Saturday, August 20, 2005

Plus, plus, minus

President GMA holds the fort steady on the EVAT. Plus.

Her spokesman rules out oil subsidies. Plus.

Her cabinet is preparing a request for emergency powers, for fuel conservation and rationing measures - a big fat MINUS. What, this from an economist?

From your basic economics you would learn that if any conservation is to be implemented, the most efficient way to do it is by the price system. So - the price of oil goes up; consumers and businesses economize on it. Period.

Government impositions to conserve fuel for the private sector, are blunt instruments of rationing at best, and impose countless hidden costs (besides being themselves costly to implement and monitor). Rescheduled working hours? Restrictions on power usage? Actual rationing of fuel? I'd rather take the adjustment from the market rather than the clumsy bludgeoning of the government. Even if it is headed by an economist.

No, change that - especially if it is headed by an economist.

6 comments:

john meynard said...

I love ur site. I added a link in my podcast to ur blog.

rock on!

Econblogger said...

Thanks. As a rocker, you have an interesting name - John Meynard, as in Keynes?

Anonymous said...

Hardly, although I am very deeply rooted in 'street economics' and ur blog contains good microeconomic insight.

Say, have u encountered Hyperwage Theory?

Econblogger said...

I've made a few cursory glances at Thads Bentulan's kilometric columns in Business World. My preliminary view is that it's all bunk - and it may be instructive to show exactly where it goes wrong. But I don't have access to all the essays, so that will have to wait another day.

Jdavies said...

isnt hyperwage difficult to implement? i think its better to just abolish income tax in certain key zones. that will increase consumption factor. re: also affect the multiplier effect. To ofset this government companies ill have to earn more. and not just tax as its source of income.

Econblogger said...

Jardine,

If I understand hyperwage correctly, it predicts that a one-shot increase in wages (to first world standards?) would lead to more than commensurate income gains at the level of the economy. This is unfortunately assuming too much of a free lunch. It's a sort of extreme form of Keynesianism which no Keynesian (least of all Keynes himself) would approve. So you're right, hyperwage is difficult to implement.

Keynesian theory predicts a multiplier which depends on the propensity to consume, with adjustment for proportional taxes and transfers. This is consistent with your proposal. However, it is not clear to me how government firms would raise their incomes. If they could, why not do it now - even in the absence of income tax cuts?