Friday, September 12, 2008

Thanks to my commentators and pop quiz

Hi folks, it's been a while. While I reserve the right to post as I please, and you the right to avoid reading this, sheer courtesy obliges me to be timely in moderating comments. Actually I would have wanted to turn the moderation option off, except that spammers have a field day. So I have now dealt with the commentary backlog, and thanks for paying attention. And since you are, I have a pop quiz (and perhaps this should be standard interview question for financial analysts): the newspaper today reports that the debt of the Republic of the Philippines stands at Php 3.964 trillion, of which 2.303 trillion is local and the rest is domestic. Averaging over the number of Filipinos, every citizen owes Php43,805.

Estimate the net present value of the average debt burden of each individual today. List all the assumptions and calculations.

Hint: it is is certainly less than 43,805!

Sunday, February 10, 2008

The protection racket

The Philippine Government is now tightening the screws on direct hiring of Filipino overseas workers (i.e. not hired through licensed recruitment agencies). Read the details here and in the links referred.

The bureaucracy was slow in catching on - after severe repression of the formal labor market domestically, it realized its ineffectiveness in policing foreign markets. But the consistent boom in remittances introduced the government to a cash cow there for the m(b)ilking.

You'd wonder why the "beneficiaries" of protection are so enraged by these new regulations. Remember the saying? "Never attribute to malice what can be equally due to stupidity." Well in this case I think it's both.

Monday, January 28, 2008

Please pass the PALT

Economists have been dreaming it for years: land reform by Progressive Agricultural Land Tax. The current land reform scheme in the Philippines (whose funding is running out in mid-2008) requires the State to acquire farm land from landowners until their properties are no larger than 5 ha, the legal retention limit. Acquisition requires "just compensation". Experience over the last 20 years of implementation has shown the colossal problems with this scheme. First, land ownership needs to be properly documented to determine whose guilty of breaking the law (on excess landholdings) and ensure legal transfer of property. Second, value of land needs to be set, opening a litigation abyss.

The beauty of the PALT is that it entails the same documentary requirement (done anyway under the second scheme) but avoiding the second set of problems associated with land valuation. Farm lands above the 5 ha retention limit are subject to an additional tax, which can be graduated by size class (say, 5.0 - 24.0, 24.0 - 50.0, above 50.0). The objection by Skinner (1991) that the PALT is administratively impractical is moot.

The tax rate can be made sufficiently punitive as to induce land fragmentation (say, 5, 10, and 20 times the regular real property tax assessment). The PALT is effectively a fine imposed on landowners who violate the law (RA 6657) on maximum farm land holdings.

Administration is simple: one need only to enact a national PALT, which is assessed on top of the local government real property taxes. Collection of the PALT can be done by a separate national government Bureau reporting to the Department of Finance. (Staffing can be done initially with personnel from the Department of Agrarian Reform.) Land sales can be facilitated by the Land Bank of the Philippines, who stands ready to acquire lands (at manageable prices) using money from the Agrarian Reform Fund (which is the current set-up). The land can then be resold to deserving farmers or landless farm workers (who amortize their lands under the usual discipline of formal mortgage contracts).

The PALT can even do away with some documentary requirements. It will not require remediation of land titles where these are defective - it can use the same documentation as the real property tax. Of course safeguards would need to be introduced: the PALT Bureau can institute its independent documentation of landholdings (in cases where local assessors are incompetent, ignorant, or corrupt); it can introduce a tax on idle lands and conversion from agriculture to nonagriculture (to prevent landowners from evading the tax); revenues can be shared between local and national government (the latter earmarked for infrastructure spending to benefit Agrarian Reform Communities); and so on.

What have I gotten wrong? Let me know. Otherwise Congress should pay heed as the debate on extension of the agrarian reform heats up.

Thursday, January 17, 2008

JPEPA in the bag

While surfing for JPEPA (Japan-Philippines Economic Partnership Agreement) updates, I came across the blog of Senator Miriam Defensor-Santiago. Entries are almost certainly written by her staff, but presumably with her imprimatur. Would it be premature to say that JPEPA is in the bag?

Opponents continue to trot out tired arguments. These are the same prophets of doom, who predicted economic disaster after trade liberalization started in 1986, after the 1994 WTO agreement, after the AFTA-CEPT, after the APEC, etc. Their record of success: exactly zero.

Listening to them, it would seem that the Philippines would be neck deep in hazardous waste after the JPEPA is ratified. Given their prophetic accuracy, excuse me if I ho-hum.

Saturday, January 05, 2008

What if we could live forever?

The pious believer already believes this. But what if secular science could indefinitely extend this present life? This Economist article talks about a few who think breakthroughs are within sight. Moreover it presents the intriguing concept of the longevity escape velocity - if you could live long enough to benefit from life extension innovations, and these innovations come about more rapidly in the future, then conceivably some people alive today may experience hitherto unknown lifespans (over 150 years).

I wonder what the social and economic implications would be if life expectancy could say achieve early Genesis scale (a millenium). My biggest concern is to contain population growth. At such prolonged lifespans, I think the environmental carrying capacity requires very low annual fertility rates. With very little reproductive selection going on, genetic erosion in homo sapiens may accelerate. This may render us vulnerable to population shocks - pathogens, climate shift, asteroid collision, whatever. (Technological optimists would think that a fix may be possible for this.)

And think about it - a world where children are as rare as, say, 2 m tall people are today. What would the quality of life be in such a world?

Thursday, December 27, 2007

Economy year ender

Unlike in politics or even business, it is difficult to identify distinct "events" in an economy and say, "that's important, should be in the list of top ten stories." The economy after all is a system of billions of interacting parts, with each transaction in itself trivial, but adding up to an incomprehensible whole. Hence, for instance, GDP going up is not literally a single "event". But for convenience I'll just point to some top "developments" in the economy and business, which I think will have a widespread and lasting impact on the economic system. Three are external, and the rest internal; some are distinct political events which I think are portents of deep economic change.

  1. Collapse of the Doha round - again: The Doha development round stalls, over as usual over OECD farm subsidies and market access. The US, EU, India, and Brazil remain at loggerheads. But I betcha the rest are just hiding behind the behemoths , waiting to throw up dust again whenever a settlement approaches.
  2. Climate change and what the world is doing about it - the UN IFCC confirms a scientific consensus linking global warming to greenhouse gash emissions and, with Al Gore, wins a Nobel Prize; the world gathers in Bali to talk about solutions, as the Kyoto protocol approaches its end in 2012.
  3. The US economy flounders on the subprime crisis - the exposure of bad debts in the subprime mortgage sector and the related drop in housing prices was financial debacle, eventually sending the US dollar reeling worldwide. The US economy itself teeters on the edge of fiscal and current account imbalances; and Greenspan talks of even odds of recession.
  4. The Philippine peso surges - in a spectacular run, the peso gains 19% against the dollar, making it unusually strong even in a year of the declining dollar. Some gainers, some losers; I think mostly losers.
  5. Favorable macro figures sustained - inflation remains low, even unemployment drops, and GDP surges to dragon territory at 7.1%, continuing its steady rise from 2000. Is the boom-bust over? Let's see. Oh, and the fiscal balance was kept (as foreign debt payments dropped, thanks to #4); the Bangko Sentral continues monetary easing over the year. Not bad, not bad at all, but not all good.
  6. The country joins the biofuels bandwagon - on January 12, the government legislated the Biofuels Act, which requires mandatory blending of gasoline and diesel with biofuels and incentives for biofuels investment. All without the superfluous luxuries of a feasibility study. Meanwhile to dig a hole in the ground you need an Environmental Impact Assessment. Go figure.
  7. The Comprehensive Agrarian Reform Program enters its last year - after the Sumilao drama, hope we don't forget, the CARP is about to end. (Or rather, the mandatory appropriation from the Agrarian Reform Fund is. But let's not split hairs.) Already lawmakers are filing their bills , consultants are submitting their studies, and buzzards are circling their prey.
  8. Decentralization at the forefront in Pampanga - the historic upset win of priest-on-leave Ed Panilio is heartening; his political will to finally collect resource rent (in this case, the quarry fees) sets a precedent for a cowardly national government; and his loud whistle blowing against venal politics is rousing. Hip hip!
  9. The ODA scams - ah yes, corruption. Anomalous deals taint the NBN, the CyberEd, even the World Bank roads project. I elevate this above the others, because of its international scope - it can't be just the Filipinos who are being flip with the law. Remember the Bataan Nuclear Power Plant? Expect tightening up of accountability on both sides after this.
  10. Estrada pardon - institutions are now entering empirical analysis of economic growth. The Estrada pardon (after a 7 year plunder trial and conviction) !!! is one remarkable approach to the rule of law. You don't need a storm to tear down a house - letting the termites in will do the job equally well.

Thursday, December 20, 2007

Koreans opt for the 747

In their just-concluded election, Koreans went for the gut, rather than abstract issues of engagement with the North, and all that. Korea has the world's eleventh biggest economy, but its ascent to new economic heights has been stymied in part by sclerotic policies. The new president promises to change all that.

A business executive background has burnished President-elect Lee's market-friendly persona. I just hope that being "business-friendly" does not translate to being friendly to "some business" - the mistake of booty capitalism. A real pro-market policy is friendly to "any business", even of businesses that do not yet exist. (That's my neoclassical-rationalist koan for you, grasshopper.)

Here is the President-elect's English language homepage, containing his platform and bio. The bio was especially interesting, covering his famous rags to riches story (but more of the rags, actually). I could say that this suggests the following hypothesis: inculcating values among juveniles conducive to respect for property rights, desirability of commercial exchange, and low valuation of leisure time creates an intergenerational pathway out of poverty. Anecdotal evidence:


The beggar family had a son of my age, and I became friend with him. I envied him so much. Although my parents worked hard at the market every day, I and my brothers and sisters often had to skip meals. Often, we would drink from the water pump to fight the hunger. However, my friend had somewhat different life. Every morning, after his beggar parents make a tour all around the town, Then his family would sit together and eat rice. It was not a corn soup. It was not a dreg, it was rice. How much I envied him as I watched through the open doors! I thought ‘Ah, my family is not even better than a beggar.’

I came across this friend after decades have passed since then. One day, when I was serving my country as a member of the assembly, I visited Los Angeles of United States. ‘Hey, Myung Bak!’ Somebody called my name after I finished a ceremony. It was that beggar friend next door. I was totally surprised. Living in LA, he came to visit me as soon as he knew I came here. For all night long, we talked; sometimes with tears, sometimes with laughs. It is then he told me his history. ‘When we were still kids, I thought my family was better off because we had rice every day.’ Then he said he found out later That his parents raised their children not by working but by begging. Eventually, all his brothers and sisters lead poor lives now, And only he has managed to fly over to the States and barely make living. He told me ‘Now I have all grown up, I realized why your parents always worked hard and never sought others’ property.’ I felt ashamed for myself, who envied the ‘Meals of my beggar friend’.


This is the set of values that Koreans have voted for. See you on the runway.