One day, three news, one story

News one: infrastructure development lacks funding 

News two: hefty amount for fuel subsidy is allocated

News three: fuel smuggling increases

What's the story? Allocative inefficiency is a good recipe for under-development and black market.

Stupid gun fetish

In the aftermath of yet another shooting spree in US (may the victims rest in peace), the gun fetishists again argue foolishly against stricter gun control. They say that had the teachers been armed, such mass killing could have been prevented (e.g. here, here, here).

That's ridiculous. Teacher's job is to teach students, not to shoot a gun. They should be able to devote their time to improve their teaching skill, not their shooting skill. If they now have to arm themselves with guns, they need special training, a lot of practices, and of course guns and ammunitions. Now, there are hundreds of thousand of schools in US. (Sounds like a good business for gun sales; but that's not the point). 

At the same time, knowledge keeps growing, teachers need to update themselves with all that, so they can teach better. That's where they are better at, teaching. Not shooting.

Rage against the machine, Platini edition

Michel Platini doesn't like the idea of inviting technology into sports. He strongly opposes goal-line technology, as, according to him, it is too expensive.

He said it's cheaper to have referees with "good glasses" standing close to the goal-line. Platini surely advocates the idea of replacing all traffic lights with policemen. Technology too expensive? Well, the first time human civilisation invented television, telephone, and what not, people thought they were too expensive. Or of course, the standard fallacy: technology leaves people unemployed. Who invents technology?

I guess Luddism never dies.

(Possible) Distributional Impact of Cutting the Science

Suppose the government decided to slash (or integrate, or reduce, or ... whatever) science subjects out from elementary schools curriculum. What would the private elite (read: expensive) schools do?  They would follow government's plan, yes?

I don't think so. More likely, they will provide additional hours for science with additional fee (rich) parents are more than happy to pay. 

Or, private sectors will spot market for private course on science, especially for those wealthy parents whose kids are enrolled in public schools that have to follow the instruction. 

By the end of the day, well-off kids get more science -- so much for a new curriculum that cuts science.

Buy one get the second one for 25% off

Dear Kate,

Holiday is coming and I am so going to the beach (yay!). I need to buy a new swimsuit. This one I have now I bought three years ago - it looks outdated. Yesterday I went to this mall and they had a big promo. It says you can buy one swimsuit and you get 25% off for the second one. You think this is good?

Beachlover @ Surabaya

Dear Beachlover,

It depends. If you're really a beachlover like your name, go get them. But I doubt it, 'cause you said your current swimsuit is three years old already. You don't go to beach that often, do you?

Now, if I am right (that you are no beach frequenter, just occasional happy beacher), don't fall into that marketing gimmick. You would waste your money. Just buy one. Chances are, the interest rate on your saved money for three years will actually outweigh the promised discount of that second swimsuit.

Unless. Unless you have a BFF who also likes beach (frequently or occasionally) and you want to give her a christmas gift. Then that second swimsuit might worth it. Just don't tell her that you got it for a discount.

Happy bitch- I mean beaching.

Kate

Admirable way of debating

First, Deschenes and Greenstone (2007, AER - all gated) debunked hedonic approach:

This paper measures the economic impact of climate change on US agricultural land by estimating the effect of random year-to-year variation in temperature and precipitation on agricultural profits. The preferred estimates indicate that climate change will increase annual profits by $1.3 billion in 2002 dollars (2002$) or 4 percent. This estimate is robust to numerous specification checks and relatively precise, so large negative or positive effects are unlikely. We also find the hedonic approach—which is the standard in the previous literature—to be unreliable be- cause it produces estimates that are extremely sensitive to seemingly minor choices about control variables, sample, and weighting. 

Then Fisher, Hanemann, Roberts, and Schlenker (2012, AER) criticised them: 

Conceptually, DG are correct in noting that omitted variables can in principle cause bias in a hedonic regression and that fixed effects can control for time-invariant idiosyncratic features of the unit of observation, in this case the county. However, it is also possible that fixed effects can increase the bias due to omitted variables if time-varying omitted variables (or data errors) are more strongly correlated with the treatment than time-invariant omitted variables that have been removed via the fixed effects. These fixed effects increase bias stemming from both endogeneity and measurement error. We have identified some important data errors and time-varying omitted variables, like storage, that are strongly correlated with both weather (the treatment variable) and DG's dependent variable, reported sales minus reported expenditures. These data errors and omitted variables bias toward zero results obtained by regressions that use sales as a proxy for production value. 

Then Deschenes and Greenstone (2012, AER) replied:

Fisher et al. (2012) (hereafter, FHRS) have uncovered coding and data errors in our paper, Deschênes and Greenstone (2007) (hereafter, DG). We acknowledge and are embarrassed by these mistakes. We are grateful to FHRS for uncovering them. We hope that this Reply will also contribute to advancing the literature on the vital ques- tion of the impact of climate change on the US agricultural sector. 

Look closely, how they exchanged data and computer code to get better understanding from both directions.

We remember, not long ago, a debate between Acemoglu-Robinson and Sachs were up. Very different kind - with the former got surprisingly uncool and even nasty.

6000 in 2016? Wow! - and the Gini ratio

So, according to an economist from Deutsche Bank in Jakarta, Indonesia's GDP/capita can reach USD 6,000 by 2016. Now it's about USD 3,500.

That's amazing. Because, if we assume a growth rate of 6.5% per annum, we will only get to USD 6,000 in nine years from now, that is 2021. Or, maybe he thinks we will have a far higher growth rate? Let's try 10% then (yes, that's ambitious!). Well, according to the growth formula, we'll get to USD 6,000/capita in mid 2017.

Understandably, some people criticise the number. This one goes further to say, even if the per capita income jumps, we still face a worsening inequality. She is right (although her definition - or Kompas' definition? - of Gini ratio is not exactly right). But to be fair, we can say our inequality (that is, represented by, among all, the Gini ratio) has been worsening, compared to ourselves in the past periods. In 2007 the Gini ratio was 0.33. By first quarter of 2011 it was 0.41 (Gini ratio goes from 0 i.e "perfect equality" to 1 i.e. "perfect inequality"). As for comparison to other countries:, e.g. China 0.44, Malaysia 0.46, US 0.47 - we're better. Of course there are many other measures of inequality, not just this Gini ratio.

The drafts with 10MB file

Dear students, once again. If you send your thesis draft, please consider a smaller file size. Sometimes we want to download, read, and review them on the go, but your files are way too big, they make us lazy.

Trust me, just because your curves and graphs are all fancy with bright colours and shades, they don't impress us so much that we give extra credit for them. So don't waste your time fancy up those tables, flowcharts and what not.

And this is not just us. Some journals don't even want colourful graphs in papers they would publish.

Blue rondo a la Turk

That's the title of the first track in the most famous The Dave Brubeck Quartet's Time Out (whose other compositions include the widely known Take Five).

The chief, the genius pianist Dave Brubeck, died yesterday. He was 91. 

Needless to say, to honour the legend, we are playing his music in the Cafe non-stop today.

Listen to the opening of Blue Rondo. It's like a wakeup call (I'd love to have it as my alarm default). Then it transforms to a nice, smooth dialogue between Brubeck and Paul Desmond on alto sax - and Eugene Wright on bass and Joe Morello on drum. They take us to the little street in Turkey, with a strange yet beautiful composition.

Right after the track Take Five (arguably the most famous one, covered by many artists, including a bad take by Al Jarreau), they have Three to Get Ready. I'm feeling poignant - Brubeck, Desmond, and Morello have passed away. Bless 'em all.

He's such a pig, but...

Hey! Back from a long traveling, I was struck by this news about a regent in Garut, West Java. He married a young woman only to divorce her four days later via an sms. Because he found out - or he thought - she was not a virgin. What a prick, this regent.

Apparently this has made into the headlines, invited public anger, and become topic du jour. Even the president who usually shies away from important issues, comments. Some activists made a petition calling for impeachment of the naughty public official. Underage, illegal marriage, said them.

I asked some friends who know laws and regulations. I was told that the minimum legal age for women in Indonesia is 17 years old. If this is true, than it is not an underage marriage - according to the news, the poor lady was 18 when she married him.

Some accused the bastard of committing a child trafficking - they said there was some money involved in making sure the marriage happen. Again I asked around. I haven't found a clear answer. But isn't trafficking a two-side transaction? If the regent was really buying her out, I would think the "seller" deserved punishment, too (even more). That's her parents.

So what I'm saying is, as much as I hate this guy, it seems that the legal case against him is weak. I just hope the poor woman sues him for, say, defamation or something like that. (I read his derogatory comment equalling his ex-wife to some merchandise that you could return when "the spec isn't right". My goodness!).

On wage increase

This never-ending tug-of-war between businesses and workers has been so frustrating. After the government bowed down to two demands (wage raise, ban on outsourcing), the workers asked for social protection - for free.

Now the business association pleads to the government to postpone the raise.

The recent minimum wage raises have been indeed dramatic. Jakarta, for example, set an increase of about 45%, Bogor 60%, and Bekasi 30%.

It's the workers' right to ask for pay increase, obviously. But we should understand that there's always two sides of a transaction. While the increase in wage benefits the existing workers, it suppresses the incentive for business to employ more workers (in fact, it creates incentive to lay off some of the existing workers) - so it is bad for those who are still looking for jobs. This especially hurts the SMEs whose labor costs can add up to 25% of total production costs (compared to less than 10% in the case of bigger firms).

Yes, we are still competitive in terms of labor wage, compared to countries like China, Philippines, or Thailand. But I'm not sure if the minimum wage keeps increasing in the order like those in the past weeks. Also, it's not just a matter of wage component. Presumably other labor-related costs will increase, for example severance payment (whose formula is a function of wage level). In the end, firms might shift the burden onto the product price. And hence creates inflationary pressure.

I'm not against wage increase (as a worker myself, I love a pay increase!). But as any econ-101 book tells us, wage should be a reflection of productivity. In the case of Indonesia, however, an increase in unit labor costs of 8% has induced a decline in export growth rates of 1.6 percentage points (World Bank 2012). Which means the wage bill has increased faster than productivity. OECD (2008) also calculates that since 2002 real minimum wage in Indonesia has been hovering above labor productivity. In fact if one takes the ratio of minimum wage to median wage, Indonesia has ratio higher even compared to the OECD countries.

I don't really understand why the government has been so lenient to these demands. Once in 2006 they attempted to revise the labor law but then backed-off following a big protest. And silent since then. I thought they were still fighting hard to cut down the unemployment rate. Maybe not so seriously.

Flipflop, the umpteenth time

Just when we thought the government finally had the guts to fix the erroneous fuel subsidy regime, the coordinating minister of economic affairs again launched the opposite signal, followed by the regulating agency. 

This keeps going on and on.