A whiter shade of pale

Happy new year, everyone.

We skipped the light fandango
turned cartwheels 'cross the floor
I was feeling kinda seasick
but the crowd called out for more
The room was humming harder
as the ceiling flew away
When we called out for another drink
the waiter brought a tray

And so it was that later
as the miller told his tale
that her face, at first just ghostly,
turned a whiter shade of pale

She said, 'There is no reason
and the truth is plain to see.'
But I wandered through my playing cards
and would not let her be
one of sixteen vestal virgins
who were leaving for the coast
and although my eyes were open
they might have just as well have been closed

That is Procol Harum, of course. Here we bring you the version of Sangaji: Syaharani on vocal, Oele Pattiselano guitar, Christy Smith bass, Budi Winarto sax, Mei Sheum piano, Eddie Layman drums.

Good Coffee, Finally

OK, nothing beats Monmouth Coffee Shop yet, but after several weeks enduring mediocre and bad taste caffeine, today I relish to find a real good coffee at this place. And they play good jazz too, it was Miles Davis. Next time I might bring a pack of Sampoerna Mild and join that crowd in their smoking room with big table -- a rarity in this more health conscious western society.

Speaking of Monmouth Coffee, I learned that they just visited Indonesia to sample the best of Sumatra (Lintong, Mandheling, and Gayo). They really should extend the trip to Toraja, I must say. So if you happened to be in the old London at the moment, given their knowledge of properly roasting the beans, I am sure you can have oh-so-good full bodied coffee from Dairi at their place now.

Bill Easterly in his book praises globalization and trade as bringing Colombian coffee closer to his mug, via, well, Starbucks. But even if you condemn that green fairy label for spreading bad coffee and culture, you still could have way better coffee via specialties stores, using the same mechanism (namely international trade).

In trade, both who embrace urban mass culture lifestyle (that chain cafe's addicts) and coffee freaks and snobs (like me) are happy.

Questioning Krugman

Probably, this op-ed is what Aco's economist friend meant when he (or she) said about Krugman and fragmentation in trade theory. In that piece, Krugman wrote that on free trade:

"(But) for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult."

Dani Rodrik, as expected, praises this line of argument. But Greg Mankiw and Don Boudreaux are certainly much less impressed with such protectionist flavors.

I'd rather wait more numbers, and perhaps new theory, to appear on academic paper by Krugman himself. Nonetheless, it would be small wonder for me if this early assertion were picked up by protectionists from our side to defend anti free trade stance and hence bark at the wrong tree.

Why? Because the negative impact, if it's plausible, would be borne by workers in rich countries and comes from manufactured goods trade. Indonesia is rather far from being rich country at the moment and is struggling to strive in the said manufactured goods export. The winner is us and more free trade would be even better then. Not the other way around.

RIP Oscar Peterson

To pay respect to Oscar Peterson, the cafe plays Goodbye and When Lights Are Low.

What Sjamsu's doing when not blogging?

Mostly, nowadays, he's helping the government negotiating a new FTA.

Other thing that I consider is more interesting: working on this project with his high-school friend (also Ujang's) Dave Lumenta, who's also an irregular visitor of this Cafe. (In case you don't know, Sjamsu is the only real musician of the Cafe barristers).

Here's the background story according to Sjamsu:

The idea is to replicate the repressive environment of the '80s, when TVRI programs were full of 'security and order' jargons. Thanks to Dave who already had the basic composition, and someone crazy enough to upload Anita Rahman's news clip (from the year 1982 - a.p.) in Youtobe.

Note: the TVRI news clip was about the infamous Lapangan Banteng riot. Enjoy.

Metro Jakarta Cafe (a.k.a Warkop DKI)

To my knowledge, in our cafe, AP and Pasha hold the highest authority for anything related to Warkop DKI.

Can I then request you guys a thorough Warkop DKI's OST review? Here are two teasers from YouTube: rock n' roll medley by the late Kasino Lennon and Indro Jagger of Wah Gede Banget Band in Dongkrak Antik (How do you translate this title, by the way?), and Nyanyian Kode (from god knows what film).

LOL

Holiday's Coming

And it's time to look more closely into, well, sub prime mortgage crisis. Especially when Larry Summers (in pdf, but short) said that even with recent bail-out policy measures, up to one million foreclosures are expected to come in the next two years. 

That's a lot. 

Ben Bernanke also gave his insight. If you're the one to decide, would it be a bail out, or not?

Problem #1: Microeconomics Exam

In today's Jakarta Post op-ed, Professor Rokhmin Dahuri wrote that capitalism depletes natural resource and precedes global warming. Discuss the flaw, if any, in his argument.

Hint: Use your knowledge of Demsetz's Theory of Property Right,or Coase Theorem (in pdf), or Tragedy of the Commons. No math needed.

The Ballad of John and Yoko ... and Krugman

I, too, never blamed Yoko for The Beatles breakup. According to The Asahi Shimbun, this documentary does not follow the conventional wisdom (or unwisdom?) that Yoko was the evil person behind the Fab Four quarrels. What if it's all John's fault? What if it's the group's itself? Of course this documentary does not just focus on that one issue. Reading the article, I would expect to see "good, old-school storytelling", "big zeitgeist tapestry" (of Lennon's life), some never-seen-before Beatles' footages, and of course, John's "truly, even geeky, love" to Yoko. Must be interesting. Except that I .. don't have the time (or more precisely, I just missed the showtime). I was actually planning to see it at Toho Cinemas tonite (where else can we see non-dubbed foreign movies here in Tokyo?).

Alas, we all are exhausted. After two long days of discussing papers, we thought we deserved a decent dinner. So there we were, eating and chatting. The thing is, you would forget the time when you talk about new, interesting books. And this time, it was Krugman's newest one. An economist who had finished reading it briefed us about the book. He said Krugman calls for raising U.S. minimum wage. Now that's interesting. Another guy responded, saying that Krugman's idea was a reflection of fragmentation in otherwise strongly established trade theory. Ouch.

I'll see the documentary later. And I'll grab that book in Narita tomorrow.

Picture © 2006 Lions Gate Films Inc.

(Anti) Competition Chicken Noodle

Suppose you are a chicken noodle addict and chicken noodle is, well, chicken noodle. They are similar product.

Case #1: There are two chicken noodle sellers in your area, Rizal and AP. Each shares half of total sales, or market share.

OK, it seems like a fair competition.

Case #2: Still in your area, but now there are five sellers, --Rizal, AP, Aco, Ujang, and Sjamsu. Rizal's market share is 96 percent, each of remaining seller shares 1 percent of total market sales.

Are you gonna sue me for anti-competition behavior based on such market share indication?

Recall: what matters is how many chicken noodle sellers that an addict like me you now has (five), not the number of sellers in a whole market, nor its market share.

Case #3: Now, Rizal, AP, Aco, Ujang, and Sjamsu decide to set a chicken noodle cartel.

Does the competition vanish? No, they just shift it from the streets in your neighborhood to a table at cafe salemba where they usually meet up.

Case #4: Rizal is spying your house. He wants to steal your BMW. 

It's politics. Economics has no answer. 

On Being Jakarta's Number One

For any Jakarta's Governor, perhaps, the most relevant and politically sensitive issue is the traffic jam. If he/she can get rid of it, he/she will be remembered, and if allowed by law, reelected for the next term.

Now, if the higher authority decides to increase the gasoline price without his/her consent, should he/she curse the the policy or, silently, praise it?  

If I were he/she, I would do the latter. Higher gasoline price reduces the use of private cars, hence less traffic jam. And when my people get mad because of the price hike, I would shrug my shoulder, and point out that it wasn't I but those guys who did it.

And I don't get why the current Governor does the other way around?

Where is the Market?

OK, I need your help. I fail to understand this:

"Philosophically, what I imagine as Indonesian version of Social Market Economy is to put the Family (?) (my note: does he mean Household?) as the dominant element in development paradigm, along with the State. European welfare states, so far, marginalize the Family, along with Market; and set the State as dominant role. On the other hand, neo liberal states, such as the US, assume the Market as the dominant role, while the State and Family marginal."

--liberal translation of an op-ed "Kaum Muda" in Kompas, December 4, 2007.

If he says that it is the Family and the State that matters, why he uses the term Social Market Economy? Where is the Market?
And on his assertion on European and US economy, I don't know what to say. Really.

Off with their head, or not?

What a thoughtful friend Rizal is. He remembers my favorite dialogue in the Alice in Wonderland. There is also another dialogue that I like very much from the story. It's between the Queen of Heart, who has a certain obsession of beheading people, and her card soldiers.

I forgot what the exact lines were, but it happened when the Queen ordered the soldiers to behead Cheshire Cat ("off with its head...!"). However, at that time, only Cheshire's head appeared. This confused the soldiers as a head without a body can not be beheaded. But the Queen insisted that anything that has a head can be beheaded.

I somehow recall this story after following the recent controversy over the KPPU (the Indonesian Competition Commission) ruling against Temasek group. The KPPU decided that Temasek group has violated the Law No.5/1999 by having a cross-ownership in two cellular phone companies, Telkomsel and Indosat. Together, both companies own 90% of the GSM cellular market share. The Law prohibits a "business entity to own the majority share in several companies within the same activity if the cross-ownership leads to the companies possessing more than 75% of the market share of the same product."

Here lies the controversy. According to Temasek, they are not the majority shareholder in both companies (in fact, they argued that the so-called 'Temasek business group' is not an entity). Temasek owns 40.8% share in Indosat, through Singapore Technologies Telemedia (STT), and 35% in Telkomsel through SingTel. So how come something that does not have a head can be beheaded?

However, KPPU's definition of majority shareholder seems to be broader than the portion of share owned. Collusive behavior, as indicated by the lack of price competition between Indosat and Telkomsel, and the dominance of Temasek in managerial decisions, are the basis to consider Temasek as the practically majority owner. Everything that has a head can be beheaded.

I'm not an expert on competition policy. So to be honest, I have no take on this issue, yet. But it's interesting to read our colleagues' take here and here. But somehow I agree with an old friend of mine: if Temasek if guilty, then so is the Government of Indonesia, via PT Telkom.

Odd Socks

#1. The big Jakarta's flood in February 2007 was due to global warming.
#2. The dengue fever outbreak in Bogor recently was caused by extreme change in precipitation patterns and warming temperature.

But,if the global warming were to blame, why there was no big flood nor dengue fever outbreak in, say, Surabaya, at the same time?

Footballnomics #9: are foreigners to blame for England's failure?

Not surprisingly, England failed to qualify for Euro 2008. They should just simply accept that they are not good enough. Blaming the failure on the huge influx of foreign stars is clearly out of the line. Neither will imposing a cap on the number of non-English players will help. I agree with Arsene Wenger in this case.

For one, the English team have never been great. Before the EU single market that revolutionized the football transfer market in the early 1990s, when there were only three foreign players allowed to play, England never won anything except the 1966 World Cup (the only trophy they have ever won). So the number of foreign players in the English League can not explain the national team's performance.

And remember, the EU open labor market also applied to the other countries. Foreign players have been coming en masse to France, Germany or Italy. Yet these countries won the 1998, 2002 and 2006 World Cup respectively (Germany also won the European Cup in 1996, and France in 2000).

Some people argued that foreign players have limited the chance of English players to play or be recruited by top teams. That is simply because English players are too expensive, given their (average) quality. To judge the quality of English players, just look at how many Englishmen play in the continent at the top leagues. Currently, none. At its peak, four (Owen, Beckham and Woodgate in Madrid, Hargreaves in Bayern Muenchen; altogether, only them plus Gascoigne and Ince in the 1990s who have ever played abroad).

Italy can have a stronger team because their best players can still outcompete foreigners in Serie A. The French League, on the other hand, is less competitive than the EPL, Serie A or La Liga. There are a lot of foreigners, mainly from Africa, in the French League. But the best of French players are good enough to be the best players in England, Italy or Spain.

In short, the Englishmen can not blame globalization for their crappy performance. Globalization brings competition. It exposes the country's weaknesses that come out because of domestic problems.

Update: I forgot to mention David Platt and Steve McManaman as the other English players who have played in the top European Leagues in the 1990s. Also, Kevin Keegan did it in the early 1980s.

Big daddy rock and roll and what follows

Pasha, a salembanite from Ruang 413 is one of few economists who knows music very well and reads music books in between his econometrics. Some of you have complained that my playlists are a bit boring and damn it, "customer is king", you say. So, here it is. Ladies and gents: Pasha.
- Manager

Big daddy rock and roll and what follows

by Pasha

I’ve been a regular visitor of the café. The Manager felt that the tunes being played in the café is rather monotonous (monotonic?? J). She asked me to breathe new life to the musical atmosphere in the café by coming up with a weekly playlist, which I’m happy to oblige. You all know that Rizal and Aco like jazz, while Ape digs heavy metal or rather hair bands (right Pe? :D). I’ll do my best to accommodate different tastes while at the same time adding my own personal favorites, well actually they’re all my favorites. I would also like to do something different, rather than just provide you with weekly playlist, I think it would be interesting to share with you all the story behind the music. Sort of behind the scene to make it more appealing for you to read. It’s a bit digression from the usual posting here at the café but for me, I can’t learn economics without the good company of good music. So, without further ado, I give you this week personal picks.

Let’s start from the very beginning, the big daddy rock and roll. No, I’m not talking about Robert Johnson (I’m saving that for future posts). It’s not Elvis. He may be the king but he’s not the one who started all. But to be fair, he’s the one who brought rock and roll into popular audience. It may surprise you, I’m talking about Ike Turner. Yes, that infamous Ike Turner. In 1951, Ike Turner and his band “The Kings of Rhythms” released this song, Rocket 88. It is considered to be the first rock and roll song ever written. At that time the term “rock and roll” is not yet known. Back then, this type of music is called “Rhythm and Blues” or “R and B” for short and it is usually played in the black communities at that time, and this type of music have not yet cross over to the white communities, such as jazz. What is unique about this song is that it is the first song to use the now standard rock and roll chords. Thus, this is the grand daddy of rock and roll.

It is due to Alan Freed, a radio disc jockey in Cleveland, OH. At first, in his radio show he usually played jazz standards by the likes of Duke Ellington, Artie Shaw, and other big bands. He soon got tired of playing the same music over and over again in his show and needed to play something new and completely different. So, he went to the record store he frequents. In there he saw white teenagers gathering in the black section, which turned out to be the rhythm and blues section. He then asked the store manager why were white kids crowding in the black section (back then segregation was still in effect in certain states in the US). The manager simply replied that kids really enjoy that type of music. He got what he wanted, a fresh new music to bring into his radio show. He went home with numerous rhythm and blue records, among them are the relatively unknown Little Richard and Chuck Berry. But given the racial tension at the time, he needed a different name to call this new music. After considering several alternatives, he settled with the term “rock and roll” which was basically a code that he and his wife used if they want to have sex (funny how they come up with the phrase “sex, drugs, and rock and roll). Since then popular music is never the same and this is also the reason why the Rock and Roll Hall of Fame is situated in Cleveland. And so I give you this classic piece from Little Richard, Good Golly Miss Molly.

So, from then on new musicians emerged into the scene. So here it goes. First up, “The Killer” with the piano Jerry Lee Lewis with Whole Lotta Shakin Goin On. Let’s turn up a bit with Johny Be Goode from Chuck Berry. Next up, Buddy Holly with Peggy Sue. I think you all know this classic from Ritchie Valens.

Too close off, there was an anomaly. In the midst of the popularity of rock and roll, a jazz composition received a huge airplay in the radio. And so, I leave you with this tune from the Dave Brubeck Quartet. This is Pasha signing off, see you next week and happy thanksgiving!

Funny Pundit on Chicken Soto

Due to some costumers demand, I will not serve muffins this time. But we have chicken soto as the substitute.

Suppose you want to know what 150 million adults prefer: chicken soto or chicken satay. What would you do?

I read an observer, -or pundit, whatever-, has done the following: He asked 50 leading figures, or social activists, what they want to have, and found out that only four are for chicken satay, two order completely different stuff (chicken kebab), and fourty-four want chicken soto. Then he concludes that people want chicken soto.

But how on earth that he is sure that chicken soto is indeed what people want? Statistician, or anyone who ever have had Statistics 101, will quickly point out a whole range of sampling methodology issues.

Even putting that statistical problem aside, what exactly that fourty four activits mean by chicken soto? Is this the one with light yellow soup or thick coconut-milk, with rice vermicelli or not, with beansprout or not? We have so many variants, in so many localities, of chicken soto.

Our pundit also lamented that we are on the verge of doomsday. In one aspect he said that we do not get bigger as fast as Argentina. But actually we do get bigger (around 6.4 percent this year) and at the higher rate than our closer peers in the neighbourhood (4.9 percent). Not bad at all, leave alone the fact that we fell severely ill nine years ago and lost weight by 13 percent in just one single year.



OK, OK, it's in Kompas daily, Analisis Politik, Tuesday, Nov 20, 2007

Update:
Oh no, today somebody told us that what they mean by chicken soto is actually not a chicken soto. It was a terrible adaptation of German soup. (Kompas, Opini, page 4, Wed, Nov 21, 2007)

Unruly City Works Well

I think the economy of big cities is one of under-researched topics in economics, particularly on the positive contribution from otherwise "unruly" features of a city --slums, city dwellers, crowded sidewalk, counterfeiting business, etc.

During this weekend, I am reading the captivating Jane Jacobs' classic, The Death and Life of Great American Cities. I know this is way too late, it has been published since 1961, but her fresh attack on how the then latest urban planning trend (such as Le Corbusier, --the architect, not the mentalist (sic!)) misunderstood city life still sounds relevant even today. It makes a lot of economic sense, too.

Having been reading some of the early chapters, I have a question, perhaps to criminologist: Is the crime record in Jakarta's crowded housing districts (Tanah Abang or Senen area) higher than in the suburbs (Depok, Tangerang, Bekasi), where the so called modern urban housing planning has been heavily exercised? --If the records are neither available nor reliable, a careful observation on Pos Kota will do.

My guess, it isn't. Presumably, high population density and close interaction will produce positive externalities of an informal surveillance system for public order. But maybe I am wrong.

Roy Boy

His name’s Roy and I was reading his letter. He said he needed help. He had just been arrested by the police because he was caught using drugs. Interestingly, this was his second arrest. Months before, after serving his first jail term, he had become an anti-drug campaigner. He was loved again, just like when he was young as a handsome movie actor. He now appeared in social gatherings, he gave lectures on say-no-to-drugs and all that. In that unlucky day, he just made a cameo in a police program to fight narcotics. Two hours later, he was high.

He thought he could use some help from the Café. He knew some folks here defended Kate Moss and well, him.

But this time is different. He made another, more serious crime. So I called him.

“Roy, oh Roy. Poor fella. Of course we’d do anything to defend you. We still think laws banning drugs are ridiculous. But how come you are so stupid? They probably shouldn't arrest you for using drugs. It's your right to die on sabu-sabu if that makes you happy. But we really think you should be punished for being a total fool. You're a disappointment, Roy...”

Microfinance, anyone?

Social networks or social capital is one of the topics have been discussed in this Cafe (even debated among its barristers). It is a topic that has been of a growing interest of some economists. Harvard's Economic Department even offers a course devoted specifically to this issue.

Roby, a sociologist, regular visitor of this Cafe, as well as close friend of the barristers, can be considered as the authority of this field. He sent us this piece about microfinance as a potential intersection for social scientists to study more about mechanism design problem. Although it is not the first time that microfinance is being discussed in the context of social network (this is one example, or here is a list of more serious stuffs), still it is interesting to see Roby's challenge will be answered in the Indonesian context.

Microfinance, anyone?
by Roby

I am one of the fans of this blog but so far I only contribute by writing rather negative comments. In this post I want to share something positive.

As you may know, I am not an economist but some of my colleagues here are economists or working on topics that are also of interest for economists. I must say that I like economics but can't stomach some economists especially when they start to pretend to understand something and come up with "explanations" that actually don't explain anything. Having said that, I do think economists have succeeded in creating some useful arsenals and insights to understand human behavior.

Recently my boss left his tenured position to join the microeconomic research group of a leading web company. Since his departure, I regularly come to his new office and meet a lot of interesting people with different background, including economists. I try to know more about the kinds of interdisciplinary work where computer scientists, physicists, mathematicians, economists, psychologists and sociologist are working together.

Social scientists and economists are hired by major internet firms to help those firms to understand user behavior, from buying or selling products to hanging out in social networking sites. Armed with the understanding, these firms hope they can find better ways to monetize the services they offer through their websites. From the scientific point of view, access to huge data of human interactions and relatively "unlimited" resources (in comparison to resources in
academia) give us the chance to study human dynamics in unprecedentedscale and detail.

All of these are interesting but these kinds of work are not very relevant to Indonesia. Although the Internet in Indonesia is growing, the scale of the usage – in terms of business or social – won't be even near the usage in the US anytime soon.

However, I think there is an area in particular in which similar basic ideas can be applied in Indonesia: the microfinance industry.

I know next to nothing about microfinance, but here is what I think. To my understanding, microfinance is about figuring out ways how to do business with people who are traditionally unbankable. They are usually poor people in rural area. They are untouched by traditional
finance system because it is too hard to assess their credit worthiness or it's simply too risky.

One way to overcome the problem is to deal them collectively instead of individually. The idea is to utilize some group mechanisms to minimize the risk: group members would make sure everyone to repay the loan and hence guarantee continued access to lenders.

We can approach the problem as an interdisciplinary mechanism design problem: social scientists and social psychologists could study the relevant properties of group dynamics in (rural) Indonesia, then, together with economists, design how incentives could be structured
in a particular setting.

The project, I think, is intellectually interesting and would be easy to gain support since everyone cares about the poor in Indonesia.

Is this possible?

Against Rogue Pros

How many of you are damn sure that whenever you go to those fancy hospitals and health clinics in Jakarta, without medical insurance in hand, you are not ripped off by those, favorite, doctors? That, somehow, you feel that your headache is not that bad, but then you find yourself ended up into unecessary expensive procedures as well as pricey medicines? That you are sure that caesarean section is indeed in dire need, and not the way obstetricians make extra money off you? And, --this is is the worst--, that they really know what's going on inside your body?

But since you have no expertise in medical science, the only option for you is to shut your mouth up, and let the experts decide your fate. Worse still, they are the one who not only diagnose, but also will be paid for further treatment.

The same thing goes for laptop repair, or car mechanics. And this guy, Henry Schneider of Cornell, took the challenge to prove whether car mechanics, in 40 Connecticut garages, don't swindle their costumers. The result: only 20 percent pass the test.

I hope somebody's gonna hire economists to do the same undercover research for health services here in Jakarta, or Indonesia, instead of relying on anecdotal evidences and finger-pointing game on doctor's malpractices. Schneider's paper and model is not technically too complicated to replicate for our case.

I am looking forward to it.

Manado rythm

Looking at a piece of Manado bay from my room up here, at a rather new hotel as one of the outcomes of reclamation at Manado beach, I am amazed. This city had no plan. The additional sixty hectares of land was appended to the then shoreline with no single government's master plan. The initiatives, money and all came from private businessmen, I was told by city officials – proud they sounded. The government was just given sixteen percent of the new land – for a green belt supposedly, which by the way, has yet to be seen.

Ask me not about aesthetics, though. This parade of new malls and office buildings is so eye-torturing. They could have used some coordination to at least make the whole package interesting. Not even close. Bunaken half an hour away out there is way more beautiful. Or, is it just for now? I am amazed and puzzled. No-planning used to sound good to my ears. But if that leads to chaotic structures like this, what is the use? So there I was interviewing people on the street.

And my faith in market was reinstalled: they're just so happy with their new Manado. They don’t give a damn if the look is a no-no. Yes, wealth comes before beauty.

Update: Here is the nice one. Raf, I'll come back (next time, no books, no survey)

The sequel: The Good, The Bad, and The Unpleasant Arithmetic, Part 2

Let's carry on the game. Get your cup of Kenyan now, and I'll play Miles Davis' Freddie Freeloader.

You remember Alesina and Summers, right? Those guys said that independent central bank is good for the economy. Now let me introduce you to another guys, who are more or less in the same camp in favor of central bank's virtue, Kydland and Prescott (1977). With their work on time inconsistency, they lean toward something called rules based over discretion policies and make the idea of inflation targeting popular. The two, independency and inflation targeting, are now becoming the norm for central banking.

But Greg Mankiw, 2006, disagrees. He said that independency is loosely connected with rule based inflation targeting. Alan Greenspan is the most notorious example for his flexibility and somewhat discretionary approach, yet his policy works. Moreover, citing the work of Ball and Sheridan (2005), for the larger sample. inflation targeting doesn't explain recent trend of low, stable inflation rate. Bluntly, independency is not the prerequisite for good monetary policy.

So now, Central Bank got their point cut. Central Bank 0 - MoF 0.

A Muffin Jam

Suppose you know that for our health, shortbread is better than muffin. By that, substituting muffin with shortbread in our diet is good. Yet, many people, as they love muffin, understandably, will not alter their diet to shortbread by persuasion, even for the noble purpose such as public health.

In anticipation to that, the cafe introduces more shortbread at low price, and due its limited capacity, they can not provide you with muffin as many as before. And, it's a small wonder that muffin eaters grumble. They complain that muffin is now hard to find.

But on the second thought, wouldn't it be the perfectly predictable, and desirable, effect --to make the muffin relative price to shortbread rises? Sooner or later, they will respond and switch to shortbread, and as time goes, switching will be less painful.

Now, replace health, shortbread, muffin, the cafe, muffin relative price increase, and switching responsiveness; with travel time, the busway, driving your private car, Jakarta busy thoroughfares,traffic jam, and elasticity of substitution. I hope by now you get the idea, thanks to Econ 101.

Oh, and the muffin eaters/grumblers, they are the popular voices oftenly appear in newspapers, TVs, and, well, politicians' words. Just want to say: come off it, mates!

The Good, The Bad, and The Unpleasant Arithmetic

I can't find a good metaphor for what I'd like to blog here, so let us be a little bit more serious. But not too serious as you can still think about it, while sipping your espresso and listening to Dave Brubeck's Take Five, -the way we in this cafe make money out of you.

In macroeconomics, there are two great enemies an economy, a country, always wants to get rid of: low growth and (too) high inflation --and the other is high unemployment. Low growth is like having your pie getting bigger, yet at lower rate than your neighbourhood has. Inflation is that your money in your pocket now can not buy you a pie as big as before.

To handle a normal economy, we have two important offices: Ministry of Finance (MoF) and Central Bank. The former is more to stabilize the output (the pie) against its ups and downs, keeping it on track for an upward path. The Central Bank is responsible for money supply, maintaining the inflation rate sensible, hence, your money purchasing power.

And in standard macroeconomic model, both are well linked.

Now, enter favorite words that you may often hear as a cocktail conversation or read in newspaper: the central bank independency. The argument goes that in managing the economy, central bank's policy (on money supply and inflation rate) needs to be independent from MoF's (output stabilization). Why?

MoF policies oftentimes, due its proximity to political pressures, go for higher budget deficits (government spends more, say, on big projects or subsidies than what it gets from taxes), rely on pushing central bank to print more money --a politically induced inflation, that is. And in a corrupt country, it spurs a big business on monetary policy misuses. In this part one of this story, MoF is the bad guy. (See Alesina and Gatti, 1995)

In part two, meet the unpleasant monetary arithmetic (Sargent and Wallace, 1981). Now suppose Central Bank thinks that current inflation is higher than targeted rate, because, say, MoF carelessly raises the budget deficit. The Bank dispatches then a tight money policy (reduce the money supply). But while lowering current inflation rate, it is at the cost of future inflation rate. The catch is here: higher expected inflation rate in the future tends to raise current price level, a.k.a current inflation, as the current price level depends not only to current but also all anticipated money supply. Feel dizzy already? Don't worry, just recall: There is a good chance that the Bank's effort to curb current inflation is ineffective.

If you want, you can order another cup of Colombia supremo now, before we move on.

Now, let's get into another easier-to-imagine situation. If the Bank always want to tame inflation independently, it will react every ups and downs of price shocks. And as the latter is usually volatile, so is the money supply set by the Bank for keeping it steady. As money supply affecs the size of our pie (output) and employment, these two will be more volatile accordingly. This is bad and, here, Central Bank is the bad guy. (Rogoff, 1985)

But you may ask that earlier the bad guy is MoF. So which is which? When you are in this situation, play Sherlock Holmes with Google Scholar finding the empirical evidences. The most famous one (Alesina and Summers, 1993) says that for OECD (meaning the rich countries), central bank independency brings lower inflation and no effect in output and employment. So, the Bank is the good guy for the economy, let him be independent. Central Bank 1 - MoF 0.

OK, time out. But before you go, let me give you a question to think about: Is it really the Kebon Sirih gang better than the Lapangan Banteng's? Next time you drop by at our cafe, tell me

The Economics of Oil Muffin Price

Let's talk about a commodity, a muffin. This week the price of muffin goes up significantly and sets a new record after 20 years. People raise their eyebrow. Some point out that it is the work of muffin cartel, but it seems implausible since like any cartel, its member tends to break the agreement, produce muffin above agreed number, much more when the price is high.

It turns out that there is a sharp increase for demand of muffin coming from new growing-rich customers, Rizal and AP, while at the same time, the demand from traditional muffin eaters, the Manager and Aco, remains high. On the other hand, the muffin producer, Ujang (and his cartel gang) and Sjamsu (outside the gang), due to some technological capacity problem, can not increase the supply.

No wonder, as any Econ 101 student understands it well, the price goes up. Neither speculation nor conspiracy theory is at play.

Now, for some reason, you want the price of muffin down. One way to do that is to boost the supply, which is as we know, Sjamsu and Ujang can not make it. The alternative is then to reduce the demand of muffin. Econ 101 tells you that the rise of price will automatically bring substitution effect --Rizal and AP and Manager and Aco would somehow eat less muffin and more schone, sooner or later. The price signal itself would lead you to the new equilibrium (how much muffin, schone, and any other goods to consume) based on the new scarcity problem. It is called the market mechanism, an invisible hand.

Now, do you think an answer on how to tame soaring muffin price is to ask for a deliberate collective sacrifice from Rizal, AP, Aco and Manager to reduce their appetite for muffin; Sjamsu and Ujang to add up production, no matter what; and the Manager to stop bullying Ujang's friends: is a plausible one?

Hint: read one of op-eds in Kompas daily, page four, Monday, Oct 29, 2007. It's available online, too.

Economist wanted

For Sutiyoso's presidential running mate.

How The "Seurieus" Misunderstands Jazz

Now you have pretty rough idea on the musical preference of your barristas here. AP's for classic rock, the likes of Megadeth, Stryper, and Van Halen. I prefer jazz of Bill Evans and Brad Mehldau. Aco's fond of Miles Davis, Branford Marsalis, and, if I make no mistake, Koes Plus. Sjamsu plays The Police. And The Manager loves jazz, and until recently, hip-hop.

So you may say that we have different taste of music, and sometimes, it changes, like The Manager's swing preference to Beyonce. But do we really have different taste --and anything that refers to the term is better left to non-economist, say, psychologist ?

Gary Becker and George Stigler of University of Chicago said no. The taste neither changes nor differs significantly among people. In other words, my musical taste has no difference with AP's, and The Manager's taste on music doesn't change from pretentious jazz to cool hip-hop. Taste remains the same for everyone and at anytime.

Sound outragoeus? Not so, if you care to read their classic paper "De Gustibus Non Est Disputandum", AER, Vol 62, No.2, 1977. In their framework, the reason why I like jazz but not classic rock like AP does is not the difference of taste between us, but consumption capital accumulated for jazz. I happen to have more jazz consumption capital (and less of rock music) than him.

Having more jazz consumption capital, my marginal utility (additional leisure) of time allocated to listen to Evan's Waltz for Debbie increases --and higher than my marginal utility of listening to any of Megadeth's album. Because of that, I'd say that I prefer the former than the latter.

In the case of The Manager, her taste doesn't change, but her capital consumption on hip-hop now goes up, probably because she's watching MTV more or read gossip news about Beyonce lately, or her new guy Charlie happens to be a hip-hop fan.

So next time you hear the "Seurieus"'s lyrics "Daripada musik metal, lebih baik musik jazz" (liberally translated: In comparison to (heavy) metal, jazz's better), think again.

The economics of witchcraft

A cute paper by Emily Oster (a former TA of my Econometric class at Harvard, now at Chicago), published when she was a student. An excerpt from the paper:

This paper explores the possibility that the witchcraft trials are a large-scale example of violence and scapegoating prompted by a deterioration in economic conditions. In this case, the downturn was brought on by a decrease in temperature and resulting food shortages. The most active period of the witchcraft trials coincides with a period of lower than average temperature known to climatologists as the “little ice age.” The colder temperatures increased the frequency of crop failure, and colder seas prevented cod and other fish from migrating as far north, eliminating this vital food source for some northern areas of Europe (Fagan, 2000).

On witch hunting -- here's a documentation of my visit to Salem, Mass. A place famous (or notorious) for the 17th century witch hunt hysteria.

Polygyny and why male live shorter

Take the life expectancy statistics of any species. For most species, including human, female live longer than male. Among many theories, my favorite one (at least for human) is "male is the defect version of female." Remember that male have the XY chromosome, while female have XX. The Y chromosome is a 'mutated' version of the X - means that boys are by nature mutants (the 'defect' version of girls). That makes boys are more prone to death, which explains the higher rate of postnatal mortality rate.

A new research, cited in this article, offers another perspective: polygynous practice leads to shorter male life expectancy . According to the article:

In 16 of the 19 polygynous species in their sample, males of all ages were much more likely to die during any given period than were females. Furthermore, the older they got, the bigger the mortality gap became. In other words, they aged faster. Males from monogamous species did not show these patterns.

The point about polygyny, according to Dr Clutton-Brock, is that if one male has exclusive access to, say, ten females, another nine males will be waiting to topple the harem master as soon as he shows the first sign of weakness. The intense competitive pressure means that individuals who succeed put all their efforts into one or two breeding seasons.

The implication for human is:

Dr Clutton-Brock reckons that the sex difference in both human rates of ageing and in the usual age of death is an indicator that polygyny was the rule in humanity's evolutionary past—as it still is, in some places.

Well, at least it adds to the debate on the good and bad side of polygyny.

Yes, we were students too!

Sometimes, many times, this Cafe's barristers talk about our students. Our favorite topic is how do they cheat. Or, to be precise, 'how do they cheat stupidly.' Well, frankly, it's hard to know if they cheated in the exam. It is usually easier to detect plagiarism in an essay or paper assignment. And it is very easy to detect a clumsy plagiarism.

I'm sure it happened to the other lecturers, one way or another. But I did experience my articles being plagiarized. Aco once told me that one of his former students copied-and-pasted a few paragraphs of my article for his term paper without any citation. A worse case, reported by Rizal a few days ago, was when his student submitted my other article -- yes, a full article -- for his/her assignment (Rizal did not specify gender, and I did not care).

But I happened to have a first-hand experience of the stupidest plagiarism ever. A few years ago, my student even submitted my own article for her final assignment. Not only she was too lazy to write her own assignment. She was too lazy to check the stuff she was stealing!

We economists know very well that people (students) have incentives to cheat. But what we don't understand is why they do not bother to do it smart. Come on. We are lecturers and researchers. Reading newspaper articles is our job. Sometimes even we're the one writing those articles. At least, we are friends of the authors whose article you steal.

I once tried this way. In the final exam I asked one question: "write the title of your essay assignment and summarize it in one paragraph" (the essay was submitted before the exam). While most student did well in this question, still I found one or two who wrote a completely different thing from their essay, one or two who left it blank or were only able to remember the title, and some who did not 'answer' it correctly.

If you happen to be that type of student, I just want to say "Plis deh...!"

How valuable are social networks?

An interesting article in the Economist on the Facebook phenomenon. It mainly discussed from the business perspective. But it also has an interesting side-question worth elaborating: what are the returns on social networks? Forget the what or how much for a while, are the returns increasing, decreasing or constant?

From one perspective, investment in social networks seem to have increasing returns. Think about your friends as possible sources of information (on job, prospective boy/girlfriend, where to buy new car, new technology or other cool stuffs). Or sources of 'ideas' (how to solve the Hamiltonian homework, who to make fun in the column in the campus billboard). Then the benefit of having ten friends is more than twice of having five.

If this is the case, then companies or any other organizations that base their activities on social networks will have an ever-increasing values if their customers' networks are expanding. Think about cellphone companies. It worth having a cellphone if I have a certain number of people in my networks (the one I will be very likely to call). That's why we see a lot of promotion package like member-get-member, family plan, group package, etc.

The article also wrote the implications for social network websites like Facebook, Friendster, Flickr and so on. But here's the catch, as mentioned in the article:

But unlike other networks, social networks lose value once they go beyond a certain size. “The value of a social network is defined not only by who's on it, but by who's excluded,” says Paul Saffo, a Silicon Valley forecaster. Despite their name, therefore, they do not benefit from the network effect. Already, social networks such as “aSmallWorld”, an exclusive site for the rich and famous, are proliferating. Such networks recognise that people want to hobnob with a chosen few, not to be spammed by random friend-requests.

So which one is it; do social networks have increasing or decreasing returns? To be honest, I don't know the answer. As usual, when you can't give a firm answer, in the conclusion you'd say "this should lead to further studies."

Nevertheless, an old paper by sociologist Mark Granovetter provides a valuable direction. We need to distinguish between strong ties and weak ties. The paper explained the power of weak or impersonal ties -- in which an individual friend may become a hub to other people outside of our network.

So, the optimal strategy may not be investing in as many friends, but in a limited number of friends, who individually have other friends in their own networks.

Economics is not a Rocket Science

This is from an interesting book, with an unimpressive title: The Knowledge and The Wealth of Nations: A Story of Economic Discovery, page 169

(Lucas) sought a 1957 book by Richard Bellman, Dynamic Programming. Bellman was a mathematician working at RAND Corporation, quite literally a rocket scientist. He had invented a set of techniques designed to optimize decisions in which long chains of choices had to be made amid changing circumstances -if for example, you wanted to fire a missile into the upper atmosphere and hit a target halfway around the globe, or even travel to the moon".

and

"Lucas hoped the same methods could also be applied equally to calculate a point at which to spend or save, to decide when to draw down inventory, or to switch from stocks to bonds. Anything that required a formal statement of the links between present and future was a candidate be improved by rocket science".

Now I know why I had so much trouble preparing for Macro mid exam. (grin)

OK, let's just play jazz.

Entering the third year

Ah, I can't believe I'm still with this café after almost three years. I was recruited by them hosts on December 18, 2005. There was a quick interview. I was asked if I could manage the logistics of the café and I said I could do not only that but I also chose good music. I only raised one question, why the name - here's what they told me. So there I was: managing and setting the playlist, while they were fixing econ drinks. Until I figured, hey I could do my own econ, too.

Café Salemba is entering its third year tomorrow. Many things have happened in the foregoing two years. The hosts now, except Rizal, are all in Indonesia. Rizal -- once a guest blogger then joined as a permanent host -- is now in Virginia, sipping coffee a lot at Cafe Hayek run by his boss there (of course Marginal Revolution and EconLog are also in the neighborhood). Ape (or sometimes he prefers A.p), is now wearing two hats: one when he is in Tanah Abang neighborhood, another in BEJ area, where he enjoins Sjamsu who in turns also visits Gambir frequently -- not the station, mind you. Ujang is in Jogjakarta now doing a big research project. Aco is still in Salemba (he now moonlights at EPI, by the way, with Dede Basri). Oh yes, we so far have four guest bloggers: MT, Puspa, Tirta, dHani. The first two are now in U.S., the third is in Australia, and dHani is in Jakarta.

On behalf of the Café I would like to thank all you visitors, commenters, critics, and competitors. We have learned a lot from interacting with you and we sure hope more to come. Should you have any suggestion to improve the café please let us know. For any inconvenience to date, we apologize.

In the meantime, enjoy Black Eyed Peas and Beyoncé. They are way more fun than J. Stiglitz or M. Yunus, I guarantee you.

Markets fail. Use markets.

That is masonomics.

Rizal is now there, by the way.

Where to go, Alice?

Aco loves this Keynes' quote:

When the facts change, I change my mind. What do you do, sir?

While we all know that we should avoid a policy without empirical fact, oftentimes the empirical findings at your disposal is at best inconclusive. Take for example the issue of death penalty's deterrence impact (HT: Andrew Leigh), or the economic impact of global warming.What would you do?

AP likes Alice and Cheshire Cat's dialogue:

"Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to," said the Cat.

Which way, Mr Cat?

Che and On Being at Twenty-Something

You may have ever heard this variation of Guisot/ Clemencau/ Churchill's quote:

Not to be a socialist at twenty is proof of want of heart; to be one at thirty is proof of want of head.

The quote comes to mind when I read the leader of this week edition of The Economist denouncing one of well known socialist's icons, Ernesto "Che" Guevara, as a fighter against freedom and democracy.

Well,..err.., perhaps, uhm...I don't know (scratching my head).

But I'll take a liberty to say that some of the baristas here were bunch of socialists (or at least had a flavor of it) when we were twenty-something undergrad students. And I can testify that Che, along with Iwan Fals and sometimes Ahmad Wahib and Soe Hok Gie (before the movie), somehow sent (some) students to go down to the street those days. It was a symbol of courage against tyranny and social injustice.

Such a powerful symbol that it tells you why even today you can still see Che's picture from Havana to London's Portobello to PSS Sleman fan's T shirt. While on the other hand, as Alex Tabarrok once wrote, no one goes to the barricades (and die, my word) for efficiency.

Who cares about efficiency at twenty, anyway?

Pacaran is sunk cost

I said in the last post that the guy who was left by his girlfriend after what he did (he said he had done everything -- presumably good things in his view) was just not good enough for the girl. Well, if I were my student, I would have given that answer a B-minus. A better answer is: because the costs incurred during dating or pacaran are sunk.

Again, dating is a two-to-tango game. So, when the guy said he had given everything, chances are she had given everything, too. When they both were giving each other, they incurred both costs and benefits -- of which I do not want to dwell into details.

In the story (Samuel Mulia, my apologies, I'm using your article here again -- by the way, keep up good writing), one person is left out: the girl. The decision that is relevant to see why "she left me after all what I had done" is the girl's decision to leave him, not the guy's fate to be left alone. That is, what matters is what probably triggered the girl to leave. So let's focus on her.

In the period of dating, the girl incurred costs: makeups, fancy skirts, perfumes, even the effort to walk and talk "like a lady". All this she did to attract and later, to keep that lucky guy with her. Right before she did every single item above, she had an expectation: All these I would do because I expect him to give me this or that, in return. But once the activities were done (e.g. once the fancy skirt was bought), they all became sunk costs: they were not recoverable (well, she might go to second hand market selling the used skirt, but hey, she is a lady).

Fast forward. There was a quarrel between the two lovebirds. The girl was now at the margin of decision: leave or stay (or, if you don't like these terms, use: leave him or keep him). What would you think she had in mind, as factors affecting her decision? Yes the costs and benefits of leaving him. She would leave him if the resulting benefits (relief, chances to get a new guy, etc) exceeded the costs (effort to make him go and to make up good, convincing story to friends, etc). But the costs incurred during pacaran were not relevant anymore.

(If this is not convincing, try picture you are about to go mudik. You are thinking of driving your car or simply take the train. The amount of money you used when you bought the car is not relevant to your decision).

So, ladies, next time a jerk begs you to not leave him, using "Please don't go, Honey. Remember what I have given you all this time?" Tell him: "Baby, it's all sunk. Now shut up".

Searching for the best

You dated one girl back then. Then you two realized it wouldn't work. Now you're with someone else. This someone else is surely better for you than the former one -- at least, for the time being. Why?

Samuel Mulia's column in Kompas last Sunday was interesting. And explainable. He was shocked as one of his friends who had been with different dates told him that he (OK, I'm assuming gender here and onward; chances are, I'm simply wrong) was "never in this situation, i.e. never in love as much as this". And Samuel was puzzled: "Does that mean he didn't love the previous dates much enough?" Samuel sounded sorry for them: "Too bad, maybe those former dates falsely thought they were special, the chosen ones".

What you do now must be your best. At least for now. Otherwise you would not do it. Similarly, whom you are with now is your best pick. Otherwise you wouldn't have picked her. But why the change of hearts? Because you moved from your 'local neighborhood' -- far enough to find that you had been in a situation inferior to the current, new equilibrium. But why in some cases a guy comes back to the first one, after dating several others? Because that First One, as it turns out, is the guy's global optimum. Meaning, as far as he can search, she is simply his best.

So to Samuel's disappointment, the answer to his big puzzle is, yes. What his friend told him is not surprising at all.

But it always takes two to tango, you ask. Of course, your spouse or date is doing exactly the same to you, sorry.

In Samuel's story the telling guy was left by the girlfriend. He said: "I've given everything to her..." but "why did she just leave me like that?". The answer should be simple: He's just not good enough for her. For the time being.

Fighting piracy with ads and getting 'free' CDs...

I have a proposal. Put ads in music or movie CDs/DVDs, then give them away for free. That way, privacy rate will go down to zero.

I was having coffee and reading one of those free magazines you find in coffee shops or cafe. I noticed that such magazines are getting better and better. Yet, they were free. So it must be the advertisements that covered all the costs plus some margin (maybe handsome, too) for the editorial and production staff.

After the coffee, I went to the CD store, bought my new New York Voices (liked it, but I guess it's the Manager's posting area). Then suddenly I thought: hey, why don't they run music business the free-mag way?

I mean, think about it. If you can get some company advertise in your album and for that ask it to pay all your dues plus some profits, your label doesn't have to ... sell the CDs. Just distribute them for free. Yes, just like the cool free-mags. And the best part is, because the selling price is zero, nobody will have the incentive to pirate it.

The only problem, maybe, is that music (or movie) CDs (or DVDs) are meant to be long lasting. Who wants to listen to an ad over and over again? (Yes, if you are in my age cohort and lived in Indonesia, you would remember that back in those 80s, we had LCLR - Lomba Cipta Lagu Remaja or Song Writing Competition - sponsored by a famous radio station, Prambors. Then they produced the cassette. Then, in the middle of your listening to the songs, there were a couple of ads (if I remember correctly, one was Teh Botol). But the cassettes were best sellers).

I know this is just a wild idea (I'm ready for your calling it stupid). So help me improve it. So we can also do this maybe to books and softwares...

Boring Econ 101 No More

I won't go to the college where the lecturers say that they don't know his/her subject any better than students. I give them money tuition and my time in exchange for them telling me what I don't know. That is why I don't get anything called the new way of (college) teaching method assuming basic premise abovementioned, in which students do lots of group work, and teacher acts at the margin as watchdog, err..., no, facilitator.

The problem lies elsewhere: many teachers fail to make lecture interesting. Putting aside the probability that they don't know the subject well nor catch up with the latest development in the field, you can suspect that it is because: first, they don't acquire the important communication skill. Or, second, they too much rely on, unfortunately, overwhelming textbooks unfriendly to current MTV generation.

Until not so long ago, when Freakonomics hit the market, economics professors (and profession) often fell into these problems. As a result, Econ 101 is no fun for many students, hence is of small use.

So what should teacher do to help students? I don't opt to drastically new teaching method. Just be accessible when speaking to those young minds. Try to read not only academic journals, but also recent (good) pop econ book -and blogs too. As a note, good pop econ books (Freakonomics, Undercover Economist, Discover Your Inner Economist, to name the few) do not contain (stupid) conspiracy theory.

The latest of such book aimed to aspiring Econ 101 teachers is coming from Robert H. Frank, The Economic Naturalist (HT: Justin Wolfers). Here's the appetizer, intro chapter. And if your connection is fast enough, check this funny, and bit corny, MTV Cribs folly of this Cornell's, Ben Bernanke's buddy, Econ professor.

Our right? OUR right?

I am looking -- no, staring, at this reader's letter to Tempo magazine. It is about cheap laptop supply for developing countries. He basically, literally, says, "As citizens of developing countries, we have the right to enjoy such services... Developed countries are obliged to provide easy facilities to global citizens, especially those in the third world".

D'oh!

Update: Oh, it's going to be Linux-based. I guess the letter writer will send another this-is-my-right-that-is-your-obligation letter saying that it should come with a free training in Linux.

(Another) Natural Resource Curse

Dede of Ekonomi dan Politik di Indonesia (in Bahasa Indonesia) raised an interesting issue on the paradox between natural resource richness and low economic growth --or more technically called natural resource curse. He basically said that it is actually no wonder that countries like Indonesia, with its abundant natural resource, don't perform remarkably well in comparison to countries with limited resource for two reasons: First, the Dutch disease, real exchange rate appreciation makes producing tradable goods less attractive (Sachs and Warner, 1995). Second, weak institution as natural resources rich countries are more prone to corruption (Mehlum, Moene, Torvik, 2006).

Suppose, then, that we can get rid of those problems, are we now free from the spell? Alas, not that fast.

Hausmann and Klinger of Harvard (2007), --hat tip to undercover economist Tim Harford--, introduced the idea of economic space of production network (the proximity amongst products). In that space they spotted densed (manufacturing) and sparsed area (natural resource based products). Look at the paper for more detail of products.

And yes, they found that country with good economic performance tend to export products in densed (closely related products) space. Why? The flexiblity of country's acummulated capabilities to be redeployed across products, hence greater gain from trade.

It leads you to a very interesting situation: What to produce, and specialize in, matters and relying on exporting natural resource based products might be inherently a disadvantage. But it is costly for natural resource rich countries to redeploy production capabilties and to move into the centre of dynamic world production network.

At home, it also intuitively tells why after the crisis that brought back Indonesian revealed competitive comparative advantage to more natural resource based products, the country's export performance remains weak. Probably, we are now no longer that close to the most dynamic locus on global production network.

Ekonomi dan Politik di Indonesia

... is a new blog hosted by one of your barristas, along with Dede -- another economist from the Salemba School. The blog talks about Indonesian political economy issues. Its main target is Indonesian audience, so yes, it is in Bahasa Indonesia.

Holden Caulfield's Antithesis

For your weekend, here is a good reading from NYT Magazine,a tale of three elite high school students struggling for elite colleges' scholarships. Personally, despite admirable competition spirit of those young minds (and their parents), I found the story daunting and somewhat scary. I mean, man, look at those credentials (not only in academic, but also high level French, cross country captain, flutist, novel writings, etc), the goal they set up, the way they made up their application, they don't seem like normal high school students I know.

And unlike Holden Caulfield of Catcher in The Rye, they don't quit.

Yet, one finale of the drama is the following:

It was her mother, who had logged in Maria’s PIN at various top schools that day, knowing her daughter wouldn’t have easy access to a computer as she interviewed. It was the Thursday that so many students across the country were on tenterhooks, waiting to hear from many of the Ivies, but that had slipped to the back of Maria’s mind. “You got into Princeton!” her mother told her. “And Columbia and the University of Chicago!”

Maria was tired. She was hungry. She didn’t feel like talking about college. It was one of those moments when it was hard to imagine that she would actually “ever enjoy the product of all my work.” She told her mother she’d call her back and hung up the phone.

If only they knew.

ps: Instead of Manager's (stupid) self-made quote on learning economics on the right sidebar, this is my line, "You can not learn economics without good coffee."

My own stupid analysis: Jakarta's Car Free Day

Sutiyoso's car free day is stupid. And it is bad for the environment, too.

So, the outgoing Jakarta's governor Sutiyoso who seems to think he is an environmentalist, again endorses a silly event that takes place today (Saturday). It is called Jakarta Car Free Day; it seems to be proposed by some environmental groups. The policy is to ban cars in Jalan Sudirman and Jalan Thamrin, the two most important streets in the heart of metro Jakarta. The idea is to be friendly to the environment. The event, I heard, is to be repeated every month. And in every event, they will hold activities like happy biking or things like that. They said this is in solidarity with the "same global movement", World Car Free Day.

I bet in most countries/cities that adopt this event the traffic management and public transportation facility is better than Jakarta. If not, things can be very nasty.

Just like Jakarta today. As of now, I have no idea what is going on in Thamrin and Sudirman, but Gatot Subroto, Slipi, Casablanca, and many other streets in the neighborhood are in total jam. I just came back from Senayan to Shangri-La and it took me one hour travel time. This is probably 'normal' in Jakarta's weekdays. But not in Saturday.

It turns out, people do not halt their activities because of the car-free day (who wants?). They just try to find ways around Sudirman and Thamrin to get to their destination or come back home. I think the numbers of cars not used in respect to the car-free day is negligible, compared to cars trying to make detours around the two main streets.

As I said, this resulted in annoying and tiring traffic jam in almost all streets adjacent to Sudirman and Thamrin. Furthermore -- and let me ask this to the environmentalists who campaign for this event -- which one pollutes more: a heavy traffic jam where cars run 3 kms/hour around car-free (but not bus-free) Sudirman/Thamrin or usual Saturdays in Jakarta when traffic is usually not as bad as weekdays?

Really, even the greens need to understand the power of incentives.

Econbloggers

Actually, I lost track on how many high-profile professors of economics are blogging. In addition to the links on this blog, I know some others: Brad DeLong, Deirdre McCloskey, George Borjas.

Dani Rodrik asked the audience: "who is the economist you would most want to see blogging?" That was after Shanta Devarajan of the World Bank and Princeton's Paul Krugman join the club.

I haven't made my comment to the post, but I'd certainly agree with two names: MIT's Daron Acemoglu and NYU's Bill Easterly. Robert Barro would also be great.

Doing business indicators -- why matters?

dHani, a frequent visitor and commenter of the Café sent me this piece. The email subject reads "my own stupid analysis". So I read it, and I thought, why not sharing this with you all. I, however, won't give her the right to use my "my own stupid analysis" subject -- that one is reserved for my analysis. - Manager

Doing Business Indicators - Why Matters?

by dHani

Sometime around the third week of September, IFC will have a global launch of Doing Business 2008, at exactly 00.00 Greenwich Time. At around the same time, you all can access the result from this website. About the same day, LPEM will report their findings on “Monitoring Investment Climate Indonesia 2007” in the so called ‘Investor Forum Indonesia”.

The questions then, what’s with all the effort? People are getting frenzy over investment climate. Just a recap, Indonesia was ranked at 135 over 175 countries surveyed (or judged?) by IFC. We are far worse than Vietnam (104), slightly better than Mozambique (140).

There have been so many efforts and initiative put to resolve this matter, some now ask the importance of improving Doing Business indicator. According to a famous Indonesian economist (he-who-shall-not-be-named), Malaysia who ranked much better last year only gained 20% contribution from Investment to their GDP, while Indonesia scored 24%. His hypothesis is thus investment climate might not have anything to do with investment, especially with FDI, foreign direct investment. It is just "business as usual". And even if Investment Climate did matter, Employing Workers (Labor) contributes much bigger problem than Starting Business or Dealing with License, for instance. Businesses complain because that’s what they do, they’re professional complainers. Again, it is business as usual. FDI showed a decline trend everywhere in the world except China, India and Vietnam, they say. It is a global trend, nothing to do with Investment Climate.

Well, here’s what I think. “Doing Business” is not meant for foreign investment. It’s not even for large-size businesses. Doing Business actually deals with SME, small and medium enterprises (and I also mean the micro ones -- the assumption used by the surveys is limited liability with not more than 50 domestic workers, owned by at most 5 domestic shareholders). Investment climate i n Indonesia does not have anything to do with foreign investment which mostly done their business in large scale and scope. Doing Business is for SME.

Question is then, why do we need to focus on SME? Aco often points out to me that dealing with the smallies (it’s not English, I know, but I use it) is tricky. You don’t want the small vendors grow in number larger and larger, because it's just not a characteristic of what a developed country is, if you want to become one . Further, it is not easy to deal with them, because they are mostly informal. They are, well, the smallies. Here’s the Catch-22; they’re informal because they cannot afford to be formal. They cannot contribute more because they are mostly in the form of sole ownership rather than limited liabilities. They become small because they cannot ask for credit because they are informal. That’s why dealing with business indicator matters.

Starting Business and Dealing with business licenses in Indonesia is complicated, costly and takes an enormous resource. Most of our SMEs choose to become informal, simply because they cannot afford to be formal entities. How much contribution if we can fix this, you might ask. Well, I’m not really sure. I might have to turn this into a doctoral thesis. But, let me show you something, there are many medium and small-scale businesses in Indonesia. They outnumber the large ones.

OK, I’ll just stop here. Otherwise, this will become my proposal.

Your Days Are Numbered

At first, I was being intrigued by a pile of Ayn Rand's Atlas Shrugged on the text book shelf for Econ undergrad here. Still I was reluctant to read it. The book is so thick and I have so little time outside the courses.

But then I learn from New York Times that Alan Greenspan, whose latest book everyone in econ blogsphere are talking about, is also Ms. Rand's big fan. So I changed my mind: perhaps it is worth to reading the philosophy that has shaped the mighty Alan Greenspan's view, the legend of US monetary policy.

Here I am now reading the book in my spare time at snail pace despite the delight of Ms. Rand's storytelling. One of the warm glows comes from my finding of a tagline that I kept remembering from a good German film, The Edukator, that I can't find its source anywhere. It says, "Die Fetten Jahre sind vorbei", or "Your Days of Plenty Are Numbered".

I thought it was quoted from a leftist book since in the film the words were to express an anti-capitalist sentiment. What I got from Ms. Rand's otherwise capitalist manifesto is a dialogue between an old chief clerk, Pop Harper, and Eddie Willers,

"You're ready for the junk file, old pal. Your days are numbered."

Not a precise quote, but I think it says similar thing. Or do you have any better source?

And do you know whose days are numbered?

RIP: Joe Zawinul

Joe Zawinul dies at 75. To honor Joe, we play again Pharaoh's Dance, Birdland, and Cucumber Slumber.

May Joe have good time with Miles -- wherever.

My own stupid analysis: when ease sounds yucky

Good God I’m not a police officer (in Indonesia). ‘Cause if I were one, at some point in my career I would have been called a “kompol”. That is an abbrev for Komisaris Polisi or police commissioner (it was “mayor”, Indonesian for “major”, back in the era before the police wanted to be different from its army and navy competitors). It sounds like “ngompol”, an Indonesian slang for an act of “unintentional pee”. You know, as in “Honey, wake up, he ngompol again” – said a woman to her husband as their baby wets the bed in the middle of the night (conversation back in the days when diapers were not as good).

No, it’s not just the police, of course. I’m sure you have heard tastipikor, setwapres, jampidsus, musrembang, or back then, sesdalopbang (google-up yourself, I've made my point). I don’t know if it’s just me, but dikdasmen (pendidikan dasar dan menengah – basic and mid-level education) reminds me of basement and budpar (budaya dan pariwisata – culture and tourism) really sounds like a thunder.

Bank Indonesia is the winner. They have this campaign against counterfeit money with a rupiah identification method called “3D”: dilihat, diraba, diterawang (looked, touched, held-up-to-the-light). It is really funny, because they used the prefixes as the basis for the abbrev – not the words themselves! (lihat, raba, terawang – to look, to touch, to hold up to the light). Maybe it is because LRT doesn’t sound catchy enough. Or maybe they got it from marketing class somewhere. Well, in either case, I guess they could have come up easily with 10D, then – should they want.

Them in Hollywood are equally ridiculous: Brangelina.

Wonder now. Why is it SBY rather than Susbamyo? JK rather than Juskal?

Is this yet another market-gone-wild thing? Because I thought you can’t even force something that sounds too funny. So, I guess it’s a matter of time, kompol will die out. Wanna bet?

Shoot, I still prefer the SMS way.

iPhone Die-hard's Non-sense

Sometimes people are just very funny.

Imagine this. Yesterday you bought chicken meat in your usual street vendor --you know, the mighty tukang sayur--, for, say, IDR 10,000. This morning, you find out that he sells similar chicken to your neighbor for IDR 4,000. Would you be enraged and ask him to pay the difference?

You might get a bit annoyed, but unless you are insane, you wouldn't ask for compensation. Moreover, you can not blame the tukang sayur for discriminating the price. He never forces you to buy his chicken meat, doesn't he?

Sounds terribly simple? Well, tell that to these outraged Apple buyers upon finding that Steve Jobs has reduced the iPhone price by USD 200 after two months of first sale.

My own stupid analysis: Indonesian rap music

Indonesian rap is annoying and stupid.

I know this might irritate some people and it shows my own ignorance. But, I can't stand it -- I was once told by economists here that there's nothing you could do with other people's taste; well I don't care. . . I just happened to be in a long ride with this damn bus, and all I could hear was that continuing weird noise called Indonesian rap.

I said "weird" and "noise" because of the following.

Rap music, I gather, is a part of hip-hop culture that uses rhyme and rhythm spitted mostly in a very fast beat. I'm no phonologist or morphologist, but I believe human tongue (and mouth) has its limit when it comes to spitting words quickly. It is then easier to spit one-syllable words than two-syllable words. English (and I believe African, too) words are dominated by one-syllables. At least for words you want to rap with. Fine, two-syllables are also used. But not much. Try this (from Usher feat Ludacris and Lil Jon):

I'm (1) in (1) the (1) club (1) with (1) my (1) homies (2), tryna (2) get (1) a (1) lil (1) V-I (2),
keep (1) it (1) down (1) on (1) the (1) low (1) key (1),
cause (1) you (1) know (1) how (1) it (1) feels (1).
I (1) said (1) shorty (2) she (1) was (1) checkin (2) up (1) on (1) me (1),
from (1) the (1) game (1) she (1) was (1) spittin (2) my (1) ear ( 2 or 1.5) you'd (1) think (1) that (1) she (1) knew (1) me (1).
So (1) we (1) decided (3 or 2.5) to (1) chill (1).

See, there are only 5 two-syllables and 1 three-syllable (even so, you can spit "decided" as "decid'd" -- so it sounds like a 2.5 only; like "ear" to "e'r", a 1.5). The rest are one-syllables. Imagine if this is to be adapted in Indonesian (forget about rhyme for now):

Aku (2) dalam (2) klab (1) dengan (2) teman-teman (4),
coba (2) dapatkan (3) sedikit (3) kesenangan (4!)
Jangan (2) berisik (3), kar'na (2) kau (1.5) tau (2) aku (2) s'dang (2) asik (2)....

.... and so on

Look how many twos and threes (and even fours) we got, just in the beginning! Now try visualize a rapper wannabe who raps with Indonesian words like that. Either he or she can be damn good with extremely fast tongue (Iwa K was fast!) or you would experience a torture.

Not that there's anything wrong with Indonesian words. They just don't go with rap, trust me. You may as well end up funny: you move your hip and wave your hands up and down. But your phonetic tools can't follow.

Even in singing, efficiency matters -- as the economist would say.