Tuesday, August 23, 2005

Ibon's flight of fancy

This is so good, it's worth quoting in full:

Oil price hikes have increased the cost of producing and distributing basic commodities, triggering price increases and further eroding Filipinos’ already devalued incomes. Market vendors said they have already hiked prices due to the increased cost of transporting goods.

Since 2000, food prices have substantially increased. As of June 2005, the price of NFA rice in the NCR has risen 8% compared to June 2000 levels; pan de sal has risen 29%; Lucky Me noodles, 32%; eggs, 16%; galunggong, 19%; tomatoes, 33%; and bananas, 22 percent.

These price hikes have reduced the buying power of the peso in the country to a mere 77 centavos, IBON adds.

Water and electricity rates have also risen significantly. The National Power Corp.’s monthly effective rate in the Luzon grid for June 2005 reached P4.41 per kilowatt-hour, almost 70% higher than the P2.60 per kilowatt-hour rate for the same period last year. The Maynilad water rate of P30.19 per cubic meter in January 2005 is 52% more than the prevailing tariff last year.

To provide immediate relief for poor Filipinos, government should thus freeze prices of basic commodities. This would include a moratorium on oil price hikes, not only to give relief to consumers but also to halt the further profiteering of the oil firms. There should also be a moratorium on water and power rate increases. Rollbacks on the prices of rice, oil, and water rates should also be studied.

But these moratoriums and rollbacks should be backed by price supports and government subsidies, to protect the livelihoods of the country’s food producers. A substantial increase in minimum wages should also be given to bring the standard of living of workers up to decent levels. The National Wages and Productivity Commission itself admits that the daily living wage in the NCR has already reached P666 as of May 2005. Meanwhile, IBON estimates the daily cost of living in the NCR at P635.81 as of July 2005. (end)

The first part reiterates the fallacy of composition: the fact that some people's purchasing power is squeezed due to inflation, does not mean that every household's purchasing power is squeezed. Think about it: in an inflation, prices go up; but who gets the revenues from the higher prices? Other people! The total amount of income is therefore the same, purchasing power on the aggregate is the same. Of course those on fixed income are on the losing side, compared to those whose incomes adjust with inflation. It is only cost-push inflation which actually reduces purchasing power; however from 2000 onward, I think we can point to the current round of oil price increases as the only serious episode of cost-push inflation.

The second part starts talking about price controls. Ingenious, except for the fact that price controls would lead to undersupply. (If you restrict incentives for producers, don't be surprised if they produce less!) So IBON has a brilliant remedy: subsidies! Which again, has only one problem - who's going to pay for it? Government, of course. How? More borrowing? More tax revenue? Ahh, of course, by not paying those lousy foreign loans. And what if foreign creditors refuse to trust us anymore? No need for those dollars, just produce goods locally in such a way that "from each according to his ability, to each according to his need!"

Assertions don't come more devoid of evidence than this. There is not even an effort to back up the claims with the facts. Just some feeble figure-fumbling for fools.


Anonymous said...

but isn't it that ibon is composed of economists?
you mean they have bad analysis? come on...
they can't just fly that high...hahaha

Econblogger said...

I checked out their website. They don't list their research staff, but I did look at the Board of Directors and saw the usual crowd of leftish UP professors and religious activitists. I don't detect a strong background in economics among them.

Bad analysis? Let's just say that characterization is an understatement.