What A Monday

Another negative news from here, DJIA was closed at slightly below psychological benchmark of 10K, dropped by 369 points low -a recovery from 700 point low at around 2.45 pm. The future is also negative as reported by Financial Times:

The Chicago Board Options Exchange Volatility index, known as Wall Street’s “fear gauge”, surged 18.7 per cent to 53.60, above 50 for the first time in its 18-year history.

In Indonesia, the same paper reads:

The decline in commodity prices took its toll particularly in Indonesia, where the composite index finished 10.03 percent lower at 1,648.74 points, its biggest one day percentage fall since October 2002 after bomb blasts hit Bali, killing more than 200 people. PT Bumi Resources, coal producer, slid 32 per cent to 2,175 rupiah and PT Astra Agro Lestari, a plantation company, lost 23 per cent to 10,000 rupiah.

I think this is probably the end of the commodity boom and easy money from international market.

NKOTB or Sarah Palin?

This morning, on the metro, I read this line from a column in the Express, the commuter's free paper.

Had I known that VP debate would be tonight and that Sarah Palin would be the Republican candidate, I would have told my girl, "Hell, no, I'm not goin to no NKOTB concert on the night of this historical debate!"

--(a blogger who) attended NKOTB concert Thursday night, after buying tickets a couple months ago

I could not help but grinning.

Barking Up The Wrong Tree

It was not just until two days ago that I realized here the laymen's opposition to the bailout, that was quickly taken up by politicians in the House to vote down the plan, was based on serious flaw: they think that the bailout is all about giving the taxpayer money to the undeserved Wall Street, the crooks who had just messed the things up.

You may agree or disagree with the plan, but I think it is imperative to at least understand that this is about how to deal with credit market, the heart of the economy that keeps its lifeblood flowing, that doesn't work. One lesson from the 1930 Great Depression and 1998 Asian Crisis is that the failure to do so will bring a prolonged credit crunch and output contraction. It could become indeed very nasty.

Unlike our fellow laymen, when economists disagree on that plan, they generally fall into three positions. First, the bailout lacks of convincing economics argument and detail to credibly support its claim to deal with the severely depressed credit market --and you can use different institutional setting. Or, second, they think that even without bailout, albeit painful, the current credit market will be able to recover by itself without plunging into the economic armageddon, the great depression. Or, third, the benefit of bailout doesn't add up with the cost, including the problem of (future) moral hazard.

To get you informed to the pro-bailout standpoint, these leader column and briefing from The Economist may help. Also apparently David Leonhardt has been trying to educate The Times' readers in his column here.

Uh Oh

It was the Black Monday of 2008, as the House of Representative rejected (no kidding)the bailout plan.

Along with the flip-flops of this kind of politicial drama, enter the episode of uncertainties. No good.

Will the capital flight follow?

I Hate To Do This Again and Again, and...

...I wish that Kompas had journalists like David Leonhardt, Gretchen Morgenson, or David Warsh in their economics desk, so that some misunderstandings like the following do not come up too often on the paper.

An economic revolution has been started in the late President Ronald Reagan's era. The President believed, in accordance to Chicago Boys (the University of Chicago alumni), that market would work more dynamic and flexible if unregulated. In other words, the role and existence of bureaucracy indeed becomes impediment and prevent market and economic flexibility.

OK, it makes sense, but then the author moves on.

This opinion beats the MIT economist's view, who opts for market regulation. The reason is that there are premises that can not be answered by market (mechanism), that is, the element of greed, that can induce the market players, including the ones in financial sector, to overly exploit their money-grubbing instinct, wanting to make profit by gambling in the speculative (financial) products.

Well, I am afraid that if you open any standard Econ 101 textbook, say from Paul Samuelson's classic, himself an MIT's giant, the reason for market regulation has nothing, I repeat, alas, nothing to do with human's greed. Instead the basic economics itself points out some reasons why market sometimes fails, hence needs some government intervention.

I give you hints: go to discussions on monopoly (or non price-taking behavior), externalities, asymmetric information, and public goods.

Things I Don't Get from The Media

So our friend journalist talked to Purnomo (10), Hamsidik (10), and Tino Saputra (12), and conclude that for street children like them, praying (shalat) is a luxury. Our friend journalist also wrote that:

During Ramadhan fasting month, they are not always able to fast because they have no money left for the early meal (sahur). The money they got during the day is always handed in to their parents. (but) The food bought out of that money sometimes finished before the next day's sahur.

Did you see the logic breakdown here?

If you don't fast, you eat during the day. And to eat, you need money to buy or make food. Yet, you managed to give the earned money left to your parents by the end of the day, that sadly, still couldn't cover the sahur meal. If that's the true reason for not fasting, can I propose something like delaying the daytime meal, save the money, and now, sahur is affordable?

I don't blame them for not fasting since life on the street is physically hard (beside, who am I to judge?). I also don't blame them to come up with that kind of excuse or logic, because they are 10 years old. But I have problem with a journalist who think that you can take such excuse from the 10 years olds at face value.

By the way, kudos to the organizer of the said pesantren (retreat) for street children.

Wall Street (Not So Much) Update

The US economy crisis is now getting more dramatic as the politicians in Congress enter the stage. The market is still very fragile as the stock index went roller-coaster, while some economists in the field start to develop the alternative of the Paulson plan --which is somewhat too late at this stage, I believe.

I am diligently taking note particularly on how they'll get rid of toxic assets and at what price they're gonna buy them --and what's the impact to their macro economic variables in the near future . This episode is too important to be skipped. So far nobody has yet talked about, probably, the most interesting part of the suspense, namely, the unregulated very very big credit default swap market.

And if you asked me what's the impact to Indonesian economy, I'd say that I don't even know what's gonna happen to the US economy, let alone to Indonesia.

Stay tuned.

How to Publish in AER and JPE: Think Like Detective (Among Many Other Things, Of Course)

While Ben Bernanke and Hank Paulson try to save the world, I am, in fact, enjoying the funny lyrics of two albums of The Smiths, The Queen is Dead and Louder than Bombs, and reading Fisman and Miguel's Economic Gangsters. It's a brand new popular book on the development economics of corruption that uses creative sherlock-holmes-like approach. In particular, I find two chapters on Suharto Inc and the diplomat's parking tickets in New York interesting.

Observing the ups and downs of Suharto-linked listed companies in Jakarta Stock Exchange when there was rumor on then the President's health in 1996, they estimate that the value of political connection was around 25 percent of such companies' market value. It's a big number, by the way, because even when Apple introduced the new technological breakthrough of iPhone in 2006, its share's price was up merely by 8 percent.

It was such a simple way to estimate the value of being close to a dictator, but with the approach that nobody haven't thought about it before, and by that it managed to get published in the most prestigious American Economic Review journal. Actually the paper (read here, in pdf) is more interesting than the chapter on the book.

On diplomatic parking tickets chapter, the conclusion might sound like stating the obvious, that is, in corruption, both norms, or values, and legal enforcement, matter. But the real catch is really the fact that you can relate, of all things, parking violation in New York to reveal the nature of corruption. You can read the academic journal underlying that chapter, that will be published in another prestigious Journal of Political Economy, here (in pdf).

Oh by the way, between 1997 and 2002, Indonesian UN diplomats were in the 24th ranking (out of 149 countries) with 36.5 tickets per diplomat.

Alternative to (Mis) Using the Taxpayer Money

So the US government planned to launch probably the most expensive bailout ever by buying up the distressed mortgage to rescue the economy.

But Luigi Zingales of Chicago has different idea:

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture. But if it is so simple, why no expert has mentioned it?

The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition.

I think it's a worth-to-consider proposal to save capitalism and prevent the US to become the USSRA.

HT: Marginal Revolution

Freakonomics Digest The Current Turmoil

If you want to grasp some good ideas on what is happening in Wall Street these days in common laymen lingo, Freakonomics guest bloggers Doug Diamond and Anil Kashyap have an excellent piece here.

While waiting for a more elaborated academic working papers or journal articles --that might take months or years -- on this fascinating period, this writing should rightaway go to the FEUI's syllabus for Monetary/Banking/Financial Institutions courses.

And to the national press corps too.

And The Panic (may) Begin

Things are getting tensed here as the panic starts to unfold. Today, despite 85 billion USD of the US government bailout to AIG (that's around 10 percent of Indonesian GDP at purchasing power parity), the Dow Jones Index fell by 449 points. All the big names in financial world seem in trouble. The share price of Citi and Goldman Sachs were deeply down, Morgan Stanley is in a very big mess, and possibly would follow Lehman's or Merrill Lynch's suit. The more local-based institutions like Washington Mutual and Wachovia share the same critical situation.

I have been talking to several economists here, and yet, it seems that nobody really knows what the heck is really going on in Wall Street now. Not enough information to feel either optimistic or pessimistic, which is the least kind of situation that you want to have.

Let's see tomorrow. Good night and good luck.

Update: Just read today's Kompas headline online, in the second line of the first lead paragraph, the daily said:

Lehman Brothers went bankrupt due to the carelessness of the CEO Richard Fuld, who is dubbed as "the gorilla".

Umm, err... well, maybe (scratching my head). But what does it precisely mean? The rest of the article doesn't help me to understand this gorilla's fault, too.

Update 2, I've just learned from The Economist's Free-Exchange that AIG bailout might affect Manchester United too. They have to change the new logo (now the US Dept of Treasury) on their official jersey.

Fuel subsidy IS a subsidy!

Thanks to a newly published working paper by Cut Dian Agustina, Javier Granado, Tim Bulman, Wolfgang Fengler and M. Ikhsan, I can support my earlier argument that -- contrary to this and this opinions ignoring the concept of opportunity cost -- fuel subsidy is a subsidy. Read my full comment here.

My points are: 1) if you don't consider opportunity cost a cost, then you don't consider opportunity revenue as important either; 2) in the current oil prices, fuel subsidy is no longer just an opportunity cost -- it is already an accounting cost!

Sorry, Mr. Kwik, with all due respect, you are wrong (again).

Wall Street Gone Wild

When I wrote the previous posting, I never thought that Lehman would file for bankruptcy and Merrill Lynch was sold. The financial market was bad, but I never expect those giants to go under --at least, not that quick. But in the last two days, we've seen the Wall Street gone wild.

Which brings me to a question: does the series of the US government bailouts work at all? We know ex post that the bailouts to Bear Stearns and Freddie Mac and Fannie Mae do not prevent the adverse effect of the subprime mortgage fiasco to the whole structure of financial market as seen from the fall of Lehman and Merrill. But do we know ex ante that should the government not bail them out at that time, things would get better?

The two presidential candidates here, being a politician, are quick to blame and ask for more regulations on the market. But I think the best regulation, as unfortunate as it may sound, is to let the market send companies, even as big as Lehman, to bankruptcy if it's deemed necessary. At the moment, market painfully learns that nothing is too big to be failed --which is a very good lesson, by the way --so next time they themselves need to ensure that everything is in check, even without regulatory bodies that at times were simply dysfunctional and full of political clouts.

Yet it seems that the US government, perhaps after observing 500 points Dow Jones Index drop in as single day without any improving sentiment at sight, may have different idea. The latest news tells that for the time being the Fed asked Goldman Sachs and JP Morgan Chase to help AIG, the deep-troubling big insurance company in the country.

Stay tuned.

A Kind of Déjà vu --In a Reversed Course

Prior the 1998 Asia financial crisis, money flew in from the US and any other developed countries to then the rosy Asian capital market. Then when it turned out that the Asian economies did not live up to expectation, --and fueled by god-knows a sudden lost of confidence--, the investors frantically pulled out the money. Asia went to a devastating crisis.

Now ten years later, the US government bailed out and took over Freddie Mac and Fannie Mae. Of course they did it to prevent the collapse of their huge domestic housing market, as well as their financial market related to it. But so much for the problem they may face, it doesn't justify the radical step for a take-over. The government can just provide more channels to capital without effectively nationalizing the agencies. Arguably, there might be something bigger than that.

And that is the Chinese Central Bank --along with other Asian counterparts-- factor. As the Chinese has been investing 340 billion USD to the agencies' perceived as risk-free government backed securities, any slight doubt against the US government and its economy to live up to expectation would lead them to move the money out of the country. And that would be catastrophic, even to the US economy, since the very large chunk of capital inflow to US comes from the Chinese and petrodollar countries.

Washington clearly understands that the Uncle Sam can not afford to have those capital fled and suffer the way Asian countries did ten years ago, so they stepped in to restore the market confidence.

To make a stronger case on how much now Asian money is being important force in the US economy, let us look at the latest crisis in the Lehman Brothers. The free fall of Lehman's share price in the last two days was mainly due the fact that they can not close the deal with the Korean Development Bank to provide the much needed capital.

Of all countries, it's Korea, the country that went deep under ten years ago as the US investors, perhaps including Lehman, pulled the capital out of the country, that their refusal put Lehman, a very mighty financial firm of the world, on the brink of collapse --and perhaps the whole US financial market, too.

Now you see, this becomes very interesting. Stay tuned on this dangerously alarming period for the US economy and financial market and how the US government may, or may not, manage to get out of troubles.

Footballnomics #10: will protection work?

UEFA just imposed the so-called "home-grown rule", which forced Champion League teams to have at least eight home-grown players. At least four must have been produced by their own academy, the other can be graduates from other local academy. This is a version of imposing nationality requirement. Under EU ruling, workers (including footballers) from EU member countries are treated as locals. So it will be illegal for UEFA or local FAs to force clubs to have a certain number of local players.

This article, and the related discussion thread, reminds me on the classical free trade vs. protection debate. Free traders argue that protection will reduce overall competitiveness. The other side of the camp argue that some kind of protection will serve as incentives for local business (clubs) to invest more.

In the case of football, I must say, both camps have valid arguments. However, we can not assess the impact now - maybe in two World Cups. Historical data doesn't help provide conclusion as there are mixed results. Italy's youth development system is pretty solid, and it is translated to the national team's achievement. The Netherlands also have a good system (Ajax and PSV are well-known as producers of young talents), but they never won any World Cup (I know, the won the 1988 and 1996 Euros). On the other hand, Brazil and Argentina's system are not better than the Europeans, but they have abundant skilled talents to guarantee the national teams always perform well. Same thing can be said for France.

If we talk specifically about England, well, the problem lies on the input. The average talents of children entering the football academy (at the age of 10-12) is poor, according to an article I once read. I don't know what the reason is. This just illustrates that such 'home-grown' protection may not help countries like England much.

In other words, protection doesn't necessarily help a country in globalization.

Letter to the Attorney General

The Attorney General Hendarman Supandji, as reported in Kompas online, complained about the remuneration disparity between his subordinates, the attorneys' 2-3.5 million IDR per month; and the KPK's, Anti-Corruption Squad, investigators' 20 million IDR. So he wrote a letter to the President and proposes to the Minister of Finance an increase in the Attorney General Office's salary and operational money by 1 and 4 trillion IDR.

If I were the Minister of Finance, I would write back to him:

Mr. Supandji,
We completely agree with you that the salary level for the attorney is ridiculous and we herewith grant your institution the money you proposed. However, to ensure that the taxpayer's money goes to the right places and would be used efficiently, we need a cooperation from your side as well. By the end of fiscal year, we expect that the Attorney General Office would send corruptors to jail and return the money they stole at least in the amount of 5 trillion IDR to the State account. If otherwise, your Office has to give the money granted for that salary increase back to our account.

I am looking forward to hearing from you soon.

Yours truly

My question to you: should Hendarman Supandji take the offer or not? Or more precisely, do you think he will take the challenge?

Miles Davis and Transitivity Property

Philips of Berburuvinyl once texted me:

Give me a list of ten jazz albums you should have before you die.

It was probably a month ago, and yet I still can not make up my mind what to include (and to exclude) in that list. Ten is obviously too small number for the entire history of jazz, but the main problem is, contrary to my microeconomics training, I can not easily rank my preference. In more technical jargon, the transitivity property (A over B, B over C, therefore A over C) of my utility function turns out to be difficult when it comes into jazz.

One thing for sure, though, Bill Evans' and Miles Davis' albums would be there. Kind of Blue is definitely in, so is Bill Evans' Paris Concert Vol. 1 and 2.

This time I am not gonna write about those magnum opus, but a less known underrated gem of Miles Davis that I just bagged for just one buck: Miles by The New Miles Davis Quintet. There you have Miles himself on trumpet, John Coltrane tenor sax, Red Garland piano, Paul Chambers bass, and, my favorite drummer, "Philly" Joe Jones. When this album was released in 1955, those jazz giants had not earned their big names yet, and the peak performance of Miles had not yet arrived.

Yet, if you want to know how jazz giants are made --and you think that formative years and works are at times more interesting than subsequent establishment and magnum opus--, then this album might fit you. Now have a sit, relax, and enjoy your espresso, while I am working on that stupid list.

In Defense of Eko Patrio

Saiful Mujani of LSI and Freedom Institute worried that the comedian Eko Patrio might win over the economist Didiek Rachbini for a legislative seat. He wrote in a column in Tempo weekly:

In this case, the skill to make people laugh is electorally more valuable than the Professor's economics expertise. The problem is that Eko, in comparison to Didiek, maybe way more familiar to the voters in general. Although Didiek is more competent for legislation, voters do not know him and his competency. Voter's cognitive and behavior, or political market, determine the politician's political fate.

He also proposes more regulation on the law on general election to include competency, expertise background, and integrity requirement for lawmaker candidates in order to fix the current political market.

I am no political scientist. But I think Saiful made a wrong comparison here. The game is not about less competent Eko against more competent Didiek Rachbini. For voters, it is about Eko (and his celebrities friends) against those hundreds of unfamiliar, (more) incompetent and yet corrupt politicians that now occupy Senayan --to whom many voters share the disgust.

I'd say perhaps the current political market works. It drives the unfamiliar and incompetent politicians out. And arguably they might be less corrupt than the existing politicians for a good reason: the cost of getting caught is very high for them, that is, not only the five-years political career, but also their lucrative lifetime celebrity career. As public figures, they are also subject to more closer public scrutiny --think of those bloody annoying gossip shows.

Voters might be rationally ignorant, but maybe not that stupid. And on the idea that the celebrities candidacy breaks the party's internal reward mechanism for their 'real' politicians, you should ask those party leaders (themselves the 'real' politicians) why on earth they recruit Eko and friends on the first place --if they think they will be out-voted.

And trust me, Eko will not easily win because his opponents, the current 'real' politicians, are equally, if not more, funny in their own way.

On increasing the budget for education

I second the opinions from Daoed Joesoef, Ichan Loulembah, and Ross McLeod. Somehow I am not too enthusiastic when I heard that the government will allocate 20% of the budget for education sector, as mandated by the constitution. Of course I am happy to have an increased budget for education. But achieving an x% of the budget for education should be a result of a careful policy calculation, and a clear plan on how to spend it, rather than just meeting the constitutional mandate.

Here are some important points:

1. [The president's speech] was based on the assumption that lack of budget was the main issue and the main reason for the impotency of our education sector ... But such assumption was wrong ... And now the Ministry of Education was allocated a very significant proportion of the budget without a clear action plan (Daoed Joesoef).
2. Other sectors are also in a need for budget; 20% is too big to be allocated for a single sector. The Ministry's current capacity to absorb and spend the budget efficiently may not be adequate. Also, 20% of the budget is very 'tempting' for many interests (Ichsan Loulembah).
3. Lastly, "perhaps the Constitution is not the appropriate place to set out aspects of government economic policy in fine detail. It should be left to elected governments to determine the extent to which they involve themselves (and taxpayers) in promoting education, and the nature of such involvement. This should not be a matter of law, but of responding to the wishes of the electorate" (Ross McLeod).

I once wrote that although budget is important, the devil is in detail (of allocation). Should we spend more on teacher salaries, or on buildings and equipment? Should more be spent on primary and secondary education, or on tertiary education?

There have been some indication that one of the Minstry of Education's priority is to increase the number of vocational tertiary schools. The ratio of SMK (vocational high school) to SMA (general high school) is targeted to be 70:30 in the next five years, from currently 30:70. This is not the best idea, I should argue (some colleagues are working on this issue, but I am yet to be able to quote and share the results).

Is Import Bad?

Kompas daily said (translated):

In 2000, Indonesia imported 6.037 million tons of wheat. Five years later, in 2005, wheat import increased by almost 10 percent to 6.589 million tons. In 2025, import of wheat is projected to increase three times as much to 18.679 million tons. Soybean import, in the last five years (2003-2007), amounted to on average 1.091 million tons or 60.5 percent of total need.

Good or bad news?

But before answer it, hold on a second, you should hear my story.

In 2000, I bought not a single vinyl LP from the record store next door. Eight years later, in 2008, my vinyl purchase increased a lot to, say, 100 LPs. In 2025, my purchase of LPs is projected to increase god-knows-how-many-times as much to 300 LPs. My comic purchase, in the last five years (2003-2007), amounted to on average 5 books, or 60.5 percent of my total need.

It is a very good news for me, don't you think? Although I run a trade deficit against those record and bookstores, every purchase I made or plan to make implies that I somehow have the money to pay them in order to get those stuffs. In fact, part of the reasons why I work, sell the product or services to anyone but myself (read: export), and earn the money, is to buy those LPs and comic for myself (read: import).

And on independency issue: of course I depend on them. I have to live with the fact that I can not make a record at all and even if I try to draw a comic book, it would be obviously way costlier for me than doing economics (in comparison to, perhaps, Art Spiegelman on comic drawing and economics). It's no dependency, it's just a free trade.

Religionomics, update

A revision to the utility function, accommodating Yudo's critics. And here's an alternative framework, using simple game-theoretical approach. May God bless you all, if He does exist.

Discussion: Food Security

Here is the detail.

“Krisis pangan” sedang melanda dunia, demikianlah banyak dilaporkan di media massa. Kenaikan harga pangan dunia telah mencapai 50% dalam kurun waktu setahun, menurut Food and Agriculture Organization pada sebuah laporan bulan Mei lalu. Dampak krisis digambarkan sebagai sangat mengkhawatirkan, mulai dari bahaya kelaparan massal hingga ke kerusuhan sosial. Menurut World Bank, kenaikan harga pangan tahun ini akan mendorong 100 juta orang ke jerat kemiskinan. Namun, dalam keadaan ini ada pula yang melihat sisi positifnya: harga tinggi pangan akan mendorong investasi di bidang ini, yang bisa berarti ketersediaan pangan dan harga akan kembali normal.

...

The economics of religious decision

Here is my first attempt to develop an economic model for religion and religious decision. Still far from finished, I only tried to construct the foundations.

This is the background. Several times I was asked these questions: "Do you believe in God?" or "Why do you perform rituals? Doesn't it contradict the rationality arguments?"

My typical answer to the first one is, "I believe for a certain probability that God (and afterlife) exists." For the second one, I usually replied, "In case God does exist, I need to hedge my risk by allocating some time for performing rituals."

A follow-up questions will, usually be, "There are different choices of religion. Will all or some of them provide you a good hedging mechanism (or return on investment), or only one of them will? If more than one do, then why don't you shop around different religions? If there is only one 'correct' religion, then how do you know that your choice is the correct one?"

Well, for sure, I never believe in any monopoly, including monopoly of truth. Hence, I believe that there are many pathways for salvation. However, switching cost is high that it will not be optimal for me to switch to, or shop around, different options.

The bottom line is, yes, religious decision is a rational one.

Linus' Take on Our Nation-state

The op-ed starts with these lines (liberally translated):

Toward the 63th of (Indonesia) anniversary, many things needs to be contemplated about. Clearly, this nation-state is not making any progress and prosperity, but moving backward and defeated.

Really? What about this, or this?

This reminds me a dialogue between Linus and Charlie Brown from an old Peanuts comic-strip:

Linus (hanging on to his famous security blanket): "I think the world is much better today than it was, say, five years ago..."
Charlie Brown (angry and shouting at Linus) : "How can you say that? Don't you ever read the papers? Don't you ever listen to the radio?" and, "How can you stand there and tell me this is a better world?"
Linus (releasing his thumb from his mouth): "I'm in it now!"

Refresh. Update.

I really am glad I came to this applied microeconometric workshop, folks. How I needed an update. The topics that were covered ranged from useful to very useful or very interesting. (Get the lecture notes here. In all likelihood the lectures will be published as a book in the future.) The presenters, Imbens and Wooldridge, are two of the best in the business and more importantly, very good teachers. Very well organized, timed like a clockwork. Burning questions? Talk individually with the presenters between sessions. The rumor has it they will also do this at the AEA meetings. Based on a similar workshop at NBER in 2007. Highly recommended.

Update: well, it is not a rumor. They have scheduled another workshop for the 2009 AEA meetings in SF. Registration starts August 23.

A Dose of Richman (Will Bring Back the Child in You)

A Dose of Richman (Will Bring Back the Child in You)
by Pasha

Hello everyone! I’m back! I can hear the Manager rant, “Finally! He decides to show up!” (teehee). Well, I’m back to bring you musical pleasure so that you may achieve what I call “eargasm”. This time I would like to do something different. Usually I bring forward an assortment of music from different artists. Well now I would like to play songs from just one artist. He’s not just some artist, he’s a pioneer of punk rock but his version of punk is different from the likes of Sex Pistol, the Clash, or even Television, and the reason I really like his music is because it’s FUN! And I’m sure little Alfie, Rara, and Laksmi would also enjoy his music because it’s humorous, lively, naïve…and FUN! Ladies and Gentlemen, I introduce you Jonathan Richman!

Here’s a song to start of entitled “I’m A Little Airplane Now”, the kids will love this one. Exciting huh? Brings you back to the days when you were in kindergarten right? Now more on Richman, he’s a native of Natick, MA and was and is still an important element in the Boston music scene. Even though he now resides in California, He still finds the time to cheer the Redsox. Next up is another track the children would also enjoy, “I’m A Little Dinosaur”. Now, where’s that little dinosaur? In mid 70s Richman formed the Modern Lovers in Boston and released a milestone album “The Modern Lovers” with great songs such as “Roadrunner” and “Pablo Picasso”, but I’m not going to play them. If you ask me, “The Modern Lovers” while it’s a great album but you don’t get the whole Richman persona, try “Jonathan Richman and the Modern Lovers Live 1977”, now THAT is a GREAT record. “Roadrunner” is then covered by the Sex Pistols and David Bowie then put out his own rendition of “Pablo Picasso”. Richman lyrical style is funny, honest, and philosophical and yet naïve and the same time. His song “Affection” is one example.

The Modern Lovers soon after broke up, keyboardist Jerry Harrison then left to join the legendary Talking Heads. Richman then assemble another formation of the Modern Lovers but soon after began switching to a solo act. Here’s another fun song, “Rollercoaster by the Sea”. Now after having a rollercoaster ride, wouldn’t be great to have an ice cream? But where’s the ice cream man? Oh here he is.

Have you ever seen the movie “There’s Something About Mary?” Of course all of you have or at least most of you. Remember there were two guys narrating the story in the movie, one guy with a guitar and the other with a drum kit? Well, the guy with the guitar is Richman. You know, the one who got shot at the end of the movie. Here’s an example of Richman’s comedic antics entitled “I Was Dancing in A Lesbian Bar”, This song is hilarious! Really! I really like the part where he sings “…in the first bar/things are stop and stare/in this bar/things are laissez-faire”, it’s a gag!

I save the best for last. This song is my favorite of all Richman’s catalog. This always help brings the best in you whenever you were down. It’s beautifully written, this one is truly a masterpiece. This is “Morning of Our Lives”. Goodnight…

Too Good To Be True

Amidst an intense discussion on growth theories, a friend of mine exclaimed,

"I think I know the Solow model better than Solow himself."

Yeah, right.

My side project...

... is contributing to this music blog, initiated by an old colleague of mine, along with Jakarta Post's M. Taufiqurrahman (a.k.a. or own MT).

So here's the story. Philips just recently discovered a new hobby: hunting old, and new, vinyl records. You know, the old-fashioned records that we play in a turntable. Yes, in the era of iPod and MP3, this guy is a bit counter-culture. (In the old-school disco music, we often hear some unique voices, resulted from a technique called 'scratch' -- holding-and-releasing the record while playing. Oriental, Music Room, Stardust and Fire generations, stand up, please!).

Now he is focusing his search on records listed in Rolling Stone's 500 Greatest Rock N' Roll Album. We used to be a regular listener of M97FM, a radio station for classic rock fans. But the station ceased to exist; a great loss for us. At least we'd like to keep the spirit by blogging on some the albums on the list.

Here's my post on U2's The Joshua Tree, and Metallica's Master of Puppets.

Goodbye, Sjahrir (3)

Bang Ciil was passionate in everything he did: whether talking about poverty or debating the merits of a decadently delicious Sop Kambing (for some time a staple on his birthdays). In fact, one of the little lessons that I learned from him while I was his TA was that there's nothing wrong about discussing poverty over a good meal in a fancy restaurant.

Yes, it is always critical that we possess the hard facts and go beyond the soulless data to learn about poverty. It is also always essential that we are aware of the political economy of policies, historical contexts and institutions. But at the end it should not matter whether you're discussing poverty and do the analysis inside a hot tin shack under a city overpass or while sitting on a plush sofa in a lobby of a luxurious hotel. Of course it should not. In fact you'd want to have a cool head and let your analytical thoughts and economic intuitions run their course and if that means you need climate-controlled office space, so what?

Yet at that time it sounded so politically incorrect, almost blasphemous - especially when you were a scrawny undergraduate TA who were now and then still infatuated with left rethorics - despite your "neoliberal" Salemba training. But that was Bang Ciil in nutshell the way I remember him: always passionate, often emotional, but never let his logic be clouded. And then there's that challenge-the-conventional-wisdom, provocative streak (most times also thought-provoking, but often simply provocative), perhaps a remnant of his student years. Bang Ciil was, in more ways than one, Cafe Salembaish. Or perhaps it's more accurate to say that Cafe Salemba, in many ways, Bang Ciilish.

*Ujang was a scrawny undergraduate TA of Sjahrir for the FEUI course "Perekonomian Indonesia" in 1994/95. Ira and Aco were the other two TAs.

Goodbye, Sjahrir (2)

Never forgot his trademark remarks during the "Perekonomian Indonesia" class, "So what are you student doing? You are clearly not studying, but you are not protesting either..." It was in 1997. A year after the 27 July riot, and a year before the 1998 movement. (Aco and Ujang were his TAs when I took that class).

Then, in 2003, I attended his birthday ceremony in which he officially declared his presidential campaign. In his speech, Rocky Gerung announced that "next year, we will be celebrating Ciil's birthday in the Merdeka Palace backyard." The campaign turned disastrous, nevertheless. His party finished second from the bottom, with only 0.3% votes gathered (to which I contributed one vote). And Sjahrir never even mentioned in the presidential election.

Yes, in politics, Sjahrir is unfortunate, said Rosihan Anwar. But he's still a big man -- both literally, as well as metaphorically. May you rest in peace, Bang.

On Doha

Here's Puspa's take on the extended, heated meeting there in Geneva -- Manager

On Doha

by Puspa

With rising oil and food prices, and the woes of the US domestic economy still taking a toll and the consequences of the financial crisis still unfolding —who cares about trade any more?

News clips of hundreds of Californians waiting in line at various branches of IndyMac Bank to claim their money seem to have diverted attention away from any other developments in international economic policy. Meanwhile, those who are new to the American mortgage markets are amusing themselves trying to figure out what’s behind acronyms of Freddie Mac and Fannie Mae.

Yet, something went somewhat unnoticed in the news last week. Negotiations of the previously-suspended Doha Round were re-opened last week in Geneva. The Doha Round remains a tough deal to conclude. The negotiations, initially scheduled to end last Friday (July 25^th ’08) continued up until today.

The negotiations continue to pit the two competing blocks, the developing countries (spear-headed by Brazil, China and India) vs the developed countries (US and EU negotiators carrying the torch for their ‘important’ constituent, the farmers).

The core contentious issues are still the same ones, agriculture and NAMA. After several impasses, there is yet to be an agreed formula to reduce neither domestic agricultural subsidies (a concession made by developed countries) nor an agreed set of modalities to grant Non-Agriculture Market Access (NAMA), which is largely translated into slashing very high tariffs in industrial goods, a practice currently adopted mostly by developing countries.

These issues have been sharp and dividing for the past few years. Should be any reason, that in these troubled times, any of the parties involved are in a position to relax their respective stands?

The answer is yes, if you believe that concluding the Doha Round is part of a continued effort to uphold the institutional mechanism of a world trading system that has operated for over half a century. The reason should be yes, if you believe that a positive breakthrough on Doha signals commitment of countries that have agreed to continually liberalize and lower tariffs.

In difficult times, one should aim at picking low-hanging fruits. Pascal Lamy’s efforts to come up with a compromise proposal, with a more modest aim of tariff reductions for both agricultural subsidies and NAMA, should be applauded. It’s now up to the big players to adjust their bargaining positions accordingly.

Goodbye, Sjahrir

It was one of those long days in May 1998. That day, UI students from Depok went down to Salemba campus for a rally demanding Soeharto to step down. And that very day also turned violent as riots broke around Jakarta.

Salemba was quiet. Most of students had been evacuated through small alleys behind Cikini market to the train station, back to Depok. The remaining students, including I, had been tired, confused, and desperate while looking at Jakarta on fire. Salemba was tightly guarded.

Then at around 6 pm, an old man with an old Vespa came. I never knew how he managed to get into the campus. The Vespa was barely able to carry those white boxes. He was looking for "mahasiswa UI". When he found out that we were the students, he handed us those boxes. Lunch boxes. Suddenly we realized we hadn't had ate anything for the whole day.

And the Vespa man said to us, "It's from Sjahrir."

I always remember that line. Thanks Bang Ciil, thanks a lot. May you rest in peace.

Wanted: The History of Economic Thought Course

When Dorodjatun Kuntjoro-jakti was appointed as the RI's Ambassador for the US, and later Coordinating Minister for the Economy, I was thinking whether the benefit justifies the loss of the FEUI for not having him teaching The History of Economic Thought. Dorodjatun is always an engaging speaker, and was the best for the course.

In fact, when he was away from the academic, upon hearing that the Faculty was considering to get rid of the course, perhaps due to lack of capable teacher, Aco and yours truly (yes, shamelessly I) had planned to take over and co-teach for the course. Not because I am good at it, but we think the course is too important to be scrapped out from the curriculum.

Fortunately, now Dorodjatun is back to Depok and, I assume, so is the course.

On The History of Economic Thought, Sukasah Syahdan of Akal & Kehendak lamented (liberally translated):

On one hopeful side, there are many young economists who have been and are studying in the UK, US, Australia, and other developed countries to specialize in this science. Yet, economics itself consists of various fields of specialization. Most of the country's economists have had high interest only in the applied and pragmatic side of the science. This is my subjective and non-permanent judgment. Nowadays, not many Indonesian economists are interested in specializing in economic thought; or if they did, only as supplemental trim. Nowadays, the History of Economic Thought is hardly taught in (the universities -my note) in the country. Thee Kian Wie, senior economic historian, to whom I sometime keep in touch with by email, is the only exception today.

Isn't it sad?

Well, it's the catch-22. Those young economists, being trained in mostly mainstream higher education have faced a trade-off between mastering those (bloody, bloody) quantitative approach and techniques to understand those so-called applied and pragmatic side of economics and spending more time reading Politics, Philosophy and Economics (heavy, heavy) textbooks.

Most opt for the former, simply because to survive you need to work on what they demand you to --at least in the first and the second year. By the following years, you'd get the comparative advantage in doing the applied economics and by then there is less reason to work on the economic thought.

But I am still optimistic. Coming from various schools of thought and traditions (either European-North American or Freshwater-Saltwater rivalry), we can expect those new breeds to be engaged in more fruitful public discussion in the near future --not the ones we observe in the media now, between economists and faux economists, or, even worse, amongst those faux economists themselves.

Few of them, I personally know, are real good on the History of Economic Thought and PPE in addition to their superb applied economics analysis.

Wonderwall, Black Hole Sun

Does the words ring a bell to you, guys?

If the first thing that comes across to your mind is Berlin or Astronomy, it is very likely that this posting doesn't fit you :-). You may go on if it's the British band Oasis or, better yet, the Seattle-grunge band Soundgarden that clicks in your mind upon hearing those words. They are the titles of their songs, but that's not what I am referring to.

It's my favorite Brad Mehldau Trio's newest LIve album, recorded in the famous Village Vanguard of New York, in which they played the jazz reinterpretation of those two rock songs. And it's good to hear Mehldau back to the more standard tunes after some not-so-great collaboration with Pat Metheny.

He's indeed cool in rearranging rock songs into jazz, including the Radiohead's piece, Exit Music (for a film), in The Art of Trio Vol.3 and 4, which is also the OST for Luhrmann's Romeo and Juliet.

Recommended.

p.s: Hey Manager, play more jazz please.

Rizal was right...

... we don't need an uberpolitician or a Satria Piningit. We need a system that works. And when the system doesn't work, we may need... The Batman! Of course, to make the system works, we need something like KPK, or someone like Harvey Dent (before he turned into Two-Face).

Just like I enjoyed the recent heroic actions performed by KPK, I enjoyed watching The Dark Knight. It's a good sequel to Batman Begins. So far, the two films by Chris Nolan are better than the previous Burton-Schumacher series. And sorry, Superman and Spiderman, but if there is a 'Superhero Oscar' then I'd give the award to your fellow in that black suit.

But the highest credit must go to Heath Ledger. His last ever performance as The Joker really stole the show. May he rest in peace. Some people consider his acting was better than Jack Nicholson, who played the character in the Burton's 1989 version. I'd say, they both are tied. The difference being Nicholson was excelling alone in a somewhat weaker script, while almost everyone in The Dark Knight played well, especially Gary Oldman. He's really a brilliant actor, isn't he? Everytime he plays a character -- from Dracula, Lee Harvey Oswald, Sirius Black, and now the uncorruptible Lt. Gordon, seems that he's turning into completely different persons.

The moral of the movie was simple: institutions matter. When formal institutions fail, informal institutions will rule (see Dani Rodrik's post on how Taliban solves property rights issues when the state failed to impose it). Then we end up in a 'bad' equilbrium: we need another informal institutions to solve the problems created. Things got more harder if we have someone like The Joker, who does crime just for the sake of doing it; whose means is also the objectives.

There were also two good quotes from the movie. First, "Helping means choosing," told The Joker. He was clearly an economists, because he understands the concept of choice and opportunity costs.

Second, "The best way to decide is chance. Chance has no moral or prejudice. Everyone gets a 50-50 probability," told Two-Face. No, he didn't refer to randomized trials when saying this. But I think sometimes it's a good idea to apply the method to evaluate the impact of a policy. Or not?

Note: Chris Nolan made some changes from the original Batman stories: how Harvey Dent turned Two-Face, and the introduction of Rachel Dawes' character that has never appeared in any movies or comic versions (hence the Wayne-Dawes-Dent love triangle). I don't know how the hardcore fans think about this deviation, but I don't have any problem with that. I also don't know why Katie Holmes no longer features as Dawes, but I like Maggie Glleynhaal better.