Emeritus Professor's Rant

Read this in Today's Kompas op-ed (liberally translated).

One of Indonesian weaknesses and faults is to suffer from complacency (this word does not exist in Bahasa Indonesia, you can try to consult any Bahasa Indonesia dictionaries), ignorance attitude, unpreparedness to increase alertness and achievement, so that we are too easy to be overtaken by others.

Look our badminton (for example Taufik Hidayat), look Indonesian football and Indonesian Football Association now. Even its chairman is jailed but refused to be replaced, despite FIFA warning.

What does it all mean? We, Indonesian, no longer know ethics, no longer have dignity, shameless. Period.

And you know what? He's talking on why Indonesian oil uplifting decreases and mining technology lags behind. I don't know what Taufik Hidayat has to do with it.

The last para in above quote, I daresay, is an insult -- at best a careless generalization. Pointing out a whole nation and people to blame for such technical problem is of no use. With all my respect, he should've known how to avoid over generalization in order to make policy workable --or to write sensible op-ed.

Cafe Salemba goes off air

sorry for a little, shameless self-promotion...

-- Manager

Mencermati Pragmatisme Rezim Subsidi

Isu subsidi negara selalu mengundang perdebatan. Banyak yang mendukung, namun tak sedikit pula yang kritis. Isu subsidi paling aktual saat ini adalah soal pencabutan sebagian subsidi BBM dan pengalokasian dana itu ke bentuk subsidi lain, misalnya Subsidi Tunai. Terlepas dari motif politik dukungan maupun penolakan terhadap kebijakan terbaru pemerintah, bagaimana sebaiknya isu subsidi, baik untuk BBM maupun yang lain, dicermati?

Untuk menjawab pertanyaan ini, Freedom Institute, bekerjasama dengan Friedrich Naumann Stiftung dan Café Salemba akan mengadakan diskusi di: Freedom Institute Jalan Irian No. 8, Menteng, Jakarta, Kamis, 29 Mei 2008 - 19.00 - 21.00. dengan pembicara Aco dan Ape (Café Salemba), serta moderator Hamid Basyaib (Freedom Institute)

Pengantar diskusi: Dalam kaidah ideal ilmu ekonomi, subsidi seperti halnya pajak adalah kebijakan yang diambil untuk menginternalisasikan biaya dan manfaat sosial agar pelaku ekonomi memperhitungkannya dalam keputusan harga. Hal ini dilakukan pada saat pasar mengalami kendala dalam merefleksikan biaya dan manfaat sesungguhnya dari suatu aktivitas ekonomi (misalnya karena barangnya bersifat publik). Namun demikian, subsidi (sebagaimana bentuk intervensi lainnya) tetap bersifat distortif. Artinya, keseimbangan yang tercapai tidak murni merupakan hasil interaksi yang bersifat sukarela antara permintaan dan penawaran, tetapi dengan imbuhan kebijakan dari pihak pemerintah. Tentunya ini tidak selamanya buruk. Dalam kenyataan, subsidi tetap diperlukan atas alasan redistribusi maupun koreksi atas kegagalan pasar. Tetapi, beberapa jenis subsidi lebih sedikit menciptakan distorsi dibandingkan yang lain. Diskusi ini akan membicarakan kapan dan dalam kondisi bagaimana subsidi dapat diberi justifikasi. Untuk lebih melengkapi gambaran subsidi itu sendiri, diskusi akan dimulai dengan pembahasan tentang apa sebenarnya subsidi itu, asal dari kebijakan subsidi di era moderen, model-model subsidi, pro dan kontra subsidi, serta berbagai contoh kebijakan subsidi di Indonesia beserta tinjauan kritisnya. ***

Pundit's Follies

Today, Tuesday, May 27, 2008, Kompas daily, sadly, ran a very disappointing series of op-eds and analysis. It's a real pity.

For some hints, go to Aco's place. I am not in the mood to ridicule tell those deaf ears. Those anecdote on gasoline price and insinuating horizontal conflict are.....never mind.

Commenting the economics of the US presidential candidates, Bryan Caplan once said before the class, "I wish I could fail them." Now I can relate the feeling.

Guns and Peanuts

Do you know why one has to be extraordinary patriotic to become an Indonesian military man?

I'll give you one possible answer: because according to this book, he/she will get a basic salary of 2.515 million IDR per month, or around 272 USD in today's exchange rate.

And mind you, that's for the highest rank, the four-stars General.

But we also pay peanut salary to university professor, local government administrative staff, and any other public servant position, don't we? So why bothers?

Because, to me, the combination between peanut base salary and guns (plus assigning a legal monopoly power of violence) just doesn't add up --if not worrisome.

Indifference point

A friend of Café Salemba, Irma Kurniawan offers her thought on indifference point. Irma has been studying psychology at Universitas Indonesia, University of Queensland, Oxford University, and University College London. Her PhD research is on the neuroscience of action choices.

-- Manager

Indifference point: what does it mean?
by Irma Kurniawan

Paul Glimcher, a leading neurophysiologist/neuroeconomist, has given a 4-day visit at the Functional Imaging Laboratory, London this week and we had the privilege of listening to him give a series of informal lectures about classical economics axioms in Expected Utility Theory, and how these should be implemented in studying neuroeconomics. One thing he mentioned a lot was the notion of indifference point; a point where the (expected) utility between two (bundles of) goods are equal. Now, my impression is that economists think this as a point where buyers are indifferent between two objects and that the two are equally preferred. What this actually mean, cognitively, isn’t clear. Does this mean one is merely indecisive? Or one simply doesn’t care (indifferent) when given two goods that are of equal value to her? Would she let someone else choose for her at random in this situation? Or is there an unknown choice-making feature at the point of indifference that we haven’t discovered yet?

I don’t know enough about economics to say how economists would derive an indifference point empirically. In psycho/neuroeconomics, indifference is indicated when after 100 times of choosing between bananas and sausages, subjects chose bananas almost 50% of the time. This means that subjects would choose a banana on one choice trial and a sausage on the next trial, and that the indifference is only observed in the proportion of choosing each option across all trials (I also wonder whether this violates transitivity of choices, but let’s not talk about this yet!). One might then ask, at any single trial, what drives a subject to choose one over the other? Is this simply noise in the choice-making process? Did she choose randomly?

If the two goods are indeed of equal (subjective) value to her, might it be that this particular choice is a difficult choice such that she doesn’t know which one is better and which one she should choose? This is a plausible explanation. Psychologists would predict that people take longer to decide between options that are of equal (subjective) value to them, than to decide between 1 preferred object and 1 less-preferred object. This may suggest that they are engaged with more cognitive (i.e., thinking) process before making such a choice.

If this is true; if indifference at all indicates difficulty of a choice, does this mean subjects are engaged with a higher dose of ‘cost-benefit analysis’? Even if we fail to observe reaction time differences between choosing equally-valued products and choosing unequally-valued products, can we still make inferences about how much ‘cost-benefit analysis’ one is engaged with? Could we find a cost-benefit metric that can gauge how much analysis one is making about the values of each good?

Why care? Economists might not care what indifference actually means psychologically. Is it people’s indecision, difficulty in making such choices, or is there an underlying loss-gain analysis element in these decisions? If we know what it means for one to be indifferent, we’re able to identify underlying parameters for indifference and make stronger predictions about one’s future choices.

PS: Bautista et al., PNAS, 2001 have made this attempt to parameterise birds’ critical factors for choosing to fly or to walk (after establishing the indifference point between walking and flying).

Opportunity cost, again

An example of how someone misunderstood the concept of opportunity cost (and proud of it). The article was inspired by an older article by a famous Indonesian economist/politician/former minister. Arya Gaduh has pointed out where the logic went wrong. Teguh Dartanto provided some useful data and calculations.

I feel it's still relevant to raise the issue once again and to remind people about the difference between accounting and opportunity costs.

To be Delusional to Strive

According to Daniel Gilbert:

"In short, the production of wealth does not necessarily make individuals happy, but it does serve the needs of an economy, which serves the needs of a stable society, which serves as a network for the propagation of delusional beliefs about happiness and wealth"

--Stumbling on Happiness, page 219

He argues that humans need to be delusional and transmit this false belief across generation because it helps them to save the society.

Delusional? I am scratching my head. Again.

Summer Reading List

Dede of Diskusi Ekonomi once told me that according to the late Sumitro Djojohadikusumo, an Indonesian prominent economist and ex political rebel, intellectuals should speak French.

Who doesn't want to be seen as intellectual? With that spirit, I start to read Andre Malraux's Le Condition Humaine. But since I am at best a fake intellectual, I can only read its English translation.

Moreover, to justify my three percent of irrationality --and to avoid being labeled as narrow minded immoral psychology illiterate (ha!)--, I have Daniel Gilbert's Stumbling on Happiness and Marc Hauser's Moral Minds on my desk now. I've just finished Thaler and Sunstein's Nudge that proposes some measures of libertarian paternalism to improve your life (yeah, right)

After learning some introduction to behavioral economics (and the role of psychology in economics), I must admit that I think I suffer from confirmation bias: instead of weakening my rational choice approach, those conflicting information makes me feel the other way around.

I like the readings though, and so far I find the best short summary on the topic is Matthew Rabin's Psychology and Economics, JEL, vol (36) 1, 1998.

On top of my pile of books, there is a promising novel by Jiang Rong, Wolf Totem. The first half of first paragraph reads:

As Chen Zhen looked through the telescope from his hiding place in the snow cave, he saw the steely gaze of a Mongolian grassland wolf. The fine hairs on his body rose up like porcupine quills, virtually pulling his shirt away from his skin.

I've never seen a Mongolian wolf, but those words captivate me.

At least that's the plan for summer. But as usual, it's always subject to (very likely) change. How do you call this irrationality, by the way?

Soap operas are not always bad

We've heard many bad things about TV programs. From inducing violent behavior to promoting mysticism or obscenity. Recently, the Indonesian Broadcasting Commission blew their whistle to a famous reality show because 1) the hosts consistently throw sarcastic jokes, and 2) it starts at Maghrib prayer time with limited commercial break, so it doesn't give time for Muslims to perform their prayer (yeah, right!).

A recent work by Robert Jensen and Emily Oster shows that exposure to TV programs may have a positive impact on attitudes toward women in India. Using fixed-effects panel data regression during a period when cable TV services was rapidly expanding in rural India, they found "significant increases in reported autonomy, decreases in the reported acceptability of beating and decreases in reported son preference... [and also] increases in female school enrollment and decreases in fertility (primarily via increased birth spacing)." In terms of indicators, school enrollment and fertility are obviously observable. The other three are behavioral indicators. One can't observe it directly but will have to rely on the reported data.

The Survey on Aging in Rural India (SARI) data, which the paper is relying on, does have the information. On women's autonomy, the survey asked if the female respondents needed permission from their husbands to go to the market or visit friends/relatives. There is another question on who makes some important decision in the household, which deals with household decision making. On perceptions regarding domestic violence, the survey asked whether female respondents think that a husband is justified to beat his wife if if he suspects her of being unfaithful; if her natal family does not give expected money, jewelry or other things; if she shows disrespect for him; if she leaves the home without telling him; if she neglects the children; or if she doesn't cook food properly. Then, preference over gender of the children is measured by the question "Would you like your next child to be a boy, a girl or it doesn't matter?"

Although the authors did not specifically test which/what kind of TV programs are more effective, they mentioned that soap operas are the most popular ones among the rural women.
So, soaps could be the agent of change, then... Bukan begitu, Estella? Jangan tanya padaku, Esposito...

Statement from the Cafe (1)

Café Salemba condems the call for banning Ahmadiyah in Indonesia

Jakarta, May 13 2008

Late Night Jazz

I am listening to this splendid album of Charles Mingus Sextet and Eric Dolphy, Cornell 1964 (warning: the link comes with soundtrack). A classic. My favorite pieces are Fables of Faubus and So Long, Eric. The Fables is 30 mins. long. It's a song about this guy and anti racism in general.

I digress, I know.

The Press That Understands

The lead paragraphs of this concise writing read:

Many of us are unaware that besides receiving a government subsidy of about Rp 2,500 (27 US cents) for every liter of gasoline we buy, we also get another Rp 2,000 from state-owned Pertamina for every kilogram of liquefied petroleum gas (LPG) we burn.

But, believe it or not, besides these subsidies, we also receive about Rp 1,500 in "extra money" from farmers for every kilogram of rice we consume.

We need more sensible journalists like this Jakarta Post staff writer to produce more sensible economics related writings in our newspaper. Way to go!

Bias and Romanticism

Aco wrote in the Diskusi Ekonomi (in Bahasa Indonesia) why rice import policy, which have larger number of gainers than losers, could not get thru. He proposed three possible answers: the gainers fail to coordinate its political power (the Olsonian logic of collective action), pure ignorance, and stubborn ideological stance.

The logic of collective action may be able to explain import ban, but not export restriction, because we find that regardless the number of net gainers or losers, people seem not to like the idea of international free trade. Import no, export also no. This is a symptom of an anti foreign bias (Caplan, 2007). For many of us, anything foreign is bad, dangerous, and threatening, including trade with foreigners.

Moreover, there seems to be a reverse-orientalism sentiment, that is, everything but western value is better. This observation is supported by the fact that conspiracy theory sells very well -not only to the illiterates but also the educated.

On ideological bias, there also seems a romanticism on peasantry. Paul Collier, the writer of excellent The Bottom Billion, wrote here (and read the whole discussion on food crisis, too):

Unfortunately, large-scale commercial agriculture is unromantic. We laud the production style of the peasant: environmentally sustainable and human in scale. In respect of manufacturing and services we grew out of this fantasy years ago, but in agriculture it continues to contaminate our policies.

and, indeed that:

In Europe and Japan huge public resources have been devoted to propping up small farms. The best that can be said for these policies is that we can afford them.

But developing country like us can not afford it. We don't have such luxury. So when we come up using public resources to develop the agriculture revitalization program, are we speaking the same language for large scale commercial agriculture?

Are we ready to give up the idyllic view of a small plot land owner peasantry for a large scale industry and see a transformation from myriad small peasant landowners class to become waged farmers working in a handful large scale agroindustrial companies?

Let's do it at home then ... just call it "study"

Bekasi municipality will have new regulation for students soon. According to The Jakarta Post (Bekasi students face mandatory study times, May 4), the government will require students to be home from 7pm to 9pm studying, either alone or with classmates. They will be barred from going to malls or entertainment centers. No TV or videogames allowed too, during the 7-9pm study time.

Poor students. Isn't 7pm-9pm the best time to hang out, to forget about schoolstuffs? Well, if the nanny government finds an effective way to implement this, you students would just need to be smarter. Bring fun to home. Tell them you have a study group. No TV or videogames? Easy. Use internet. Tell them you have to use softwares on the computer.

Interestingly, The Post said that Bekasi was inspired by Yogyakarta that implemented this in 2003, successfully. Really? I wonder how they enforced it. Hansip at home every evening? Raids at malls and movie theaters? Not even allowed to accompany parents to wedding parties?

They are smart, help them!

I don't get this Jakarta Post headline: Olympiad winning needs gov't support. And a quote: "I have written to the President and the education minister, calling on them to grant gold medal winners full scholarships at the world's best universities, such as Harvard, Massachusetts Institute of Technology or Princeton"

Hello?

If the government needs to help after all, they should do it for the unfortunate less smart students who struggle with math, physics, liberal arts, economics, whatever. Not for those world calibre students, because the Ivy League surely would love to accept and grant them scholarship (They are genius, aren't they?).

Unless those top universities don't recognize such award contests.