itu.

Membaca Bung Nirwan membuat saya terhenyak lemas. Betapa lebih besar ketidaktahuan saya. Saya ingat: sempat saya pernah bersombong dan menyangka diri punya sedikit, ya sedikit saja, keunggulan komparatif dalam membaca sastra di antara murid-murid ekonomi (sekalipun mungkin hanya menang lebih duluan membaca Ahmad Tohari dan Sapardi Djoko Damono).

Saya salah, rupa-rupanya.

Dan Jantung Lebah Ratu menegaskan itu. Ini berbahaya: lebih memalukan daripada prediksi makro yang meleset.[4] Bahkan kosakata pun banyak yang tidak saya pahami -- kalau bukan cerminan dari kekurangakraban dengan kamus. Ada ara-ara, pring, balam, alah, kalis, nyiru. Lalu terwelu, bengkarung, obsidian. Beginilah kalau hidup serba kering hanya dengan inflasi, insentif, dan regresi: baca puisi mati rasa. Celakanya lagi, teori ekonomi ternyata banyak kakunya dan yang ada pun sudah tergambar jelas di luar sana.

Bahwa tidak selamanya kopi dan air atau kopi dan susu adalah komplementer, seperti kita terima saja di kelas pengantar ekonomi mikro kemarin.[5] Tunggu dulu. Menurut Bung Nirwan, ada persaingan di antara air dan kopi. Ada substitusi.[6] Atau paling tidak naluri bersaing alih-alih bersekongkol atau dibuat bersekongkol dalam fungsi produksi. Betapa lugunya penyederhanaan oleh contoh-contoh dan kisah-kisah klasik buku teks. Karena sesungguhnya puisi memungkinkan dua barang bisa sekaligus komplementer dan subsitusi. Sekaligus bertarung, bersetubuh, membubung. Untuk kemudian jatuh menghujani bentang koran pagi.

Bahwa lebah ratu pun berhitung biaya versus manfaat. Sebelum memutuskan untuk membunuh atau memuaskan lebah pejantan. Atau kombinasi keduanya. Sekalipun ternyata korbannya adalah bayang-bayangnya sendiri. Sungguh, lebah pun tidak lepas dari konsekuensi yang serba tidak diniatkan.

Bahwa jangan-jangan memang mungkin ada lembar sepuluh dollar di jalan, tergeletak tidak menarik siapa-siapa yang melintas. Ratna Manggali adalah buktinya. Tapi kemudian, siapa berani dengan Calon Arang? Maukah Anda memungut lembar sepuluh dollar di jalan jika di sebelahnya mendesis ular berbisa? Syukurlah, untuk yang satu ini diktum ekonomi masih berlaku. Ketika Empu Baradah membinasakan sang ular, lembar sepuluh dollar pun lenyap.[7]

Bahwa mengajarkan efisiensi tidak melulu harus dengan kisah pakaian dan kue, dengan si A dan si B. Karena Bulan pun melakukannya, bersama Kesedihan. Bung Nirwan berkisah, Sang Bulan meminta kenikmatan yang lebih, ketika Sang Kesedihan sudah tidak bisa memberi lagi, kecuali melukai diri sendiri. Vilfredo Pareto dan Francis Edgeworth menyebut ini sebagai keseimbangan efisien.[8] Namun Bulan hanya tahu meminta dan Kesedihan hanya bisa menangis. Dan akhirnya efisiensi itu pun dirusak. Oleh pengorbanan Sang Kesedihan, mengupasi dirinya sedikit demi sedikit. Yang dikuncinya hanya cinta. Efisiensi memang bisa kejam.

Bahwa di Broadway, hanya di Broadway, ada titik optimum global. Di mana merah telah jenuh, walau tak pernah sampai ke surga. Kunang-kunang Manhattan bisa bersaksi. Bahwa ketika Marno dan Jane berpisah, masing-masing mereka akan terhempas ke titik yang tanggung, optimum yang lokal.[9] Para ekonom, holy grail yang kita cari itu ada di Broadway, hanya di Broadway.[10]

Bahwa laku teori permainan ada dalam setiap gerak.[11] Ketika menghauskan diri, agar dimasuki; ketika meringankan jantung agar dilayarkan; ketika mentanahkan agar dihujani. Dan tanggapan terbaik adalah mengejar, menghempas, dan menghunus. Nash equilibrium pada akhirnya adalah cinta yang berkelindan. Betapa sederhana, bahkan matematika pun tidak perlu.

Bahwa jauh sebelum ekonomi menjadi buku, Ular sudah mafhum rahasia Adam dan Hawa: insentif. Tidak ada yang lebih rentan daripada pasangan muda-mudi mabuk kepayang. Yang salah memilih discount rate.[12] Sehingga tuli dan akhirnya terkulai di tepi sungai. Dan Ular bersabda: maaf, tapi sampai kapan pun, akan kugoda anak Adam dengan desain mekanisme.[13]

Bahwa dunia tidaklah rata, seperti nyanyian cempreng Thomas Friedman.[14] Karena ada penjinak binatang, ada peniti tali. Ada Adam ada Hawa. Dan peziarah manapun tidak kuasa memaksa mereka bersepadan di jembatan mawar. Mengapa David Ricardo begitu cepat dilupakan? Kita berdagang, karena kita berbeda. Kita hidup karena kita berdagang. Maka janganlah bumi ini menjadi rata.[15] Tidak peduli betapa kencang Marx berteriak.

Bahwa ucapan terima kasih bisa cukup untuk membela diktum "tidak ada makan siang gratis".[16] Karenanya, berterimakasihlah kepada laut, tukang jagal, asparaga, juru museum, kentang bakar, padang rumput Chien, atau peluh lautan. Seperti lebah berterima kasih kepada nektar dan apel berterima kasih kepada serbuk sari sang lebah.

Maka jika Bung Nirwan berterima kasih kepada susu masam yang mengembarkan payudaranya dengan aprikot jingga, saya berterima kasih kepada Bung Nirwan, atas terapi sengat lebahnya ini. Yang mengembarkan kosa kata saya dengan merah dan darah. Salam buat Lebah Ratu.

GoetheHaus, 17 April 2008

---

[1] S. N. Cheung, "The Fable of the Bees: An Economic Investigation", Journal of Law and Economics, 16(1): 11-33, 1973.

[2] J. E. Meade, "External Economies and Diseconomies in a Competitive Situation", Economic Journal, 52, 1952.

[3] A.C. Pigou, Wealth and Welfare, 1912.

[4] Maksudnya, prediksi indikator-indikator ekonomi makro, seperti tingkat pertumbuhan, inflasi, dll.

[5] Dua barang yang bersifat saling melengkapi disebut komplementer. Implikasinya, kenaikan harga barang pertama menyebabkan penurunan permintaan atas barang kedua. Atau sebaliknya.

[6] Dua barang yang bersifat saling menggantikan disebut substitusi. Implikasinya, kenaikan harga barang pertama menyebabkan kenaikan permintaan atas barang kedua. Atau sebaliknya.

[7] Berdasarkan P.A. Toer, The King, The Witch, and The Priest, Equinox 2002.

[8] Ketika interaksi dua agen ekonomi telah mencapai situasi di mana tidak satupun yang bisa menambah kepuasan kecuali dengan menurunkan kepuasan agen yang lain, situasi ini disebut Pareto-efficient (dari nama Vilfredo Pareto). Ekonom yang menggambarkan keadaan ini secara grafis dalam apa yang disebut sebagai kotak Edgeworth adalah Francis Edgeworth.

[9] Salah satu analisis penting dalam mikroekonomi adalah identifikasi titik optimum (baik minimum ataupun maksimum). Karena semesta himpunan-nya besar, seringkali ekonom harus puas dengan apa yang disebut local optimum – kondisi optimal di sekitar daerah yang membatasi pengamatan yang relatif kecil. Ada kumungkinan terdapat titik lain di luar daerah amatan. Jika tidak ada, maka titik optimal tadi disebut global optimum.

[10] Berdasarkan U. Kayam, Seribu Kunang-kunang di Manhattan, Grafiti 2003.

[11] Maksudnya, game theory, salah satu instrumen utama dalam menganalisis interaksi antara agen ekonomi.

[12] Discount rate atau tingkat bunga diskonto adalah besarnya tingkat kemauan seseorang mengkonsumsi sesuatu saat sekarang dibandingkan masa yang akan datang. Semakin tinggi discount rate semakin cepat agen ekonomi mengkonsumsi barang pilihannya.

[13] Maksudnya, mechanism design, sebuah pendekatan mikroekonomi untuk menciptakan sistem insentif-disinsintif guna meminimumkan kemungkinan kecurangan salah seorang peserta interaksi.

[14] T.L. Friedman, The World is Flat, Penguin 2005.

[15] David Ricardo adalah ekonom yang mempopulerkan comparative advantage. Bahwa antara dua orang pasti ada yang unggul dalam A dan yang lain dalam B, dalam hal rendahnya biaya untuk memproduksi X.

[16] "There is no such thing as a free lunch". Contoh lembaran sepuluh dollar tergeletak di jalan adalah salah satu varian dari diktum ini.

Arrogant minister

One Kompas reader wrote a letter about a minister who got mad because he was inspected by a security official at an airport. I could imagine, as if he were saying: "Look idiot, don't you see I am a minister? You can't run a physical check like this on your ministers! Get off me! I'm on state duty, so you back off!". Arrogant indeed. Well, maybe he was mad not because of the inspection but because he was not recognized? Because he did not forget the usual threat by state officials, that is, asking your name, as in "Give me your name, now. You'll regret what you just did to me!".

I fall asleep when I'm bored or when I feel peaceful

I couldn't help laughing at this news about President SBY being outraged by a participant who fell asleep while he was giving a speech ("Sleeping forum participant outrages President", The Jakarta Post, Wednesday, April 9). He asked others to wake this poor guy up and asked him to "go outside if you want to sleep". I have been in two occasions with SBY giving speech, live. They were boring. I fell asleep too, couple of times. Thank God the president didn't spot me! Well, come to think of it, SBY should have taken that as a compliment -- his voice is so soft and peaceful, you feel like listening to a lullaby. I'm surprised that only one person fell asleep.

In a call to my aunt this morning, we talked about the funny news. She, a long time admirer of Soekarno, said, "No one ever fell asleep when Soekarno was giving a speech". I guess Soekarno was not as peaceful then.

Freeing the ports

Here's part of the summary of Patunru, Nurridzki, and Rivayani (2008) that would appear as a chapter in D. Brooks and D. Hummels (eds), Infrastructure's Role in Lowering Asia's Trade Costs: Building for Trade (Edward Elgar). And yes, I'm happy with DPR's decision to pass the new maritime law that scraps Pelindo monopoly (Bisnis Indonesia today, 8/4/2008).

The study finds that there are some important trade-offs in choosing ports. Based on the survey, the implementation of certain regulations might affect port users to choose another port. Importers located in the hinterland of Tanjung Perak Port may prefer Tanjung Emas Port since customs in the latter is less strict than the former. This could imply on extra transportation cost since Tanjung Perak Port is relatively more distant. Another trade off is between location and safety in delivering the cargoes. Geographical condition could prompt the exporter to choose the more distant port to ensure that the cargoes are delivered safely.

Currently competition is not evident among ports in Indonesia. This is due to the fact that all ports are controlled by one authority, IPC. However, users demand that ports operate more efficiently. A certain degree of competition in port handling services might be needed to drive services providers to improve their performance. Higher competition could lead to more options for port users and in turns might alter their decision in favor of more efficient ports. In addition, the competition among ports is likely to be contagious to the hinterlands as they would themselves compete over the ports.

If the control of two ports falls into two different private bodies, the competition between the two ports is more likely. However, given the public nature of port services, privatization might have to be done gradually. A few key ports in Indonesia have taken the course partially and it is expected that the improvement continues to other ports as well. Obviously port competition is relevant only within a certain limit of geographical areas, as distance is a key factor in choosing a particular port. This implies that complete privatization of all ports are not necessary. Priority should be put on the most important ports.

However, drive to competition should also be seen as an opportunity to improve "soft infrastructure" with a focus on increasing efficiency. For example, privatization as a means to foster competition will force the port management to cut unnecessary clearance process and to eliminate any illegal collection.

The study recommends the authority to encourage competition among key ports in Indonesia. This might be achieved by gradually minimize the authority of IPC to manage the ports. One suggestion is giving opportunity for private operators to provide services to shipping lines and cargo owners. As of the time of writing, the government is preparing a draft of a new shipping law (UU Pelayaran). One of the issues that is being considered is the movement towards more competition and away from monopoly.

Needed: credibility

From today's The Jakarta Post, Vincent Lingga is right on ("Only credible contingency measures can reassure the market", April 7):

How could the government still claim the budget is anchored on prudent fiscal management when fuel, power and food subsidies will take up more than 23 percent of total spending this year?

 

How could the budget be seen as politically viable when energy subsidies alone will exceed budgetary appropriations for capital investment and social expenditure?

When subsidy is a norm

Proof that subsidy has become a norm here. From an article in today's The Jakarta Post (4/4/2008) -- emphases added:

Non-subsidized electricity costs between 17 and 22 percent more than normal rates.

Ideally, subsidy is an emergency help. That is, it should not become a permanent policy. But the fact that people perceive non-subsidy as not normal is a reflection of thinking the other way around.

Without altering the meaning, I could have written, otherwise, as follows:

Subsidized electricity costs between 17 and 22 percent lower than normal rates.

Wait, maybe it does alter the meaning.

Hating X does not mean asking for a ban on it

I hate high price when I shop. But I don't think asking the authority to impose a ceiling is going to be effective. What I do is bargain. Sometimes the price gets reduced a little bit and I am reasonably happy: although it is still higher than what I first bargained but definitely lower than what I was willing to pay. More often, though, the seller beats me in the negotiation process. For which case, I will postpone the buying (if my 'discount rate' is low), or go somewhere else or buy something else.

Now, you can change the term 'high price' into anything that might bother you: stupid words or phrases, crazy Dutch film-maker, Cinta Laura, disillusioned Health Minister Sapari, Andrea Hirata's economics, anything.

Furthermore, you are free to tell people what you feel: I hate Paula Abdul and Titi DJ, I love Sandra Dewi, and so on, and so on. Others will debate you, will ridicule your taste. Fine. You can't debate taste but you can express what you like or dislike. And others have the right to disagree.

Without having to ask for regulation or banning or anything like that.

The Politics of Rice 28

Yes, why have I not commented on the rice export ban?

Well maybe the right word is fed up. I'm fed up with the statements from Menteri Pertanian, HKTI people, people hijacking farmers' name, economic observers who claim to know price mechanism but clearly reveal otherwise, Prabowo's campaign on TV, and so on and so on.

Don't tell me you love farmers, dudes. Because that's bullshit.

Vulgar Indonesianism

Some stupid and funny words I noted recently:

• Vulgar and useless adaptation of foreign (English) words: 'kontestasi' (funny because it is supposed to mean 'competition' and stupid because Bahasa Indonesia already has a good word to mean just the same: 'persaingan').
• Same as 'koinsidensi'  (Bahasa Indonesia has a better 'kebetulan' -- maybe because 'koinsidensi' sounds more English, as in coincidence?)
• Or 'distingsi' (for 'distinction', while we have 'perbedaan')
  

I'm sure there are more out there. I know, I myself am not good when writing in Bahasa Indonesia. But at least, I don't adopt foreign words just because I'm lazy to find the right words. And even if I do adopt them, it is not because I just want to sound cool.

Diskusi Ekonomi discusses again

Just in case some thought Diskusi Ekonomi has died, no, it has not. Rizal just posted one of his pieces that was ignored by Kompas. Others (yes, more guest bloggers will participate) will resume posting there shortly. Sorry for the long absence.

Report and learn and report

We love this type of journalist. Who, when wrong, admits and qualifies. A rarity.

HT: Greg Mankiw.

New working paper

Zooming Out Indonesia's Supply Constraints

M. Chatib Basri, Arianto A. Patunru, Masyita Chrystallin
University of Indonesia, 2008

The paper argues that Indonesia's main problem that impedes its economic growth (and lackluster performance of export) lies on the supply side rather than the demand side. That is, in the aftermath of the economic crisis, the aggregate supply has become less responsive. This problem is traced back to problems of exchange rate appreciation, high cost economy (esp. bribery and logistic costs), and the change of investment pattern. To help ensure a sustainable economic growth, therefore Indonesia needs to resolve the problem of supply constraints which itself is closely related to the issue of investment climate. The paper, however, is careful not to over-emphasize the role of investment climate in explaining the performance of Indonesian industries. It summarizes the recent discussions of investment climate given such qualification and elaborate on its most important factors, namely regulatory framework, governance, and infrastructure. In doing so, it also gives an assessment to the ongoing regulatory and policy reforms with a highlight on the policy areas where improvements are needed the most. The paper ends with a discussion on the 'dilemma of reform': reforming the bureaucracy is pivotal, but at the same time it is likely to be much more difficult than reforming the policy, because the former will encounter strong political challenges from various interests and groups; its benefits come later while the costs are immediate; and there is always a lag of time between implementation and results. The paper suggests that in countries as complex as Indonesia, reform in a 'piece-meal' approach focusing on the most binding constraints is more sensible than a 'wholesale reform'.

Dentists call

Reported in The Jakarta Post today, Indonesian Dentists Association complained that Indonesian people only go see a dentist when they have toothache.

Of course. D'oh.

FB's take on BI's brouhaha

Faisal Basri's Kompas column today is interesting.

According to FB, the source of controversy is SBY's clear preference toward Agus Martowardoyo (AM) and hence Raden Pardede (RP) was just a "pelengkap penderita" (maybe "background dancer" is a good analogy). I think FB was right.

Next, FB said that ideally BI should just focus on monetary issues. Can't agree more.

FB also said BI governor should be eloquent in explaining economic dynamics to market agents in a laymen language. And he or she should be able to explain them himself/herself to DPR members. Implicitly according to FB, it would be weird if the governor always delegated hearing with DPR to his/her senior deputy. I don't quite understand this. What's the problem if such task is delegated? I agree that the governor should master the monetary and banking theories but that does not mean he or she should always entertain the DPR in person. That's why he/she has deputies.

As for the rest of the article, I'm not sure if I understand well enough. FB mentioned about "nilai-nilai" or values that the new governor should have. There was a notion about good, commendable "track record", strong personality, etc. Not really clear to me what that all means.

My bloghopping equilibrium

I have a long list of econ blogs in my Bloglines account. I can't possibly read them all everyday. But when I have the time I usually go in this order: Becker-Posner, Cafe Hayek, Marginal Revolution, EconLog, Env-Econ, Greg Mankiw, Dani Rodrik, Jim Hamilton, and Paul Krugman. Most of the time, I can only read them over the weekends (along with selected classic papers and while preparing my lecture notes for the coming week). Sometimes, I skip Krugman. Sometimes it is Krugman, Hamilton, and Rodrik. Becker-Posner is not as frequently updated as the others. So, many times I end up having coffee and the George Mason trio: CH, MR, and EL. That's probably my bloghopping equilibrium -- recently.

Of course Alfie can amend all that easily.

How a real researcher does stuff

Intrigued, curious, digging data (and that includes getting it from reputable sources), checking for correlation, questioning causality, drawing careful lessons, offering qualifications...

Tim Haab shows us what a real researcher would do to answer a question (or even a mere curiosity).

Note. I'm sure Tim Haab does not remember me. But I'm proud to have given a (yes, lousy) presentation in Kerry Smith's prestigious Camp Resources back in 2003. Tim was the chair of my session. A fun guy.

on BI governor

OK, I've been restraining myself for commenting on this issue. It's just too political, too cheap, and at the same time embarrassing. But I'll vent out what I recently had in mind, so I'll die in peace if the world ends next week.

First, we want a central bank governor who of course, unlike me and most economic commenters, knows monetary and banking theory. We don't want an agronomist or political scientist for that position. We don't require somebody with vast experience as a chief or head or director of some institute or organization or even a big bank. Experience does not matter much. Knowledge does.

Second, we want him/her to be unapproachable, anti-social, or in short: towering figure who doesn't speak much. We don't want him to appear giving statements every day in newspaper or television. That's a job for information minister, not a BI governor. Our governor should just appear rarely only to lead the market. He or she should the one who set people's expectation, not the other way around. He or she should say we want an inflation of X percent next year and the year after. And he/she will do anything to meet that, no matter what. If needed, he or she can forget about other macro stuff. Just set an inflation target and meet it. Don't play too much with credits for SMEs or things like that. They have ministers for that.

Third, we want a BI governor who can say NO -- to the President, MoF, or to DPR people.

I guess we don't have that person, after all. Damn.

The ugly face of the blatant self revelation

Following their refusal of Bank Indonesia governor nominees, DPR members issue funny statements. A particular one that is so "revealing" is this:

[A parliament member] says that the solidity [he seems to be meaning: the strong determination, boldness] of the refusing camp is an indication that this time, there has been no money politics involved... (my emphasis)

Assuming that Kompas quoted him right and that money politics is still the common euphemism for bribe, this can mean: 1) in all the previous time, bribery was at play, 2) when the House approves a government's proposal it is because there is money politics involved

Oh boy, you said it yourself!

Enlightening the people

An anonymous accused me for never "enlightening people or decision makers". I guess he was totally right. Because I think blogging at Cafe Salemba, Diskusi Ekonomi, and Exegesis do not count as "enlightening". In fact I do all that for a completely selfish motive: fun. I don't get paid for that, but I benefit from the comments and interaction with other people (not always in a nice way, I should add): to know what I thought I knew but I didn't. I don't care if it is enlightening or not.

Come to think of it, I'm now wondering: what is the best way to "enlighten people"? Here's what I could think of, based on what I have seen many people do:

• There are more people watching TV than reading newspapers. So get into that TV thing. Make your way to get invited into talk shows -- preferably those with some clowns in them or comedian host with pretty actress.
  
• If you don't like acting on TV, write op-eds in newspapers or magazines, preferably the populists ones. Write something that suits its editor's taste. Better yet, get a contract for regular column called "analysis" or something. Doesn't matter what you write in there (can be a total crap). But hey, the newspaper names it "analysis", so relax. People will adore you, journalists will ask your opinion.
  
• Give talks in as many seminars as possible, preferably those attended by guest celebrities. Doesn't matter if you are asked to talk about Indonesian Idol or inflation rate. Just don't forget one thing: never say you don't know when you are asked something. Mumble, if you like -- just don't stay silent.
  
• Make good friends with journalists -- especially the lazy ones. The professional ones would do cross-checking, fact-checking and all that -- you don't want them. The lazy ones will just print whatever you say -- or send via SMS.
• When interviewed by a radio station, mention the word "rakyat" as many as possible. Guaranteed, you'll be on air again soon.
• Do not blog. Blogging is stupid and does not get you anywhere: government officials don't read it, parliamentarians don't give a damn. So don't waste your time.
• But if you can't resist the temptation to blog, make sure you obediently link to a blog authority (usually the self-declared ones work quite well) so you can be famous through his or her endorsement (some sort of blogger of the year, maybe). Oh, don't blog with fake name or even worse, anonymously. You'll be called coward -- that's not good.
  

What else?...

Now let's see what I have done... Oh my god, nothing! I guess I'm just incapable or I'm a selfish little bastard... Or maybe a little bit of both.

Late lesson again

Finally people seem to realize the truth: we should cut the fuel subsidy. Yes, that means the price will increase. (Ironically, SBY and JK seem to be too afraid to push this through -- but that's another story).

One thing remains bothering. That is the whole useless debate about production and quantities. It's the price that matters! We have learned it the hard way with rice case: you all hated production data, but you refused to recognize price as the reliable indicator. Now you're doing it again with fuel. And god knows what's next.

Mixed feelings in Bangkok

Greetings from Bangkok. (No, I have nothing to do with Thaksin's come back today). But it is unpleasant to see a country where people are really divided like this.

Question: Can you love a corrupt leader if he spoils you?

Oh by the way, this is a best phrase I heard today: "democratic coup" -- is there such thing?

If it's really just a good leader, we're in trouble

What explains variations in investment climate at local levels? We presumed either subnational competition, interest group pressure, or leadership -- or combination of the two or three. As for leadership, we thought of three natures: rent-seeking (as opposed to developmental), inclusive (vs. exclusive), or planned (vs. unplanned). We are yet to get confirmation to all this -- but we're getting there.

But I'm wary. Evidence so far is skewed toward ... leadership. If it is finally proven so, that is discouraging. Even though Ari Perdana rightly said that such "non-standard" variable might explain regional performance, I am afraid we can't go very far as to offer any policy recommendation: because that means it's the person, after all, not the system that matters.

Here, too. Everywhere we go, we can hear praises for the mayor. But when asked if this situation can be sustainable, people don't seem to expect so. On the contrary, they are worried that once the great leader leaves, things can go back into the lousy system. As a matter of fact, one of us, von Luebke confirmed similar negative conclusion in his previous work.

What I'm working on now

To Squeeze Or Not To Squeeze: The Political Economy of Local Investment Climate
N. McCulloch, A.A. Patunru, C. von Luebke, S.B. Wardhani, 2008

Here's the hypothesis:

The stylized fact that lies behind this research is that there are areas which have follow traditional prescriptions for improving their "investment climate" but which have still seen rather poor levels of investment whilst there are others which have implemented rather distortionary policies but have built strong relationships between the government and the private sector which have been successful in stimulating investment and growth.  Thus we have a hypothesis that certain types of relationship between the private and public sectors are an important driver of investment, perhaps even more important than the specific standard policy prescriptions in the literature

This is part of this collaboration.

Will update you later.

....mart's charity

A text from my brother:

I shopped at <name of a mart> today. As displayed on the small screen at the cash register, I was supposed to pay Rp 16,675. But the cashier said "Rp 16,700, Pak". I protested and pointed on to the screen. She said, "Well, Rp 25 will go to charity, Sir". What was she thinking? That robbing someone's money for "charity" is okay? I was pissed.

Me too.

Den Haag and Amsterdam facts 3 weeks ago

Was in Den Haag and Amsterdam three weeks ago but did not have time to access internet (how silly does that sound?). So here's some interesting facts:

• There are more than 1,000 Indonesian restaurants in the Netherlands.
• There are more Indonesians in the Netherlands than in any other part of Europe.
• The jazz group from Den Haag that is going to perform in the coming Java Jazz consists of Indonesian talents.
• Che Guevara's capitalistic logos are everywhere. What were they thinking?
• Ajax costume for kid costs 75 euros -- damn it.
• There are Indonesian girls working in the red light district of Amsterdam -- or so they confessed.
  
• While you are in the Amsterdam's red light district, make sure you eat at the New King, that chinese food restaurant. Just prepare for standing in line for an hour or so.
• But if you want sate kambing, go to Pak Tompul's De Poentjak in Den Haag. Why don't we have that kind of sate kambing here?
• Lastly, if someone else if paying, order dover sole in ... shoot what is that place close to the harbor?
  

And roken is dodelijk!

Solo fact of the day

There was a local regulation in this city saying that no building is allowed to be higher than the Palace. That palace, by the way, is not tall at all. And it was part of past history. The new mayor canceled the regulation and he had to face strong opposition from a group of people claiming themselves as "budayawan" (literally could mean culture experts or simply those who care about cultural heritage). What about plane flying up in the sky, then?

And now three apartments building are being constructed.

Amazon.com and PT Pos Indonesia

We (that's me and Anna) have been loyal customers of Amazon.com. Someone today told us that we shouldn't pay anymore tax or whatever it is called imposed by PT Pos Indonesia on our packages. Is that correct?

Macroeconomics class started today

I will be teaching intermediate macroeconomics at undergraduate level and microeconomics at graduate level this semester. The macro class started today. Here is the plan for the semester:

Main texts: Romer's Advanced Macroeconomics (McGraw-Hill). I encourage students to review their Mankiw's Macroeconomics (Worth Publishers) and Dornbusch et al.'s Macroeconomics (McGraw-Hill). For those who still need clear, intuitive overview on the basic concepts, I suggest to have Moss' A Concise Guide to Macroeconomics (HBS Press). Finally, those who are interested in the current debates on modern macroeconomics, I recommend Snowdon and Vane's A Conversation with Leading Economists (Edward Elgar).

The class is divided into groups who will present their reading on the following topics: 0) Solow Growth Model, 1) Infinite-Horizon and Overlapping-Generations Models, 2) New Growth Theory, 3) Real Business Cycle Theory, 4) Keynesian Fluctuation Theories, 5) Micro Foundations of Incomplete Nominal Adjustment, 6) Consumption, 7) Investment, 8) Unemployment, 9) Inflation and Monetary Policy, and 10) Budget Deficits and Fiscal Policy. This structure borrows completely from Romer.

In due course we will discuss selected news and articles on the Indonesian macroeconomy.

For the students: I apologize in advance that I will have to use some Saturdays to make up for the lost Thursdays due to my fieldworks and the three national holidays. But let's enjoy the semester again, just like we did in the micro course last semester.

Cirque du Senayan

There was one time when President Abdurrahman Wahid called the parliament members a bunch of play group kids. It might still ring true today. I'm sick of how those house members treat government officials. I mean, come on. Yes, government officials are not the nicest persons themselves, and maybe some of them deserve harsh critiques. But geez, be a little respectful and professional. Read the media. The honorable parliamentarians were showing off their power to demand President Yudhoyono's presence before them, explaining the case of Bank Indonesia liquidity loan. There is nothing wrong with that request. But hold on. The President sent his cabinet members. And the house members went ballistic. What is then so wrong about that? After all, President and his staff is one unity. Do they, the house members, have their own Chief, Agung Laksono to present in every hearing, too?

Grow up.

Update: The Jakarta Post today's editorial calls the lawmakers childish. Who doesn't?

Against ASEAN monetary integration

It's simple. A) ASEAN has a principle of non-interference (on its members' internal affairs) while monetary integration requires a supranational monetary authority that yes, will interfere to the members' internal affairs. B) Even if ASEAN countries are willing to compromise on that principle, there is no Asian counterpart to the Bundesbank.

That is from Kenen and Meade. Here is their summary. Otherwise, buy the book.

Helping the poor

I second Arya Gaduh's postcript note that:

[I]t's about time Indonesian politicians start to think in a systematic way about policy support for the poor that minimizes the incentives to the broader economy. I think this can be done -- for all its faults, especially as a program designed and implemented in such a short time, the cash transfer program was relatively successful in achieving such an objective. It's high time that we think of such programs, especially given the expected global food price hikes.

While we're at it, I should mention that I agree with Becker's recommendation that

[T]here are far more effective ways to help poor nations of Africa and elsewhere speed up their rates of economic development and reduce the impact of malaria, Aids, and other devastating diseases. Probably the single most important step is to encourage much more market-friendly policies by African and other governments in poor countries. In addition, it would help to reduce, better still eliminate, tariffs by rich countries on the agricultural and other exports from developing countries, encourage more widespread use of DDT and mosquito netting in combating malaria (see my post on deaths from malaria on Sept. 24, 2006), and provide private and perhaps public subsidies to the development of new drugs that help fight diseases mainly found in poor countries.

Of course, next is to translate that into actions. For which, Dani Rodrik's superb new book may provide good insights.

The Politics of Soybean (7)

Ap's note in Cafe Salemba. Agreed.

Jane's new movie

Jane Lawalata was my high school friend. Knowing her, I'm not surprised she's now in movie business. Congratz, Jane!

Argumentum ad misericordiam

Have you noticed the media's fad lately? In the wake of increasing commodity prices they have been running anecdotal stories about individuals or households who, according to them, have been made miserable by the surging prices of commodities. Professional writers, commentators, and even academics follow suit. They don't even bother to check if the causality they like to believe holds true. Particular story like someone who committed suicide brings a lot of attention and sympathy. No less than a prolific writer paints the story on a canvass of misery. And people are touched. Then easily blame it on inflation.

So much for logic: this is what we call argumentum ad misericordiam.

As for me, I try not to be trapped in this kind of fallacy. As much as I sympathize with those who suffer from price dynamics, I keep asking myself: Was it really the price increase that caused the death? Was it not some other things, say, irrational spending behavior? How did we conclude that he killed himself because he could not afford some prices, a story we believed in? Can we trust those who claimed to be told firsthand by the victim before the suicide? If, all this were true, then why do some still survive? Why not many suicide cases? There were times when inflation was far more hurting, here and elsewhere in the world. Were they followed by higher number of suicide cases? If so, were they causally related? If poverty was the cause of suicides, why then richer Japanese kill themselves?

Oftentimes, people buy what they hear just because the story is about misery. And some other people really use it to get the others. To get them agree with what they are going to say next.

The Politics of Soybean (6)

Thanks to Ari Perdana and Arya Gaduh, we noted that the share of soybean in household consumption is less than 2 percent. It's true that soybean has strong links to other commodities. But this fact (the 2 percent role) should be taken as an indicator for not to exaggerate the problem (I too might have sounded otherwise). Arya Gaduh and Dede Basri are right, subsidy, if given, should be addressed in the form of food subsidy, not particular commodity (e.g. soybean commodity -- see my discussion with Arya, and also Dede's in Diskusi Ekonomi).

The Politics of Soybean (5)

This is ridiculous.

Bulog asks for a permanent role in soybean import. That would mean they want a monopoly just like in the case of rice. If that is granted, it would be a setback. Currently soybean importation is open to general importers (IU). The fact that only four dominate the import reflects reluctance in the part of smaller importers who could not operate in the scale economies. The domestic shortage has resulted in sky rocket price. If the government wants to curb it, it could ask Bulog to import. Let's not forget, Bulog belongs to the government. Such import might not be the best option for a private company given the current situation, but again, let's not forget, Bulog belongs to the government: it's their job to take that risk. Not to use the situation to ask for monopoly.

The Politics of Soybean (4)

I just had discussion with Dede Basri. I was informed that the big four dominance in the soybean import might be a reflection of natural monopoly (or natural oligopoly, if they do not collude in any form). The reason is because the soybean importation is open to general importer ("importir umum"/IU). That means, soybean import is not subject to quantity restriction. So if the big four enjoys a "privilege", it's very likely to be natural. That is, they are the only importers who can reduce costs so as to still reap the benefits of scale economies -- in the midst of increasing world prices. They should not be punished for that.

Having said that, I still think that more domestic quantity is needed to suppress the price. Dede agreed and we both believed that one way to do that is for the government to ask Bulog to do the additional importation then proceed with some sort of "raskin"-type of subsidy. Another way is to directly subsidize the staple food. The money can come from that allocated to subsidize fuel. This is necessary because the budget is constrained. The government (i.e . the President himself) needs to be very decisive in this case: switching from subsidizing fuel to subsidizing food (do not forget that we have another big problem with oil price increase). It should not be very hard. After all people eat food, not fuel (forgive my sarcasm -- but you get the idea). In addition, spending 200 trillion rupiahs for subsidizing food (or better yet importation via Bulog) is way more sensible than spending it for fuel and electricity (most of which goes to the richer anyway).

Of course, this is for temporary use only. Any kind of subsidy is.

Update: Dede enjoins from Diskusi Ekonomi (with contributing comments from Arya Gaduh, Sonny Mumbunan, and others).

The Politics of Soybean (3)

Bustanul Arifin offers his solution. For long run, do something on infrastructure, irrigation system (I agree) and "incentive system with macroeconomic support" (he's not clear on this, though). For short run, he mentions the availability of factors of production: fertilizers, pesticides, etc. I think all that is not a short run solution. Production is long run or at least medium term perspective, given the current situation. Based on my limited readings (here and also in a book "Ekonomi Kedelai di Indonesia" edited by Amang, Sawit, and Rachman 1996 and published by IPB Press), the cycle for soybean ranges from 3 to 5 months for maturity (assuming a stable warm weather). I stick with my suggestion: allow for more parties to do import, rather than just the privileged four. The removal of the 10 percent import duty was justified as a means to "tease" the comfort zone enjoyed by the big four (Cargill, Gunung Sewu, Teluk Intan, and Liong Seng). Next, expose them to more competition.

On economic freedom, competition and the role of government

Note: I'm cleaning up the files in my laptop. Found some old articles I wrote. I'll put some in this blog, whenever I have the time. The one below was written for a discussion on economic freedom in an event in Bangkok last year. A related, longer version was included in a volume published by Economic Freedom Network Asia.

On Economic Freedom
Arianto A. Patunru

On the first day of 2007, local newspapers in Indonesia brought a bad news, breaking the Happy New Year celebrations across the country. They ran a headline about a Boeing 737 jetliner that never reached its destination. With it, one hundred people were missing. After two weeks of searching with no avail, families started to loose hope. What they were left with was prayer, to at least see the bodies of their loved ones. Especially when later one fisherman found part of the plane’s tail floating in the Makassar Strait close to the western coast of Sulawesi island.

Winds and storms aside, many people started to blame the accident on competition. Some fifteen years ago Indonesia’s domestic flights meant expensive tickets. Most people traveling across islands in the archipelago opted for sea transportation as they could not afford flying with air planes. Today, nearly everybody can get cheap air ticket. It is so cheap, sea vessels’ customers are shifting from people to big-size containers. Even long distance in-land buses are competing with airlines.

In the wake of the missing air plane, grieves led many to reflect, albeit with misunderstanding, on how they had been enjoying cheap tickets. Thanks to liberalization in the Indonesian airline industry, private airlines started to mushroom. Next was a race to providing the least expensive tickets to win a sizable market share. The carriers, they cut on meals, they printed tickets online, and so forth. But apparently some went even further. Realizing the fact that the safety standards enforcement was rather lame, they started to get loose on safety. Why not use old fleets? Why bother with regular maintenance? Why hire the most qualified pilots? In short, cheap air tickets were made possible not only by some cut on decent meals or some boost in fly frequency, but also by less safety. Enter the premature accusation: competition has caused this entire race to the cheapest tickets. With that, safety is sacrificed. And all they get is accident. (They do not even bother to look at the ratio of accidents over the fly frequency. It is likely that the ratio gets smaller, given the far busiest air traffic today then ten years ago). In conclusion, competition is evil. Better get the government to fly us, because private simply can not do.

Accidents are saddening. But so is the misunderstanding. It mixes up competition issue and the issue of law enforcement. In the story above, it puts blame on the liberalization of airline industry instead of on the government alleged failure to enforce safety standards regulation. While the two are closely related, they lead to very different policy implications. Solving the competition issue might lead to giving airline business back to the government. Tackling the law enforcement issue will lead to stricter monitoring of how the business is run. True, if effective, both will possibly result in more expensive air ticket, but the causes are different: in the first case it is because the private airlines are no longer able to cut the costs by risking on safety; while in the second case it is due to the monopoly power of the government. History has taught us, the latter case might increase the price higher than the former. Nonetheless the second case is more attractive. Who denies that curbing competition is easier than monitoring it?

Maximizing profits is a form of economic freedom. Given opportunities to raise revenues or to cut costs (or both), a firm would be stupid not to use them. Ethics aside, this includes an opportunity to play around rules, should there be a room. In the absence of competition, the incentive to find all opportunities to maximize profits is rare. Rather, it is the monopolistic power that is used to do the task. But (non-natural) monopoly denies the freedom of others to engage in business. Worse yet, it denies the freedom of consumers to access more choices and lower prices. Competition therefore has a lot to do with freedom.

However, freedom does not mean anarchy. They are starkly different. The former requires rules of the game, the latter not. This is where people tend to mix things up, as illustrated above. When problem arises, is it a problem of competition i.e. freedom or is it a problem of law enforcement? You can not really put and enforce standards on ethics, but you can put and enforce standards on safety. This is why and where we need the government. That is, to make sure that rules are in order. Alas, many times inability to enforce rules leads the government to do other things, including running the business itself and/or curbing competition. Authority to guard rules also brings another problem: the incentive to over-regulate. Sometime governments establish rules only as a vehicle to abuse their power. Another time, they simply put (good) rules in a wrong place. Requiring seat belt in cars and setting age standard for air carriers might sound similar as far as policy objectives are considered. But they are different: you can see if the car you are about to get in has a seat belt attached or not. But you can not know the condition of the air plane you are about to board in. In the former case, there is no need for the government to step in, but in the second case, there is: to make sure that the plane is safe for you and other passengers. In the first case both you and the car owner/seller know that the car is seat-belt-less. Here the market can work well, as indicated by the resulting price. In the second case, the information is asymmetric. The airline knows exactly how old its plane is; you, most likely, do not. The government helps to ensure that the information reaches you, so the market can work as properly.

The Politics of Soybean (2)

This is a text message I sent to a friend in Kompas. "You guys are hilarious. When rice price increases you say it's good for farmers. But when the price of soybean increases, you say it's bad." I should have added, "... And equally amazing, in both cases you call for banning imports". This should also be addressed to observers and commentators who fill the media with their misleading fallacies.

Read Kompas' Fokus today (19/1). You know what and whom I mean.

The Politics of Soybean (1)

I'm no expert in soybean economics. I follow rice dynamics more diligently than that of soybean. The only research I have done regarding soybean is one in which we (Patunru, Trialdi and Havidz, 2005) looked closely into its price transmission across production and consumption centers (provincial levels with East Java being the reference market). The study found that prices across main provinces were in general weakly integrated, and some were not integrated at all in the long run. The study concluded that soybean price transmission (at least in 1993 to 2003) was constrained. In other words, the market was less than efficient.The possible causes of this were 1) weak marketing institutions, 2) poor infrastructure (esp. that to support distribution), and 3) inability of local farmers to match the international price. The latter came with qualification as the transmission from international to domestic price was also far from perfect.

Recently, there has been a big fuss over the increase of soybean price.

Kompas ran a couple of articles and op-eds. The tone, as you would have predicted, was of course to blame it on the government and liberalization. The observers cited there were both confused and confusing. Take this article for example. A parliamentarian reportedly said that the removal of import duty was absurd, because it "would not have any effect on price and the current shortage of soybean". He called it an "empty policy". But later in the article he was quoted as suggesting that the government should create incentive in the form of "high tariff when price is low and low or no tariff when price is high". That is exactly what the government just did (assuming of course that the "tariff" and "price" written by Kompas journalist mean import duty and world price, respectively).

The President, on the other hand, said that tempeh and tofu (both use soybeans as key ingredient) makers needed to adapt to the increased price. Sure. But then he went on with "the government will look for cheaper imports". His work would be much easier if he let the private sectors do the job. In fact, importation has been exclusive for only four big companies. Removing import duty might not be very efficient if the limited number of importers could collude to fix the price. The notion as said by one source that the "price crisis" is a result of "too much import" is foolish. The more you import the larger the quantity in the domestic market and the pressure to price is to take it down -- the magnitude of which depends on other things, e.g. distribution. The study on price transmission suggested that distribution is problematic, too.

So what's to do? In the short run, more, not less, import should be allowed. In the longer run, distribution and production problems are to be tackled. That includes improvement of road infrastructure and irrigation, as well as technology that leads to better varieties and farm management.

RIP: Pak Sadli

One of Indonesian most important economists passed away last night (Jan 8, 2008; 23:15). Good bye, Pak Sadli. Thank you for your great contribution.