How Neoliberal Confusing Are You?

Nicholas Kristof of The Times posed two nonpolitical questions to tell whether you are liberal or conservative.

#1. Would you be willing to slap your father in the face, with his permission, as part of a comedy skit?
#2. Does it disgust you to touch the faucet in a public restroom?

Conservatives would tend to say no and yes respectively, and liberals the otherwise. My answer is no and no. So what am I? Neoliberal?

But wait a sec, are we talking the same liberals here? Unlike in Indonesia, in the US, liberals turns out to be the ones on the left.

Boy, this is confusing. Give my summer break --and jalapeño ice cream-- back.

The Ghost of Neoliberalism

AP, at his best:

A specter is now haunting Indonesia: the specter of neoliberalism. I call it a specter, or ghost, because everyone is talking about it but few are really sure about what it is.

Neoliberalism is mainly referred to as a political economic system. However, for economists, it is not a common term to classify a set of ideas or policy orientation. One can find those claiming to be liberal, socialist, conservative, existentialist, Keynesian or neoclassical, who passionately defend the schools of thought they subscribe to, but I don't think there is anyone who considers her or himself a *neoliberal'. This is due to a feature of the so-called neoliberal philosophy: it is defined by its critics.

As the name suggest, neoliberalism is seen as the revival of Adam Smith's economic liberalism. The core philosophy of neoliberalism is that of liberalism: freedom for individual transactions, guided by market mechanisms where price is the signal to allocate resources based on demand and supply, minimum regulation and government intervention in the market, and the elimination of all barriers to exchange and trade.

So what is "neo" about neoliberalism? There is a spectrum of arguments raised by its critics. But they seem to converge on a couple of things.

more here

Et Tu, Jekus?

That was Kate's reply five minutes after I emailed her this JK's posting in his Kompasiana blog --with a snobbish show-off note saying "sent from Blackberry" at the bottom of her reply.

And she is right. JK's writing is a terrible example on how one misunderstands market economy, and coming from JK, the current VP and next presidential candidate, the inability to comprehend basic economics and the economy is even more depressing.

In his opening paragraph, JK argues that liberalization would put farmers into danger. But does he really think that most of Indonesians are rice farmers? For a presidential candidate, ideally he should be more knowledgeable on what most Indonesians are actually doing for life, so, if elected, will pick the policy benefiting the majority of people.

But is he up to expectation?

Your barista, Aco, coauthored a forthcoming paper on the political economy of rice and fuel pricing. There you'll find that 75 percent of total households in Indonesia do not grow rice and 82 percent are net rice consumers. Even in rural area, 63 percent of rural households are not rice growers and total around 72 percent of rural households are net consumers of rice

What does it have something to do with liberalization? If importing rice means lower rice price, at least 75 percent of national households and 63 percent rural households will benefit from that free market policy.

What to do with the rest? My take is two things: first, if import led them to fell down below poverty line, they deserve to get across the boards anti-poverty transfer, like direct cash transfer scheme --not because they are rice growers, but because they are now poor. Second, and more importantly, do not block their access to move into more dynamic sectors in the economy. And getting rid the obstacles they face means removing anti market competition policy like inflexible labor regulations, corruption, and lack of infrastructure.

In the second paragraph, JK thinks that in the international trade the developing countries are victimized as price takers, while the developed countries reap most benefits as price makers. Really?

Last year, as all of you know, there was a steep increase of the world's price of (primary) commodities produced by developing countries --like food and agriculture products. It would not have been the case if the developed countries, as the major consumers, could set or make the price as JK thinks.

But maybe JK is right, the current international trade of agriculture product is not fair because the developed countries as producers, and the competitors of developing countries, deliberately distort the market by applying high subsidy and trade barriers --in other words, violating free market principles. By that, here, what we want is, well, free trade so that we can sell our products and fairly compete in their markets too.

And on his remark that the price 1 kg of cocoa is far below the price of 1 kg of Silverqueen, what should I say? You just don't make one kg Silverqueen with one kg cocoa. You need to put some milk and mix it with other ingredients. Then you want to wrap them in in a nice package, advertise and distribute them to stores.

Still, you can not write your price tag as high as you want, if you still want somebody to buy your products. You need to consider the price of Ghirardeli, Toblerone, Lindt, Cap Jago, Haribo, Trebor, licorice, etc --all are your products' direct competitors -- as well as its indirect substitutes.

If you let market to work, your price reflects only normal profit, or some temporary supernormal profit that is always subject to natural creative destruction. It is not fair if you get government protection or commit in unlawful acts against your competitor. But you can not blame market mechanism for these faults, because what is unfair is the government discriminative anti-market protection.

Bottom line: it is rather unintelligent to support the argument for fairness by comparing cocoa's price to Silverqueen's and asserting an upside-down argument blaming market mechanism for the anti-market outcome.

Back to Basics

Greg Mankiw, himself the author of an excellent introductory economics textbook, offers several subtle changes in teaching Econ 101 amidst the recent crisis by giving more emphasize on the role of financial institutions, the effects of leverage, the limits of monetary policy, and the challenge of forecasting.

Sorry, rightly so, no neoliberalism on the menu.

Mankiw also noted that:

Despite the enormity of recent events, the principles of economics are largely unchanged. Students still need to learn about the gains from trade, supply and demand, the efficiency properties of market outcomes, and so on. These topics will remain the bread-and-butter of introductory courses.

Which brings me to wonder after reading some protectionist pundits' and faux economists' remarks on recent neolib hullabaloos: what did they learn from their introductory course --if they ever had taken it?

In defense of consumerism #137

I'm a big fan of Samuel Mulia. But less so this morning. No, I'm not talking about Samuel's column in Kompas -- it's still good as usual. I'm talking about O-Channel's "Pagi Jakarta" broadcast now. The topic is Style, Brand, and Status. Erwin Parengkuan and Jill van Diest are featuring Samuel Mulia.

The trio are lambasting consumerism quite excitedly. Samuel just talked about a new trend in Jakarta: exclusive bags for rent. He was concerned about Jakartans new way to show off by renting Hermes or Gucci by hour.

What's wrong with that? Samuel -- and Erwin and Jill -- think that way of life is artificial and not good for your health and pocket. I fail to understand it. On the contrary, I thing bag-for-hourly-rent is an excellent idea. When else do the not-so-rich can wear Hermes or Veneta? Kudos for the inventor of this idea. Because of you, the exclusive bags are not so exclusive anymore, give a room for others to fill.

Error by Omission or Maybe Something Else

Against free market, Kwik Kian Gie wrote:

Because anything goes without government regulation, she (the producer) starts to conduct competitive strategy that kills her competitors through dirty practice, supported by her wealth. For example, she sells her products at price below cost of production. She would suffer loss, but she can bear it, thanks to her already accumulated wealth. At such price, all competitors would lose and go bankrupt. Except she, who has the largest capital. After the competitors go bankrupt, with her monopoly power, she increases her product's price very steeply.

Let me restate my take on predatory pricing: as long as there is no government regulation discriminating other producers, I don't see it as a problem --or dirty practice. And letting the market work will set the price back at producer's normal profit level. But you can not see that in Kwik's story because it was not yet finished and the next part of the story was omitted either by error or incomprehension.

Why?

The supernormal profit from after-predatory pricing monopoly power will attract the old producers and new producers to enter the market, as long as there is no government restriction. This will keep the price down again.

Also, any monopolist is subject to the consumer's demand -if you look at demand function in a monopolistic market, it's downward sloping. Thus, first, charging higher price means lower quantity demanded. Second, consumers do not solely look at a single product, she will always take into account the substitutes. For instance, if the price of espresso goes crazy, even a coffee freak like me will switch to teh botol. As a result, the predator needs to consider a whole arrays of competitors.

Where do I get this idea from? Econ 101 textbook. And by the way, the textbook always states that what matters for economic agent's decision is the marginal cost and marginal revenue (or benefit), not accumulated wealth.

Your baristas talked about this misleading op-ed during the break, and perhaps Ap will join me to serve you his comment.

Dear Kate: Neoliberal

Dear Kate,

I observe a suddenly-famous term: "neo-lib". What is this "neo-lib" actually about? Why do people seem hate it? Is it some kind of virus?

Best,
Al @ Berge

Dear Al,

To tell you the truth, I don't know. But I got an impression from the media that all those protesters mean by 'neoliberal' is market-friendliness, trade with other countries, and everything American or western.

In other words, neoliberal is an Aunt Sally.

Take care,
Kate

On Faithless Neoliberals

Following the Boediono-Neolib controversy, I think the problem is not so much that some people dislike neoliberalism. It is perfectly OK if you disagree with something, but it'd be better if you have clear idea on what you disagree with is about.

In my old posting, quoting Stanley Fish, you can find the broad definition of neoliberalism (at least from the perspective of its critics) that I won't repeat here. Problem of definition aside, the real catch is that --also from Stanley Fish, quoting Boas and Gans-Morse of UC Berkeley in his subsequent Times' column --, its force is more rhetorical (Boediono, you accursed neoliberal) than analytic.

In the last debacle on neoliberal here in Indonesia, I think the problem is even more depressing: some people attach moral or religious value on neoliberalism. It is akin to say that because you are neoliberal, your faith is questionable.

In Boediono case, you can confirm this by reading the weird flip-flop statement from Tifatul Sembiring who said that Boediono is not a neoliberal because during his time as Coordinating Minister of the Economy, shariah economy was developed and he passed the Law on Shariah Economy.

While Homer Simpson would say "D'oh!", Econ 101 students would say: the opposite of neoliberalism is socialism.

I am fine if you are socialist. I will disagree with you, and sometime ridicule you, but I will never question your faith based on your socialist viewpoint - unless you kidnap, torture, and kill others.

Harold

My favorite summer reading: Harold and the Purple Crayon.

Harold is terribly funny. He mistook oatmeal bowl for a flying saucer.

A Friendly Reminder

When I wrote the previous posting on neoliberalism, I could not relate why one commenter asked about Boediono and his religious attitude.

Only after I read Faisal Basri's take on Boediono that I become aware of the Boediono-Neoliberalism controversy, that the commenter might think I was talking about, which I wasn't.

Kate apparently gets really annoyed with that controversy, and all baristas here know too well that hell has no fury like Kate scorned.

Just wait what she's gonna say. Stay tune.

Added: My take on the commenter's question remains the same, nevertheless.

The Impact of Neoliberalism on Religiosity

Another boring and tasteless title, you say?

No.

It's what I think after reading the Spiritual Economies: Islam and Neoliberalism in Contemporary Indonesia, by Daromir Rudnyckyj in Cultural Anthropology, Vol 24, Issue 1, Jan 2009, pp 104-141.

Check this interesting ethnography work on how, or why, Krakatau Steel, a state owned enterprise on the verge of privatization due to current market reform, decides to hire ESQ. And according to the editor of that Journal:

"In Indonesia, religion is not a "refuge" from or resistance to neoliberalism, nor is it a retreat into "magic and mystery" in response to global capitalism. Instead, religion and capitalism are brought together to address the challenges of globalization. By enabling Islamic virtues of self-discipline, accountability and entrepreneurial action, one becomes both a more pious Muslim and a more productive employee. Rudnyckyj argues that "managers, state technocrats, and religious reformers sought to enact a set of neoliberal practices by creating a new type of subject, a worshipping worker, for whom labor was a matter of religious duty."

My first reaction: Marxian false consciousness at play. But Sisil, the one with real anthropology training, differs and thinks it more as Weberian ethics with Islam twist.

Nevertheless, if neoliberalism indeed brings greater religiosity, what you say, MUI? Or anti neoliberal?

The Most Boring

paper's title I've ever heard: The Impacts of Monetary Policy Shocks on the Indonesian Economy.

Author: me.

Update: I change the title, but, alas, our friends in Kebon Sirih might not be happy with that.

Hi

Hi, long time no see. As you know, I've been busy with my thesis. My anonymous, external examiner is tough (I think he is Zuckerberg). Just got time for a little break now. An update, Aco just got back from Brighton, UK (and is getting ready for Salzburg); Ujang is taking a basket ball course (and writing a bit of economic paper) in Duke, NC; Ape' is back to school in Melbourne and recollecting his memory of the fall days of Soeharto; Rizal of course has been your constant barista from Virginia (the only one here who is FB-less); and Sjamsu is probably in Bali now trying to find a gig in between ADB events. Bye now.

Statesmanship as Fiction

With all of my due respect to Magnis-Suseno, Syafii Maarif, and Satjipto Rahardjo, please stop hoping and asking for politician to be statesman. The latter is just a fiction. Not because they do not exist (maybe there are few of them), but because it doesn't help in analyzing the politics and its social impact. We will too easily slip into pointing out any failure of politics in providing higher social benefit to the lack of statesman quality in politicians.

Banks Are No Charity

I fail to understand this news titled "banks put profit at the front-seat, or banks are more keen to seek profit" --or something like that.

First off, what is wrong with that? Banks are profit maximizer, for sure. But if you think borrowing from the bank is pricey, you are free to seek another (cheaper) source (if any) --your own retained earning, for example.

Second, on why the gap between deposit and lending rate widened lately, perhaps Bernanke and Gertler in their classic article Agency Costs, Net Worth, and Business Fluctuations (AER, Vol. 79, No. 1, Mar.1989, pp. 14-31) might help. From borrower's balance sheet approach, they demonstrate that lower net worth increases agency cost (hence higher lending rate) and business downturn decreases net worth.

I haven't look up the data on the borrowers' (households and firms) net worth, but certainly in the last quarter we have been, at least perceived, at business downturn, no?

On the other (good) side, people still go to bank to borrow despite high lending rate. So perhaps, the demand --some would say real sector-- is still strong, or at least not as weak as we may think.

I am neither monetary or finance specialist, but has anyone had better idea?