café salemba

The Tale of Two Countries (in Three Pictures)

2011-12-20T08:26:00.010+07:00

The demise of the North Korean dictator Kim Jong Il, in addition to generating endless internet memes and jokes, has prompted some to remind us about the devastation that his regime (and his father's) brought to the North Korean population. Among those reminders, the following three pictures can illustrate the grim legacy the best.

GDP
The first is the following GDP figure of North and South Korea between 1997 and 2003 that shows how massively different the neighboring countries performed in the period. Because yes, GDP is still one of the best summaries of a country's economic performance. (Source is here)

Night lights and economic vitality
The second one, my favorite, is this satellite image of the Korean peninsula at night time. South Korea is brimming with lights, evidence of vibrant economy, while North Korea is almost completely dark. (Source is here). Why this is important? An economic study by Henderson, Storeygard, and Weil (2010) shows that satellite images of night lights provide a good proxy for measuring economic growth (here's the WSJ version)

The biology
The third figure, while may not look as dramatic as any satellite image actually provides an even starker evidence of the failure of the centrally-planned economy. It is a graph also of a stagnated growth, not of the economy, but of the human population. (Source is here).

The above graph is from a 2004 study by Sunyoun Pak who looks at data on height of adults and children of the neighboring countries. Pioneered by Nobel prize winner Robert Fogel, in the last 3 decades, economists have looked at the relationship between income and health. Among a number of biomarkers, height has proven to be one of the best and most useful indicator of long-term health and well being.

It goes without saying that one could not conduct a typical household survey in North Korea, so the author uses data from North Koreans who escaped to the south between 1999 and 2003. Anthropometric measures were taken of the escapees and compared to those of South Korean population (the author noted that the escapees may be from lower socio-economic background relative of the North Korea society).

The graph clearly shows the difference in heights between the two groups and the difference is larger the younger the cohort. On average, South Korean young adults are 6 cm taller than their Northern counterparts. The author goes as far as to conclude: “In contrast to population of South Korea, as well as to that most of the rest of the world, North Koreans did not experience an increase in physical stature during the second half of the 20th century.”

There you have it. Two countries sharing similar geography, climate, ethnicity, but different political and economic system, and massively different outcomes.

Suggested readings
1. Demick, Barbara (2009) "Nothing to Envy: Ordinary Lives in North Korea". Here is the book official website.
2. Pak, Sunyoun (2004), "The Biological Standard of Living in the Two Koreas", Economics and Human Biology 2 (2004) 511-521.
3. Henderson, JV, A. Storeygard, D.N. Weil (2009), "Measuring Growth from Outer Space", NBER Working Paper 15199.

... and a bonus for my fellow Atlantic Monthly reader(s):
The Atlantic's photo essay from earlier this year, "Inside North Korea". Which one is your favorite?

More On Buying Frenzies

2011-11-26T05:59:00.007+07:00

Two things I learned coming home from Thanksgiving dinner this year: i) turkey goes well with gado-gado sauce, especially if you don’t have discerning taste buds for boring white meat, ii) there’s a buying frenzy and then there’s a buying frenzy.

This being a supposedly an economics-minded café, I’ll dwell more on the second. Watching the coverage on the door-busting sale at a neighborhood Best Buy store on the local news, and reading the tweeter feed on the chaotic Blackberry launch in Pacific Place, one looks for explanations. Aco’s post goes a long way in doing so. The people clearly were there for the deep discounts but their decisions to stand in line reflect not only their valuation of the products they’re waiting in line for but also how much they value their own time. Some of them may actually were there because they enjoy experience.

There’s a slightly different kind of buying frenzies, though, the like of which we see every time Apple launches a new product. The people standing in line in front of an iBox store are there for a different reason than those standing in front of Macy’s or Best Buy on Black Friday. Most likely, these are the people who like to be first in having everything Apple-related. No deep discounts are necessary for them. In fact they may even be willing to pay a higher price to be first. We know the type. Almost all Apple fanboys fall into this group. A lot of movie fanboys fall in to this, from the Jedi wannabes, the Trekkies, and those standing in line for hours to see Breaking Dawn (yes, you, you, and you).

There’s actually a rather classic paper by deGraba (1995)* discussing this second type of buying frenzy. The idea is that there’s a monopolist who wants to launch a new product of unknown quality. The monopolist has the option to supply enough units for the market to clear, or to deliberately ration the market and create excess demand. Often they do the latter for the following reason.

When a new product is launch, often the quality is not fully known to the potential buyers. For a brand with a fan base, limiting the number of units of the new product on the market will create a buying frenzy where potential buyers will clamor to get their hands on the "new big thing". Any fan worth his salt will try to get his hands on one. The hype is on. Anyone who wants to wait until they have more information about the product will face the threat of not getting any unit available to them. In this case, the monopolist can even set a price higher than a market clearing price. Later when the true quality of the products becomes known to the rest of the market, there’s less room for the monopolist to influence the frenzy.

So which category do people who fight over the Blackberry in Pacific Place fall into? It seems like they’re a combination of both: they put relatively lower value on their time, and they’re also the type who’s willing to take some risks in getting new products of relatively unknown quality. Some of them were probably there for the experience (well, probably not for the stampede).

How about the people standing in long line for those Cr*cs sandals years ago? Well, they clearly fall into the first category since nothing about those sandals are unknown by that time. Everybody knows they’re damn comfortable. And everybody knows they’re ugly.

Next we could discuss why people should go to restaurants with long lines in front of them.

* Patrick deGraba (1995) "Buying Frenzies and seller-induced excess demand", Rand Journal of Economics 26:2.

Economics of queuing, again

2011-11-25T15:18:00.001+07:00

I'm in a seminar and I'm bored. So I just checked Twitter and saw some people tweeting about a long queue in some mall in Jakarta. Apparently they are standing in line for the newest Blackberry product or something. Why queue? Wait, let's step back: what is queue? Or more precisely, what does a queue imply? From an economist's point of view, queue is a signal that the good being sold is under-priced (of course, why else do people want to queue?). You see motorists are queuing on a gas station? That's because the price is too low. You see people form a long snake to buy Crocs? Must be because it is being sold in a heavily discounted price.

In other words, queue reflects price distortion - in that case, the price does not tell you correctly the number of goods being sold (i.e. the supply). When the price is lowered, people/consumers will naturally think that the quantity sold is a lot. That's the law of supply: (for normal goods) supply increase will lead to price decrease. When this holds, you don't see queuing. But, because the law is violated - supply does not change (or even: reduced), while the price is cut, then you *should* see some queuing. Those who stand in the queue either think that the goods are many, or are full well that the supply is limited but is driven by a mere .. hype (think about Apple iPad's launching - that's hype*).

So: what do we expect when a good is priced too low contrary to the level it should be (i.e. the one driven by the market)? A queue. Put it another way, what is a queue telling you? That the price of some good is not normal (or that some people are hyped).

But now let's push it further. Are people so shallow so as not to understand this? Well, actually no: they know it. They are just willing to trade some of their time and energy for the discounted price. If one can factor these in, he or she will actually find that the price is not as cheap as the store declares. What are other hidden costs of distorted price that leads to queuing? Impatience, stampede, quarrel - and even death (remember the story from China in 2007 when somebody died after a brawl over queue-jumping in a gas station?)

Now, why are some people not willing to join the queue? Can be because many things: they value their time more than those standing in the queue do, they know that queue means price distortion and hence an artificial sign that has hidden costs, or simply because they are not affected by some crazy hype.

Or they might be participating in a seminar, albeit bored.

Thanksgiving Random Notes

2011-11-24T04:28:00.005+07:00

Gee, it's been for awhile that I don't serve anything here. I am a lousy barista, indeed.

So where are we? Well, apparently we, the baristas, here don't seem to believe that a revolution in economics would happen real soon -- which doesn't mean that the field has gone nowhere since the last time you open the textbook. Come to academic seminars, open NBER web or AEA web, and you'll know what I mean.

Psychology/behavioral approach is moving to the mainstream now, to take one direction of progress in micro, and many are talking about (funny shape of) aggregate demand in near zero short term nominal interest rate in macro.

But we're now near Thanksgiving break, so all those seemingly important serving shall wait.

Well, maybe holiday mood and good behavioral economics shall not be contradicted, thanks to Daniel Kahneman.

His latest book, "Thinking, Fast and Slow", is delightful and well-written -- so well that actually you can read it while waiting for your train, cooking the Turkey, or attending the royal wedding (well, maybe not). For such a heavy academic content, it's not an easy to write in popular lingo yet retain the depth of knowledge. Kahneman did it. You don't need to know psychology or economics (god forbid) to digest Kahneman's thought in this book.

In short: you should buy it.

The other thing that you can do during holiday is probably going to your typical movie theater and watch The Muppets and not-so typical theater for Being Elmo.

Happy Thanksgiving, folks

You said you want a revolution?

2011-11-14T16:34:00.005+07:00

This week, we had email exchanges with some colleagues about Harvard undergraduate students walked out of Mankiw's introductory economics class. The discussion was not so much about the walk-out (and much less, or nothing, about the reactions, as in here, here and here). The colleagues were talking about limitations of economic theory in explaining many phenomena, the need to give more room for multidisciplinary analytic framework, and to call for a revision for, even revolution in, economic curriculum and to another revolution in economic thinking.

Here's the summary of my response. First, no one would disagree that economic theory is limited. It provides a framework of analysis, not the framework. All economic models are based on certain assumptions. Not that we believe that the assumptions would (should) hold. But it serves as a benchmark condition to argue what would happen if the assumptions hold.

Second, no doubt that multidisciplinary analysis is good. Economists, and economists, would benefit from talking to, or collaborating with, scholars from other disciplines. But multidisciplinary requires each scholar have solid background on his/her own discipline. Imagine two people, an Indonesian an American, discussing their cultures. If the Indonesian doesn't have a solid understanding about Indonesian culture, the dialogue would be a lecture on American culture, not a cross-cultural one.

Third, while the curriculum and teaching methods should always be revisited to reflect current developments, we need to ask how much information we can (should) feed the students. Besides, the purpose of education and teaching is not to provide answers. The purpose is to make students asking the right questions (and find the answers) by providing analytic framework.

I am not sure about how much revisions we could have in microeconomics. It basically tells us that resources are scarce, so we need to make choices, which imply opportunity costs and give us trade-offs. Then there is demand and supply analysis, which, under a certain assumptions of how the market works, will define the prices. But we don't assume that market works all the time, so there is a substantial discussion of market failure in externality, public goods, uncertainty and game theory chapters. That's usually what we covers in 2 semester of microeconomics. There are more applications, such the agricultural household model, different game theoretical analysis and many more, which we usually teach in more advanced classes.

On the other hand, macroeconomics is a very dynamic subject. To be honest, I am not really catching up with the subject. But to catch up with the current state-of-the-art, including to criticize some mainstream theories, still you need to have the solid fundamentals. You can not, for example, argue for divergence in growth without starting from the basic Solow model which implies convergence. To criticize efficient market hypothesis you need to start from the AD-AS, Keynesian-cross and IS-LM models. No short-cut to do that.

Yes, Keynesian was a revolution in economics. Prior to Keynes, economists did not think of national income, and the relationships between money, interest and employment. In short, people never thought economics as a macro system, hence the term macroeconomics. But since then, (macro)economics have evolved, leaving us few rooms for revolutionary thoughts. Even Keynesian was at one time in a crisis, when excessive government's intervention in the economy led to high inflation without growth in production.

Honestly, the room for another revolution is getting much and much smaller now. Most big ideas have been delivered. The frontiers have been pretty much explored. Of course, there are still many unexplored spots in the forest. That is the real call: to fill the missing puzzles through new theoretical and empirical researches.

Do Companies Have a Duty to Satisfy Their Employees’ Best Interest?

2011-09-08T19:58:00.005+07:00

Dear cafe patrons, I'm glad to introduce to you our new guest barista, Pramudya A. Oktavinanda. Pram, as he is called, is a lawyer at a well-known corporate law firm. He blogs too (see here or here). Oh, this "capitalist-lawyer" also tweets as @PramOctavy. Today Pram invites us to think about what is fair in employer-employee relation. Enjoy! - Kate

Do Companies Have a Duty to Satisfy Their Employees’ Best Interest?

by Pramudya A. Oktavinanda

Introduction

Imagine that you are a worker in a major telecommunication company that has two divisions, one is a land line division, which is getting smaller each year to due to a major decrease in demand, and the other is a mobile phone division, which is getting bigger each year and generating a huge profits for the company. Unfortunately, you work in the land line division.

Suppose that for this financial year, the company generates a net profit of more than US$100 million, and 99% was generated from the mobile phone division. The employees in such division receive a considerable amount of benefits including big bonuses and better salaries compared those in the land line division. In fact, the salaries of the land line division’s employees have not been increased for years - let alone receiving a bonus.

How about the management, i.e. the board of directors and board of commissioners? Since the company has performed so well, the shareholders have agreed to grant a fat remuneration in the total amount of US$10 million to the entire members of the management. So everyone is happy in the company, except for the employees of the land line division.

So, the worker in the land line division plans to conduct a strike, stopping the operation of the land line division until the company agrees to increase their employee benefits. They say it is not fair if the company has generated such a big profit yet only a small fraction of that profit is being used for the benefits of their employees, specifically in the land line division. In their opinion, the company has a duty to satisfy their employees’ best interest, including their well-being. The major question is, do you think the company has such kind of duty?

The Company Does Not Have a Fiduciary Duty to Its Employees

As cruel as it may seem, our law says that a limited liability company does not have any fiduciary duty to employees. Fiduciary duty to a party means a duty to act in good faith for the best interest of such party. In fact, the company management only has fiduciary duty towards the company (yes, not even the shareholders). And what’s the best interest of the company? Its survivability, which can only be maintained when the company is profitable. A management that does not work for the best interest of the company can be sued by the company shareholders for any losses that they or the company may face due to the management’s failure to adhere its duty.

Of course this is troubling to some of us. How can we say that it is fair for the employee in the land line division if the management does not have any duty to improve their well being despite having a large amount of profit? To answer this, I will move on from the legalese, and give you another case to think about.

Let us imagine that now you are acting as an employer to two persons in a small firm that produces cute necklaces. The first person almost contribute nothing to the business while the other one is very productive and has contributed a lot of necklaces that worth selling in the market. What will you do in this case? Will you differentiate the salary of these two guys? Will you give better payment to the more productive one?

Or try imagining other case where you and your two friends invest in a business. You and one friend invest 90% of the total capital while the other one only invest 10%. After the business generates nice profits, will you share more to the one who only invest 10%, or will you distribute them proportionately with the money contributed by each person?

I would assume that in both cases, you would agree that those who contribute more should receive better benefits than those who contribute less. So why don’t we apply that principle to our first case? The law regarding fiduciary duty of the company’s management is in line with the basic rule of efficiency, i.e. resources should be allocated to the ones who are able to put it to the most highly valued use. Wasting money for a non profitable business would be deemed inefficient and the management can be held responsible for that. Sadly, our case involves the lives of many people and this is where the dilemma comes.

Can The Government Intervene?

My first response is no. The difficulty lies within the baseline or the original position that we should held when we want the Government to involve in this kind of case. I know that our case can easily attract sympathy. After all, it’s the story about a greedy company/management that does not care about the well being of its employee. But suppose we change the story a bit, suppose we’re talking about a paging business. I am not sure whether there are still many people who remember the success of paging business, but around 10-12 years ago when mobile phones are still expensive, pager is a cheap and quick solution for companies who want to contact their employees whenever and wherever they are. Yet, technological advance and the growing of people’s income enable mobile phone producers to cut their prices significantly to the extent that almost all people can own their own mobile phone. The effect was disastrous for paging business. What started as a profitable business turned out to become a bleak one. And now, I am quite certain that not a single paging company in Indonesia survives the competition with mobile phone. The iron rule of efficiency once again wins.

In this case, since the paging companies were going bankrupt, most of their employees were layed off. Now, does the Government needs to help these poor guys? Do you find similarities with our first case concerning two separate divisions in a telecommunication company? Both types of employees suffer because of technological development, something that can’t be prevented by anyone (or what economists call “creative destruction”).

Indeed, this is what I call as a hard case. To find an all for one solution would be impossible. Asking the Government to force the company in our case to provide better benefits to its land line division would be ludicrous, and it is questionable whether the government should do the same for the other type of victims of creative destruction. If you are in the employer position, would you like to be forced to bear additional inefficient expenses?

But if the Government does not take any action, who will be responsible for all of these employees? Would it suffice to let them follow the flow of the market force? My initial answer is provide a better social security to the citizens but I would love to hear other people comments on this matter.

What the plagiarist and his/her host institution should do

2011-09-07T21:52:00.006+07:00

Here is how the editor of respectable The Journal Economic Perspective dealt with the issue of cross-publishing by Bruno Frey: they sent a letter to him (in pdf), explaining the case carefully, and demand an apology from him to the related parties (the Journals).

And Bruno Frey humbly replied the letter, acknowledged and apologized for his fault, and did not let the responsibility pass beyond him.

As we all can see, the letter is also open to public, presumably because they believe that public deserve to know it as well as to show how they take it very seriously.

Now we have a plagiarism case here. It remains to be seen if the involved parties will take the same measure.

Nevertheless, the Cafe shares the strong opinion that plagiarism is not only deeply unethical but also a gross academic violation.

How to Kill Jakarta Traffic Jam, Economically Speaking (Part 1)

2011-06-21T02:35:00.002+07:00

I am now reading an excellent book by Edward Glaeser of Harvard, Triumph of The City . It's about (great) life in cities and it brings me to the work of Gilles Duranton and Matthew Turner as well as William Vickrey.

Let us imagine a typical situation many of us face in Jabotabek. Every morning you ponder if you would drive your car to work. While taking a shower, you make a mental calculation on the benefit of driving your car (for example, comfort) and the cost of it (gas, time, car depreciation, etc). If the net is still higher than taking taxi, bus, or KRL train, off you hit the road by car.

You may feel good about yourself because you think you've done proper marginal benefit and cost analysis? Alas, it's not the case. You miss important point: your decision makes other drivers' cost of driving increase.

As now the road is one car more crowded, time to drive is longer. Your private cost and benefit analysis does not take into account social cost of having one more car, your car, on the road.

Econ 101 calls this a negative externality. It is more evident when we use resources with zero or artificially low price, such as road. Multiply such (private) miscalculation with hundred thousands of Jabotabek car owners, we have all too familiar traffic jam we see every morning in the city.

Jakarta's traffic jam can be maddening indeed. Out of your frustration, you may demand for building more roads. After all, it's just about supply for roads that doesn't meet the demand, so you think.

Alas, this might be not feasible for two reasons. First, there is space limitation in already crowded Jakarta. Second, even if technology can overcome this constraint (tunnels or fly-over, for example), we'll soon come across Duranton and Turner (2010) and their fundamental law of traffic congestion.

The law says that more roads will proportionately increases car's kilometer traveled. Why? Because it increases the current residents' as well as previously-beyond-road-network residents' car use. It also brings more travel intensive production activities in the city. As a result: more roads, same traffic jam.

OK, what about, you say, more public transportation in Jakarta?

It will reduce traffic jam only if substantial number of car owners shift to public transportation. But, you know that if I leave my car at home and take bus, road will be less congested and travel by car will be more pleasant.

The catch-22 is that I know it well, too. As a result, nobody gives up his/her car. After all, who wants to takes trouble by taking bus only to allow more pleasant travel of other car owners? Public transportation will just reach more non-car owners previously outside public transportation network to enter Jakarta.

We again may end up with more public transportation, same traffic jam.

So, what’s the solution? To know it, we need to see the late William Vickrey and his work on road congestion problem. But it has to wait for another blog posting.

Stay tuned.

So You Think You Can Dance Know What The Poor Wants?

2011-05-23T13:46:00.008+07:00

Think again.

Let's say we provide the poor with cash money transfer, what do you think the poor would spend that money for? I bet that many of us would think that the poor would buy more basic staple food, like rice, or perhaps to pay for education fee for their kids, because, rightly so, the poor has low calorie and nutrition intake and low education status.

But suppose we found out that the money is spent for buying more cell-phone card credit, pulsa HP, what would you think?

Some, or perhaps many, of you would get mad and deem this act as unacceptable. The poor must buy more food or basic education, you insist, because it would help them out of poverty.

Let me take different view nonetheless. First, perhaps they're not as starving or badly in need for education as you think. Second, even if they indeed have low calorie intake and education status, in their calculation, ability to communicate with friends and relatives using cell-phone gives them more pleasures and utilities.

And I am OK with this. I believe that the poor knows what they're doing.

As simple as it may seems, you probably could not easily share this view -- you think you know what the poor has to do more than they do. Or even, you think the poor folks don’t know what needs to be done with that additional money.

In this interesting article, Abhijit Banerjee and Esther Duflo of MIT, with their extensive experience on poverty researches around the world suggests that such oversimplifying and paternalistic view on the poor is probably of little use. So is any well-intended poverty reduction reform based on that standpoint.

Yes, more nutrition and education would eventually lead to better productivity, hence income, and less poverty. But probably the poor has different expectation. There is one paragraph in that article that I would love to quote in full.

…We often see the world of the poor as a land of missed opportunities and wonder why they don't invest in what would really make their lives better. But the poor may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible and celebrating when occasion demands it… (Bold is mine)

Granted, their decision to buy more cell-phone credits, or TV set to watch infotainment, or to carry out lavish traditional and/or religious party is perfectly understandable.

Econ 101 tells you that if you want to maximize the recipient's utilities, you should not set any conditions on your money transfer -- and let them decide to buy whatever gives them higher utilities. But if the objective is to maximize your utility (as the giver), you can impose specific conditions for the recipient to get the money to make sure you get what you want – e.g you demand the poor spend the money to buy rice because it satisfies your belief that more calorie is what the poor needs.

Now a million dollar question would be which one matters more -- your utility or their utility?

What's new?

2011-04-26T13:39:00.000+07:00

This:

Check it out here.
And no, this original blog is NOT dead :)

ACFTA again

2011-04-20T07:42:00.001+07:00

Ten, fifteen days in a row - maybe more - the media is filled with heavy mercantilism again. It's about ACFTA. They say, Indonesian market is being flooded with Chinese cheap products: from textile to fruit to toys. All these destroy Indonesian producers. Not good.

Interestingly, no one mentions about the benefits to consumers: cheap prices are good. One article in Kompas (17/4) rightly quotes a small orange trader saying that Chinese oranges are good, the supply is reliable, and the quality is better - all with cheaper price than local oranges. So yes, some local businesses are benefited, too.

But they are rotten, say the complainers. Really? According to a news (also Kompas 17/4, same page), the Chinese exporters have started to adopt Indonesian National Standard. So?

A few note that the increase in Indonesia's trade deficit against China has a lot to do with yuan's and rupiah's appreciation against dollar. And because rupiah appreciation is relatively stronger than yuan appreciation, Chinese products become relatively cheaper to Indonesian importers than the other way around. So, this is not just between Indonesia and China. It also involves US. And all other countries, for that matter. You want to block China? Block everyone else too. Good luck with that.

Of course I'm not saying everything China is good. But when you find smuggle or illegal products, impose the correct punishment, not to burn the whole ship. Otherwise, you'll just be used by them inefficient, rent-seeking, protection-loving domestic producers. At the cost of consumers. And all the rest.

Law for Sale -- Revised Proposal

2011-04-06T03:32:00.010+07:00

Pramudya Octavinanda has very interesting ideas on how to design anti-corruption policy in response to my earlier posting here. Let me start with his points that I agree with.

First, the main objective of penal sanction system should be to recover the state's assets corruptors stole as much as possible. Second, it also has to prevent corruptors to buy (il)legal protection and political position that allows them to steal in the first place and afterward. In other words, it should make bad guys miserably poor.

Yet, what I don't really agree with is the idea to link two or more anti-corruption agencies for the sake of efficiency. If you let this happen, what we would likely have is an anti-corruption monopolist. This monopolist can sell their services either to corruptor or to the state whichever pays higher price. So if you want them to work in favor of the state and arrest the corruptor, the state has to pay or provide incentive more than what corruptor can do. This is expensive.

So I think I'd still opt for competition amongst anti-corruption agencies.

Now let's discuss Pram's objection on this competition. He said that without (formal) case transferability, competition won't work. But this is actually the very basic premise of my proposal for more competition -- that is to increase transferability. In my idea of transferability, bad guys can not rely on one agency to get protected, because other agencies can still arrest them legally. Competition would remove privilege of one agency over another; and with this, a case can be "transferred" to any agency willing to arrest the bad guy.

As for incentive for these competing agencies, as also asked by Mova in his comment, I'm thinking to incorporate Pram's insight on making corruptors poor and maximizing state's stolen assets recovery in incentive structure as follows.

Let's make the state (say President, or the Ministry of Finance) determine how much money they want to see back to state's coffer. If there is 100 bn IDR state's loss in a corruption case, they can set, say, 90 bn IDR recovery target and announce this to the competing anti-corruption agencies. Any agency taking this offer has to provide 90 bn IDR to the state but can take the remaining receipt, i.e 5 bn IDR if the agency can make the bad guy repay 95 bn IDR to the state.

So the state doesn't need to add more resources (higher salaries, bonus, etc) to anti-corruption agency, but any residual outcome belongs to the winning agency.

Do you think it will work?

Law for Sale -- or Corruptor's Revealed Preference

2011-03-24T02:02:00.009+07:00

I think it is good to have competition amongst anti-corruption squads or law enforcers. Think this way: a corruptor can bribe the police, but, in competition, the general attorney office or KPK will still be more than willing to arrest him/her - and vice versa.

Now you may want to say: what if the corruptor bribe them all? It's possible, but at least it is now more expensive to do so than with single anti-corruption office. The competition raises the corruptor's cost of wrongdoing and make anti-corruption more efficient.

Better yet if we can somehow set an competitive auction mechanism in which police, general attorney office, and KPK can bid to arrest a corruptor and force this corruptor repay the certain amount of the state's loss, and the office proposing lowest operational budget would win.

Who's afraid of such competition (a.k.a the loser)? First, the one from less efficient office. Second, and the foremost, the operation target, that is the corruptor him/herself. The non-corruptor would have no objection about this.

Now, if you know someone fiercely takes troubles and makes a lot of fuss on this competition among anti-corruption agencies, you may ask yourself and be suspicious if he/she is either from the less efficient agency or Mr/Ms Corruptor him/herself.

We economist call it his/her revealed preference -- regardless her/his stated preference as self-proclaimed anti-corruption bravados.

Kate Goes Randian

2011-03-13T03:34:00.003+07:00

It's always nice to meet up Cafe's regular patrons outside the cafe itself and last I just met with a self-declared green-line youths, named after one of subway line here -- although some actually came from places way beyond regular subway system.

And, man, they're such a bunch of smart people. They know stuff that baristas could only wish to know - from Warkop to game theory to Mathematica to what's hot in Newbury street. What is initially a plan for simple dinner turned out a lively discussions on various stuff, including whether the illustration for Nash equilibrium in the Beautiful Minds film is really a Nash equilibrium -- it is not.

And of course on Emma Watson - and her plan to take 9 months leave from her study - and Natalie Portman. Alright, ladies, James Franco, too.

But after the Vietnamese spring rolls and main dishes were almost finished, they revealed their true motive for coming all the way to see yours truly in the last day before spring break. A classic question: "Who is Kate Salemba?"

I almost burst into laughter. Apparently they love you, Kate. And don't worry, quoting Aco's tweet, you remain discreet and elusive as we all knew it.

Unimportant Update

2011-02-28T07:25:00.004+07:00

Uhm, hello.

It feels a bit awkward since it's been quite some times that I don't blog. The reason? I don't know. You may want to say Twitter, but I don't twit as many as other twitteratis do. Let us just say that I am busy doing something else -- or it is more costly to blog lately.

What is the "something else"? One of them, by default, is working on something economics. Like getting back to drawing board and trying to digest more on the financial crisis, both from micro and macro approach. The micro part is on theories for banking and financial market instrument, including strategic portfolio management. The macro part is on information problem and business cycle -- at this point, it's on how to model self-fulfilling proficiency and move from multiple to single equilibrium commonly found in the model of financial crisis.

And the more I learn about those stuff, the more I feel how stupid and slow I am.

The other thing is to enjoy an extended winter up here. More to come.

Unintended consequence #258

2011-02-19T15:38:00.001+07:00

(Warning: subjective judgment ahead)

This is funny. Arguably the most popular twitter application in Indonesia -UberTwitter just got spanked by the duke, Twitter. Why?

Before speculating on that, let's first establish the claim above, namely "UberTwitter is the most popular twitter app in Indonesia". How's that so? Maybe because most people who mobile-tweet use BlackBerry and this BB is arguably the most popular smartphone for those who tweet (or those who want to use its network scale advantage: it has a free and secure chat service, so many people use it or 'forced-by-peers-to-use-it'. Then came twitter frenzy and UberTwitter happened to be right there in the corner). Yes this sounds like an endogeneity problem, but who cares.

OK back to the Twitter's spanking on UberTwitter. According to some friends (yes, I'm that lazy to do fact-check to the official source, why should I?), it's because UT 'monetizes' its service while carrying Twitter's name. Others say Twitter doesn't like the fact that UT's name is half Twitter's (and the child becomes more popular than the parent, no?). Whatever the reason is, let's move on to the unintended consequence(s).

First, this is like a happy day for SocialScope - that's another app but less famous than UT (at least until yesterday). Now that Twitter had punished UT, people started to find a good replacement. Some tried the Twitter-for-BB. My verdict: "It's OK but not so impressive, in my opinion. Next!" So next came SocialScope. Hey, this feels cool. And I just noticed, many, so many, of my friends migrated from UT to SS, passing the endorsed-by-the-duke Twitter-for-BB. Ah, sorry TfBB.

Then the next round of unintended consequence. Some people have been using SS for quite some time (esp those with iPhones, no?). Not that many but sufficient enough to form some kind of elite-group (I don't know how to put this, but you know that feeling when only a handful of persons including you use some cool stuff? Snob or whatever, it feels good, weird good, but you got my point). Now, suddenly the demand for SS is shooting up. Back then it took days (even weeks) to use it (it requires you to beg to become its user -wtf?). But now, you can use within 4 minutes since first download of the app. And it's cool.

So what's the implication? The snobs are now seeing the price of their eliteness is falling steadily! Like "damn it, now we're not so special anymore". Ha, sorry dudes.

Now what's the last, possible unintended consequence? The emergence of other applications, obviously. I've been using Twitellator for iPad and I love it. Maybe it's time for them guys there to hit BB market. If they are willing to give it out for free, unlike that on iPad.

OK, my coffee is getting cold.

My one-year twitterexperience

2010-12-28T09:44:00.004+07:00

I think Twitter is fun - more so than Facebook. Because: 1) Twitter is shorter and hence more efficient, 2) Twitter has an instant reward-penalty system: you tweet good, you're treated well; you tweet bullshit, you're treated harshly. Think about that Golkar guy Bamsoes who was constantly lambasted by the whole Twitter universe, because, well he deserved it.

I'm rather new there. And passive, I guess. So what I'm sharing here is just based on my short experience observing what people do in the Twitland. Oh, maybe a little disclaimer first: I'm a fan of a group called #somaykrat. I think they're interesting without being pretentious. To many they're probably boring, especially when they go #kode or #kasus and all that childish stuff. But hey, I like 'em. Why am I probably biased? Because some of them are baristas here. (Yes, I'm considering how to best cut their pay in the Cafe 'cause they now rarely serve the drinks). Who are all the members by the way? I don't know, 'cause it seems the group is growing from time to time.

Now about other twitter (or, should I say "tweeter"? - have to be more careful now, as those somaycrats are typo nazis -- exactly, who the hell do they think they are? But I don't want no #ctarr or #pritt). I don't follow many people (can't keep up with too many). But from time to time, I see RTs from whom I follow. If they're interesting, I usually read their timeline (is that a stalking, I dunno).

First, I've seen some people who I knew from Blogosphere now living in the Twitland, too. Some appear more interesting than when they are blogging. There is this one guy who blogged really well and also tweets cool stuff. But he likes to go after anyone he dislikes and engage him/her in a debat kusir. There are some guys who give lectures in the Twitland (hey, I'm serious). This lecture-in-tweet is called kultwit - sounds a bit Freudian, I know, but who cares. Some kultwits are useful, imho. But when they hit number 30 or something, I get so sleepy, especially when everything of it you can get easily from the wonder of the web. But, to my surprise, some people demand more of it. Whenever they don't know something, rather than google or wiki it, they would just go "kultwit dong". Like we live for them, spoonfeds.

And then there are people who take Twitter so damn too seriously. They would expect politicians to tweet only about politics (or even "they should reach out more to their constituents.. bla bla bla") or economists to tweet about economics and economics only. Or law thingy for legal scholars. How boring if we all do it that way. C'mon, this is supposed to be for fun. Right? (oh God, I'm patronizing. Sorry).

There is also a few Twitters who like to expose other peoples' privacy to public. For example, if they know someone's relative are in the Twitland, and they don't like that someone, they will tell the public "Hey, I found his daughter. Here's his account. Go get her instead" - or other sentences to the same effect. Wow. Some respected(?) blogger even do it so the relative can "give insight to her father" - he hates the father (all do, but that's beside the point). Respected? Hah.

And some just love to teach others how to tweet. Like "don't RT this or that", "you should've replied, not RTed", et cetera, like they are Zuckerberg himself. Usually the same people, when get cornered in some debate (What? A debate in the Twitland? Are you out of your mind?) will use the discussion stopper "Read my timeline" (a Twitter-equivalent of "Talk to the hand").

Anyways, I'll stop here. Some barista complains I write too damn long. But I just like to thank Twitter. For it is fun. It also reveals the true colors of people like Tiffie and his ilks. Or some lousy pemreds who do everything to protect their muddy boss.

#Bye #now, #tweeps (is this the correct way?)

My dream end-of-year presidential speech (cont)

2010-12-26T11:38:00.002+07:00

My dear fellow countrymen,

So those are important issues, mostly on the economic side. Before I move into the politics, let me say a few more things. First, when we talk about poverty, it is important to look at the bigger picture. That is, we should not just address the income poverty - the poverty related to income and usually measured with the poverty line, be it the national line (anchored mostly to calorie intake, translated to consumption to about 1.55 dollar per day) or standard line (1.25 or 2 dollar per day). There are other dimensions to poverty that are non-income in their nature: access to sanitation and clean water, access to basic education and health, infant mortality rate, maternal health, etc. Reports have shown that in general, these "non-income" poverty dimensions are worse than income poverty. In addition the urban-rural wedges in these dimensions are also bigger than that in income poverty.

In addition to the importance of non-income poverty, we have long acknowledged the fact that the near-poor - those living between 1.55 and 2 dollar a day - are abundant. They are fragile to the change in poverty line. This, along with other reasons, calls for better social protection system. In conclusion, tackling the poverty issue in Indonesia can not afford not to frame it in its big picture. Indonesia's poor may be generalized into: rural, farm agriculture, informal, and to a lesser extent, Eastern. So any policy for poverty eradication should be directed towards these factors: easing the migration from rural to urban (or equivalently developing rural areas to become urbanized areas), migration from farm to non-farm agriculture, informal to formal, and focusing infrastructure development (and hence connectivity issue) in the Eastern part of Indonesia.

One more thing. We should not forget about the environment. The world is seeing a climate change. It will impact almost all dimensions. But most importantly, food security and energy security. As this will proportionally be more difficult to deal with in poor and developing countries, it is in our interest to do something about it. As one of the biggest carbon emitter, we have declare our commitment to cut our emission rate. But it is not just to make a show off. Cutting emission would be good for our own sake. It is part of the whole program to explicitly recognize the role of environment and natural resources in development (or, to borrow economists' jargon: to internalize the externalities). All this should be seen in a sustainable development paradigm (which, by the way, not just environment, but also social and economic facets). That is, to leave at least the same options for the next generation to choose from as we do now.

In this regards, it is important to underline here again that we have to change the way we consume energy. Our dependence non non-renewable energy is worrying. And that is because we have all the incentive wrong. We subsidize the unproductive use of non-renewable energy in a grand scale that hinders our ability to build infrastructure and to fight poverty. And of course, it also speeds up environmental degradation and resource depletion. As long as we keep this subsidy regime as it is now, there will be no incentive for business to invest in renewable energy nor for consumers to be more energy-conscious.

Now, the politics. While we're still at the subsidy issue, I would like to share with you that cutting the unproductive subsidy is also a politically sensitive issue. The DPR members have shown their reservation. I understand that they have valid reasons to be reluctant to this proposal, but we really should find a better way to allocate the limited budget into its productive uses. Speaking of budget, we will keep the discipline intact. This includes prosecuting tax criminals who have stolen the taxpayers money to enrich themselves.

Finally I'd like to address the issue on democracy and pluralism. Democracy has its weakness, no doubt. But our civilization has yet to see a better alternative to it. We will keep it while respecting our true, unique blessing: diversity - Bhinneka. It is saddening to see our fellow countrymen restrained from undergoing their religious rituals in peace. We will not tolerate such intrusion and attack from groups of thugs who hijack a certain religion to suppress the others.

Dear my fellow countrymen,

Those are the things we would focus on next year. At the same time we will continue our active role in international fora. We will assume leadership of ASEAN next year and APEC in 2013. We also continue our active engagement in the G20. As a part of modern global civilization, we will stand firmly in our support to fight global poverty, to undertake adaptation and mitigation of climate change, and to improve the world peace and harmony.

God bless you all, happy new year.

My dream end-of-year presidential speech

2010-12-26T09:18:00.002+07:00

Dear my fellow countrymen,

We soon will say goodbye to 2010 and hello to 2011. As the president, I'd like to make a little reflection on the foregoing year while also share my expectation of the year to come. We entered 2010 with a big expectation. In fact we survived the global financial crisis rather impressively, along with China and India. But that is no excuse to be working less. This year we have seen other - almost all, I should say - countries recovering very well. On the other hand, we also continued growing - but somewhat slower. It's not that we had not expected such growth rate. Given our current situation, it is still hard to achieve the potential rates as we did before the Asian financial crisis.

Which leads us to the question: what is really the constraint? I am aware that we still have numerous problems and issues on the table. But we should prioritize. If I were to pick up, say, the two most binding constraints to growth, that would be high logistic costs and very rigid labor market. The former deals a lot with infrastructure provision - both soft and hard infrastructure: so not only the roads, ports, and bridges but also the system and human resources thereof. As for the labor market, we have yet to settle a mutually benefiting labor law to employers and employees. As a result, businesses are reluctant to hire more workers on permanent basis while workers have few choices other than accepting unfavorable contract terms or else move to informal sector whose job security is minimal.

We have done many things regarding these two problems. But certainly not sufficient. Infrastructure development will continue to become the main theme. It involves among all, completing the trans-roads and the 10K megawatt electricity, improving the ports and their national single window system as well as refining the public-private partnership schemes. The latter is crucial as we know the government capacity to finance the needed infrastructure development is only 30 percent.

As for the labor market issue. I know this has always been very sensitive. We tried to make a revision in 2006 but it failed. Apparently we need to work harder together to resolve this issue. Otherwise, the labor movement between sectors (including formal-informal) and across regions (including urban-rural) will remain hindered. We also need to reduce barriers at the border. This includes negotiation with other countries on job safety for our migrant workers. In addition, we should be ready to anticipate foreign demand for our workers. Otherwise, we can not reap the opportunities out there: China's labor wage has increased and some companies therein have started to look for other countries to relocate. Japan is having a serious aging problem: their old yet rich population need young, productive workers that the country lacks. We have them.

Those are the two most important factors of our development at the moment. They are rather short term with regards to policy. Meaning, the approach to tackle them should be implemented as soon as possible in order to switch to the higher gear. That is to say, we also have long term problems that need structural - and continuing - solution or approach. In my view, it is and will always be human resource. While I am proud to see young Indonesians ace international competition, in general we still need to improve the quality of our people. That requires sustainable improvement in health and education.

One might ask, where is the poverty issue? Well it is in all of the above. Improving infrastructure will open more economic options to the poor in the remote areas. Making the labor market more flexible allows more hiring and many of those in informal sector can move to the formal one. Improving health and education is by default directed towards the poor as top priority.

[continued]

On Funny Punditry (or The Allure of Instant Fame)

2010-12-24T04:21:00.011+07:00

Recently I and Ujang talked about the making of Indonesian "funny" pundits that we observed in the last of couple of years-- thanks to widespread of so-called social media and free press.

If you care enough to look at it carefully, there has been a glint of intellectual dishonesty out of this kind of punditry. The obvious one is the habit of setting up a strawman. The less obvious one is to promote something deemed as "new" or "groundbreaking", whereas, in fact, the ideas have been around for years, if not decades, in particular discpline or profession.

Surely, branding something as "groundbreaking" always attracts ones who are not trained on the subject --thus the blame are not theirs. But those funny pundits are, supposedly, aware that the claim might not be as spectacular as it may sound.

Yet, for them, the incentive to commit in such dishonesty is indeed rather high. There are always gullible cheerleaders (and media) out there, eager to celebrate anything labeled as trendy, new, or revolutionary, under the pressure to appear, in our popular lingo, "eksis". Fame, for these faux pundits, is therefore imminent.

Now, in the free-market of ideas, where are the competing forces for such funny punditry? Those well-equipped with training or analytical rigor that can not be easily persuaded with snake-oil jargons and populism.

Here is the Catch-22: most of them are already very busy and occupied with their jobs in the universities, in private sector, and in public sector. They spent great deal of their time pursuing professional objectives -- perhaps, admittedly, for their own different definition of fame or power. In short: they lack of incentive to counter popular fame-inspired pundits in popular (social) media. For many of them the pay-off for engaging in many times repetitive debates doesn't add up with the time they need to allocate for properly analysing the issue.

Moreover, they are also not trained and used to engage in an exchange in which the opposite side are those with "palu gada" attitude (Read: "apa lu mau, gue ada"; or in plain English, the "anything-goes").

Do I believe in wisdom of the crowd then? Yes. Sooner or later, the crowd will know what/who is lemon and what's not. Think of Roy Suryo, if you want.

In the meantime, I believe many people with knowledge, in their limited spare time, look at such funny punditry with amusement (and, perhaps, as source of entertaining gossip over coffee or lunch).

Raise it, not cut it

2010-12-23T20:25:00.001+07:00

You love football. You paid for watching the semifinal. Your fave team won. Next week there will be the final match. Which one is more likely: your willingness to pay for watching the final is higher or lower than that for the semifinal? Yes, higher. So more expensive ticket, not cheaper, makes more sense.

Now, you are a sportman. You always struggle to win. You did win and got an appreciation (be it trophy, money, etc.), so you deserved to play in a higher level. Do you expect more or less appreciation should you win? Yes, more. But where does the money to buy trophy come from? Assume, just assume, partly comes from the ticket sale. What is the implication? Yes, ticket price for final should be higher than that for semifinal.

Finally, you hear that the ticket price for the next game is lowered. Do you expect longer or shorter line at the ticket booth? Yes, longer. If you could afford the semi, would you be paying a premium for whoever promises you to stand in line on your behalf? I would. What is the implication? Black market. If black market is not possible, what would be the stadium look like? Crowded like hell, and possibly with some fights over seat here and there. You would need extra security forces. Which means extra cost.

All the three hypothetical scenarios above are, well, hypothetical. You could of course find them and the likes in any intro level economics.

The president, who ordered the football association to cut the price for final match is, by the way, an economist. He should've flunked his intro class.

Special for everyone

2010-12-14T08:27:00.001+07:00

How to make the term "special" irrelevant? Assign it to everybody. This furor over whether or not Yogyakarta should keep its special status has been long and boring. The president triggered the controversy, the sultan joined the fray. Then the parliament and media made it even bigger a deal. One side says Yogyakarta should not be granted a special status anymore, because "every province belongs to the Republik of Indonesia, NKRI". The other side says Yogyakarta should retain its special status because, well, it is special.

Here's my suggestion. Don't touch Yogyakarta. Don't change anything. Change everything else, instead. That is, grant special status to each and every other province in the republic. Then, let the people decide if they want a king or a governor or whatever.

To borrow from Gus Dur, "gitu aja kok repot".

Warteg, tax, and vulgar paternalism

2010-12-07T07:46:00.001+07:00

What is tax for? Revenue generation for public good provision, incentive mechanism to discourage certain consumption, or wealth redistribution. When you work and make money you use resources. Some you buy some you borrow. For warteg (street vendor selling food), space or street light might qualify as public good provided by the government. Tax in this case also filters out the inefficient ones; maybe by forcing some too small ones to merge and hence able to afford paying the tax. Or, maybe it is simply fair: you tax bajaj driver, why not warteg? So, yes, there are arguments for taxing the wartegs.

But, some politicians go too far. The chief of Democrat Party says wartegs have to be "nurtured and supervised". What the heck? Nurtured and supervised by whom? By the government? Parliament? You? Do you even think you're smarter than them the warteg sellers, so you should teach them how to make money? Do you realize that by issuing some regulation to "nurture and supervise" the wartegs you basically provide a room for yet another rent-seeking activity? Is tax not good enough?

WikiLeaks that is overshooting

2010-12-03T20:56:00.001+07:00

Many people were impressed by Julian Assange, the brain behind WikiLeaks. Some even called him hero.

I'm not sure. At first I thought this guy was something. But then even Assange seems to underestimate the power of price. His leaked infos are now decreasing in "price". Why? Because it's just way too many. Seriously, who wants to invest time digging on 250,000 cables? When he leaked a few classified info, people were taken by surprise. And people wanted more. The price increased.

Then, he flooded the market. Of course I don't have numbers. But I think the position is now an excess supply. Which means the price has gone down.

Too much information is close to worthless information. In such a situation one might not care anymore which one is classified and which mere gossip.

The President's iPad

2010-12-03T19:54:00.001+07:00

So the president just made another laughing stock: his iPad. Now I almost conclude two things. First, he likes gadget. Second, he's so clueless when it comes to image building (or lack thereof). The combination of these two has proven ridiculous. It's still fresh in our memory how he came up with a brilliant solution to the oft-abused Indonesian migrant workers abroad: give them a handphone each. No need to elaborate on this -- 'cause you're already laughing.

But he just made another homerun. With iPad, that is. I mean, hey, there's nothing wrong with him having and playing with an iPad. But a president, holding an uncased (or was it transparrent silicone?) iPad with the famous logo on camera, up close and personal? The only thing better than that is if he had a Coca Cola can on his other hand.

Clueless. Now suddenly my iPad's value has gone down a bit.

And contrary to what people say, I think his showing off his iPad live is not a free promotion for iPad or Apple. It is a good promotion for Samsung Galaxy.

Figure that out.

Keef's Life

2010-11-02T10:19:00.003+07:00

Last week, since I had a 40 percent off coupon plus 5 bucks reward from a bookstore here, I asked barista Aco and Ujang what books to buy.

Ujang, somewhat unsurprisingly, came up with the Handbook of Development Economics. Aco, however, had (better) idea: the biography of Keith Richards, Life.

It's the book everybody in town now talk and write about. From David Remnick of Newyorker to Michiko Kakutani of NYT to our own Taufiqurrahman --who lambasted a mediocre review by a music critic-turned-political pundit in our you-know-what daily.

I ordered my copy. Keith Richards', that is.

To celebrate Keef's biography, the Cafe plays Happy from Exile on Main St. album and Salt of the Earth from Beggars Banquet album.

Lighten up, Doc!

2010-10-28T07:43:00.001+07:00

A letter to editor in Kompas today is a reflection of blatant anti-competition by an Indonesian medical doctor, a member of the Indonesian Medical Doctors Association (IDI). He complains about a doctor from Singapore who keeps advertising himself in Indonesian news media.

He argues, had local doctors been allowed to do the same, all media would have been full of private doctors selling themselves. Some might even offer promos like car or free ticket to go abroad. All sounds sinful to his ear, as the letter implies.

I wish the opposite is true. If Indonesian doctors advertise themselves in the media, that would lessen my search cost. And yeah, I want the prize.

Oh by the way, the complainer, by sending such a letter to the (biggest) newspaper in the country, is, urgh, advertising himself, too. No?

Mentawai and Merapi

2010-10-27T06:11:00.001+07:00

My condolences to the victims of tsunami in Mentawai, Sumatra and of vulcanic eruption of Mount Merapi in Central Java, this week.

Alas, same things repeat: slow response and lax coordination from the government, stupid minister blaming accidents on the victims for not obeying the God's rules, media blunders, insensitive netizens posting pictures of victims on soc meds, and so forth.

RIP: Nizam A. Yunus

2010-10-16T06:59:00.005+07:00

Let me write about someone that unless you had attended FEUI, you probably don't know this nevertheless very fine gentleman, Nizam A. Yunus.

Bang Nizam was the Associate Dean for Student's Affair when I, Ape, and Aco, were in college years in the 1990s. Being active in student magazine, BO Economica, we had close contact with him.

And he was the best, most unpretentious, university bureaucrat one can possibly wish to have.

During 1997-1998 tumultous protest days, Bang Nizam played important role in letting the students to protest and go down to the streets. Unlike other University bureaucrats, he never tried to stop students' movement.

I still remember the nights Bang Nizam spent in his office in Depok on the days of students protest, just to make sure that FEUI students were safe. He was the only campus official willing to do this in those days.

Sometimes I just dropped by to have cold Coke and had conversation on, mostly, unimportant stuff. He had a small refrigerator in his office, I think. Funny man himself, talking to him was always fun.

He also called himself "gue" and his students "elo".

I thanked Bang Nizam for making FEUI feels like home and my college years was very much memorable. In his own way, he really took care of students of all stripes, myself included.

So long, Bang.

Save JifFest by paying higher prices than before

2010-10-14T13:26:00.001+07:00

I love JifFest - that's Jakarta International Film Festival. It's coming (if I'm not mistaken it's going to be the 11th this year). Like in the last years, it's coming with poor financing. I feel sorry and I would love to contribute my suggestion.

Which might not be popular. And hence I would just post it here.

Here's the thing. I think the ticket prices to JifFest have been too low. As a result, they can't rely on ticket revenue even to cover the overhead, maybe. I understand their argument: ticket should not be expensive if you want to introduce good stuff to as many people as possible.

But there lies the problem. Festivals bring about good, selected movies. Usually this kind of movies have pre-selected audience. That is, serious movie watchers, artists, people who appreciate arts more than others, et cetera. And they "should be" willing to pay higher, because they value these movies higher than "ordinary" ones.

By charging low prices (even worse, by subsidizing) they forget one thing: the filter effect of price. Because the prices are too low, even those who don't care or who don't appreciate these movies will come. But for different reasons: to kill time, to hang out, or to find a place to date boy- or girfriend cheaply. These are the people who would talk and make noisy chit-chat while the movie is rolling. These are the people who talk over handphones making it hard for us to appreciate the ongoing movie..

But if you charge a "more correct price", you filter out these non-serious watchers. And give us better ambience to enjoy the otherwise excellent movie experience.

Of course I'm not suggesting a very expensive price. For super high prices might as well scare even the serious watchers. Let's just say a little higher than the prices of non-festival, usual movies in Jakarta.

Just saying.

FAQ

2010-10-04T03:16:00.004+07:00

Soon Cafe Salemba might serve FAQs menu on history of Indonesian economic thought to answer ~~boring~~ repetitive rap on said topic.

In the meantime, you may wish to read essays by Thee Kian Wie published in this book in 2004, especially on the ill-fated Indonesian industrial policy.

Somaykrat? (2)

2010-09-16T06:37:00.000+07:00

Oh, they have a website: http://somaykrat.tumblr.com/

Damn, I'm starting to smell a competition here..

Somaykrat?

2010-09-16T06:32:00.001+07:00

I came across this subtle, funny, yet loose group self-named Somaykrat in the Twitland. To my surprise the baristas are there! No wonder they're seldom post here lately. I'm so gonna cut their paycheck.

But then, out of curiosity, I went over their timelines, the members (or so I guessed), aka "somaykrats". And they're damn interesting. Seems like they're after typos and food. But they also ridicule the shameless Senayan guys and other foolish politicians and their ilks in businesses. I have to say I like them, the somaykrats. So far, that is.

Ah, before I forget, I should calculate the penalties for Aco, Ujang, and AP.

In defense of Qory

2010-08-26T19:47:00.001+07:00

The media, social or otherwise, have been attacking Qory Sandioriva, the Indonesian beauty pageant queen who competed in the world contest, and failed.

Most of the attacks take the form of mockery on Qory's broken English.

Shame on you people. Qory did nothing against you. She's beautiful, she worked hard for that competition. She had the courage to compete abroad unlike many of you. She is great. And you think a broken English is so sinful? How about yours?

Grow up.

Reading the Nationalism-o-meter

2010-08-18T07:01:00.004+07:00

On the way to Metro station this morning, I asked Sisil why Indonesians in twitland and fb became suddenly very nationalistic on Aug 17 -- and we don't.

She thought it's a wrong question. It is not that these people's nationalism-o-meter increases these days, but the urge to update twitter/fb status. The latter motive will pick up anything closer to home in one particular day -- any mass psyche deemed relevant on the day, like nationalism in every Aug 17 or religious revivalism in every Ramadan.

I concur.

In Defense of Mall

2010-08-17T13:07:00.003+07:00

So my two professors went to Manila this summer. One of them was amazed on how cool the malls over there, and the other offered an interesting interpretation: it's in many ways a form of private government.

Here is the reason.

Operating such huge (and usually integrated with business and residential complex) mall needs sophisticated technology and management. And it has to be efficient. With thousands of human resources involved as well as state of the art logistic, it needs high skills and knowledge to run the complex.

Now enter the common explanation for under-development in developing countries: lack of skills and "modern" culture.

These malls show that these line of reasoning doesn't add up. The businesspersons running the mall can deliver not only private goods (you know, from branded bags to broccoli to two bedrooms apartment) but also public goods, like open to public parks, between-the-shops-aisles for window shopping, or the water fountain dancing New York New York (to the dismay of barista Aco).

They are like government -- while the real government is busy doing something else. And the key is, I think, incentives that works, and it is profit motive.

I think it's a right observation. The mushrooming malls as well as those clustering real estates somehow also shows that government has failed, and, to some extent, private actors stepped in. And the blaming for lack of "modern culture" among the people seems to be unfounded.

A Short Trip Note

2010-07-26T07:38:00.007+07:00

So I managed to stroll around the area much of The Warhol Economy describes. It's a cute neighborhood or cluster that makes the city magnet of the young creative people -- and of course a perfect place for a great coffee time talking about, for example, what Varvatos doing at the ex-place of CGBG?

But that's just one face of the City-- and I heard the truly striving creativity has been somehow moved across the tunnel to Williamsburg. The rent has just been unaffordable.

The other part is a place where probably has the world's highest the density of neon ad-lights per metre square. A classic tourist trap. But you may want to go there at 5.30 am to get different feel.

There when the neon light mixed with the early sunshine between skyscrapers and the Good Morning America does not event start yet, you may catch the glimpse of how NYC made of -- well, some of it. Trash collector truck, street vendor who sells coffee and the Times in that early hours, the City finest, and limousine driver in front of ABC studio --probably waiting for Sheryl Crow.

"Life in here is very regimented", said a parking attendant, "I want to move to South Carolina"

I guess he already said it twenty years ago, but somehow he's still there in the city that never sleeps -- even when Lehman Brothers across the street is no longer there.

Much comedic ado about nothing: FPI and the piggybanks - by Lynda Ibrahim

2010-07-17T06:07:00.005+07:00

Hi, this interesting-as-usual piece by Lynda got into my inbox in the first weekend of the month. But I was off and so couldn't post it right away. My apologies to Lynda. But you readers can surely see, this juicy piece is worth the wait. Enjoy! -- Kate

MUCH COMEDIC ADO ABOUT NOTHING: FPI AND PIGGYBANKS -Lynda Ibrahim

I commenced the week rather ominously, broke a tooth while lunching on entirely harmless spaghetti. Gushing blood as scrambling to my car, I hit fence in swerving mad dash to the dentist. Dented tooth and dented car, a classic episode in accident-prone life dating back to my baby steps-- my parents barely bat an eye when their klutzy child arrived at their house for much-needed supply of TLC and soft foods. Just as well, since the week soon turned into a grander, free-for-all comedy, it got my mind off the painful root canal.

First, FPI, who has ran amok freely for many years, smashing people and properties left and right, tearing through Indonesia’s collective fabric of tolerance, while shamelessly borrowing God’s name for textbook thuggery, is finally facing its strongest opposition yet as legislators and activists are calling for its much-deserved demise. A legislator even publicly let out a suspicion, long-held public rumor I may note, of FPI’s all-powerful backing.

Heck! If it were up to gazillions concerned citizens like me, FPI would’ve been disbanded many moons ago, least of after they beastly attacked the pluralistic alliance peacefully rallying at Monas for minority Ahmadiyah sect on a sunny Sunday in 2008. Many were furious upon learning that, after largely went unpunished for ransacking bars and McDonald’s, baton-wielding FPI members were now chasing unarmed civilians including wheelchair-bound Mrs. Abdurrahman Wahid. Yet, few voiced their objections loudly. Perhaps fearing to be called heretics if seen standing against so-called defenders of religion in this piety-valued nation, or fearing FPI would come after them Mafia-style.

Thus, vigilante FPI thrived on. Halting church constructions? Dispersing group prayers and private in-house baptism? Generally getting offended at anyone or anything they mistakenly deemed as enemies of Islam? Majority floating mass remained silent.

Yet tide might turn as lately FPI started protesting against the traditional West Javanese attired Three Ladies statue in Bekasi, claiming a display of Christian trinity proselytizing tool, then barged in on public discussion attended by few legislators in a common restaurant, throwing outdated accusation of communism. While delivered menacingly the two shenanigans were stupendously ludicrous on so many levels that they were reduced to slapstick jokes that we could just openly laugh out loud at.

Either my eyes deteriorating or their delusion peaking, since after squinting for hours at variously-angled pictures of the statue, I still couldn’t see, for the life of me, any trace of Christian trinity. And it got more hilarious as the befuddled Balinese sculptor, called for comment, earnestly inquired what exactly a Christian trinity was. I’m waiting for FPI, any minute now, to swiftly calling the statue a projection of Hindu Trisula.

And as for the communism allegation, no doubt loosely based by one of the legislator’s father’s PKI past, were FPI sleeping through the ‘90s and missed the colossal crumbling of communism? Dude, if you gotta openly accuse someone, at least do it with flair and pick something sexy!

Then, another kind of hilarity unraveled, when the weekly Tempo published a controversial report on, as they titled it, fat bank accounts of high-ranking policemen.

While I won’t comment on the report’s content, I found hysterical this quaint notion that, upon publications of a considerably scandalous piece, a disturbed party would still bother to locate newspaper agents at such ungodly hour, while others were cheering on World Cup or devouring post-clubbing lamb fried rice, to shell out presumably hard-earned hard cash in a spectacularly futile attempt to evaporate the offending issue, considering that not only it’d fuel rumor mill further, the report could easily be accessed online in this digital age anyway. Moreover, some copyrights-ignorant schmucks would quickly make photocopies and retail them at every street corner, as they evidently did within hours after the magazine magically disappeared.

The cake on this klutzy comedy week, however, is won by the flaring verbal joust as National Police, exercising their rights notwithstanding, amid their 64^th anniversary nonetheless, decided to sue Tempo, and here goes the kicker, for the cover illustration. Of all the flame generated by the 9-page reportage! For those who haven’t seen it, see attached the fussed-about cover of a man resembling uniformed police walking off three plump, perky, pink piggybanks on a leash. The spat in summary:

Police: Those pigs are an insult!
Tempo: They only depict piggybanks, really.
Police: But in this country, the ceramic vaults for kids to save pennies (celengan) are shaped like chicken, so the pigs are baseless and hence insulting!
Tempo: Well, if you want to go down that road, celengan is derived from the word celeng (slang for ‘pig’), anyway.
Writers: So, do we start translating celengan to chickenbank from now on? Or should someone consult the chickens first?

Happy anniversary to police corps! Along with sincere thanks for some hardwork that’s been delivered, I humbly remind here that trust must ultimately be earned. Corruption fight needs clearly measured results beyond agreeable magazine covers or disgruntled general singing like canary to media. And the longer you stand idly, the more thugs seizing control and robbing you off public trust. Please watch Alejandro Amenabar’s epic Agora-- see how the FPI-like parabalani eventually managed to publicly humiliated a lawful ruler by ordering him to physically kneel in submission. Not so funny anymore at that point eh, generals?

To the silent Indonesian mass, now that we’ve all had a good laugh, wake up! Indonesia is progressing, with long homework list. There are more pressing issues like crumbling school buildings, depleting ozone, hospitals for remote islands, teenage drugs, or city mass transportation. This busy, bustling democracy has no room for petty pimples like FPI.

To me a practicing Muslim, FPI was never defenders of Islam, and neither should you be manipulated nor keep your silence anymore! Islam’s image actually needs defense from their cheaply employing Islamic wardrobe and sacred terms, like Allahu Akbar, whenever they swing arms to hurt others. Seriously, watch Agora and see outnumbered academicians stood in Serapeum library, literally the last bastion of knowledge, as uncounted mob circling closely and pelting stones, then asked in eerie disbelief, “Since when they’ve become so many?”

They have become so many since we let them, filthy thugs in any coat, to exist for so long. It’s bloodier than a root canal, and that’s no comedy at all.

Jakarta, 4 July 2010

Whither Macroeconomics?

2010-07-11T00:15:00.012+07:00

Yesterday, I went to the Second Story Secondhand Bookshop warehouse. The front store is located at Dupont Circle, but the warehouse Maryland, about one mile away from Ujang's apartment -- and he unbelievably has not came to that place yet :-D. It was not so much like The Strand of New York to find new books -- although they have some review copies --, but it's the place to look for some standard/classic off-print -- important stuffs that have been published in, say, the 80s or 90s.

Moreover, if you are a macro person, that's the place where you can still find a copy of Sargent-Wallace, or Tobin, books.

Looking at the economic section's shelf, it strikes me that the Reagan period (the late 70s and early 80s crisis) has produced substantial books on macro discussing the business cycles. It was a war between Lucas/Sargent/Wallace versus Solow/Tobin/Modigliani -- all are the giants of the professions. But the puzzle is that in recent crisis of the 2000s, macro people have been strangely silent. No books come out yet, so do the published article.

I mean, look at a series of respectable books on current crisis by Raghuram Rajan, Gary Gorton, and the likes. Mostly micro - with an exception of, probably, Shiller and Akerlof's Animal Spirit, which is, to me, more a sketch of reminder that uncertainty matters than a neat macro explanation on what is really going on.

Maybe macro people are truly caught on (and complacent about) the Great Moderation period, in which they think they knew how to tame business cycle -- and by that, leave the once a lively discussion on equilibrium, expectation, and market clearing process.

Is it the end of macroeconomics we at the Cafe used to know it? I don't know. But surely some books from macroeconomics perspective dealing with the latest crisis would help to confirm that macro is still able to generate ingenious ways of seeing things. The magic that in the past had been amazingly spelled out by Keynes, Friedman, Lucas, Tobin, and the likes.

Nothing, really

2010-07-09T02:26:00.006+07:00

Hi, I am at the public library -- a great shelter to avoid scorching heat. Not much to tell lately. Everyone is into the World Cup -- the FIFA's World Cup as those TV anchors here call the event. Probably talking about the World Cup is of little use and value added because everyone has already had her/his own related info needed. This is four-yearly event when everyone can entitle themselves pundit, and everyone else don't care about such punditry nor the biases.

So really, this is a posting about nothing (to follow the abstract of a funny paper by Dixit)

Is Economics Hard?

2010-06-29T04:04:00.012+07:00

Recently, there has been a discussion in the blogsphere, sparked by a short essay of Kartik Athreya: Economics is Hard, Don't Let Bloggers Tell You Otherwise.

Well, economics is hard, at least for me, and I believe for the baristas here too, who have spent days and nights trying to understand one chapter of, say, a standard micro or macro grad textbook.

Then, why the baristas here seemingly make economics fun?

Because it is indeed fun, and we want to share the fun to you all, including the non-economics students, by skipping most of those technicalities and jargons. We at the Cafe want to convey a simple message that you can use economics to see things differently. The most politically motivated purpose is probably just to warn you against ill-informed press corps.

I have no illusion that hanging out in the Cafe would substitute for a proper formal economic education -- but it is equally annoying to see some people believe he/she has mastered economics simply by reading one or two popular books by Stiglitz or Krugman. This is why sometimes we launch a sharp-tongued attack against his/her arguments (note: the argument, not personal)

Is econ hard? Yes. So are anthropology, political science, English literature, biology, and any serious attempt to understand things rationally and systematically.

Supposedly Summer Reading List

2010-06-15T08:50:00.005+07:00

OK, most of you will be glued to TV watching the World Cup. Aco has been deriving some lemmas regarding optimal direction for penalty kick, taken from Levitt paper. I know, you may think we economists have funny way in seeing things, including football, but, sorry, just live with that, OK? You will get used to, as many of you already did.

In the meantime though, the Cafe is preparing to buy books for your summer perusal. Here is the list
1. Fault Lines, by Raghuram Rajan
2. The Company of Strangers: A Natural History of Economic Life, by Paul Seabright
3. The Upside of Irrationality, The Unexpected Benefit of Defying Logic at Work and at Home, by Dan Ariely
4. Zombie Anthology -- ask Ujang for detail
5. Primates and Philosophers: How Morality Evolves, by Frans de Waal

And, oh, I start to, -whaddayacallit?-, tweeting.

What 15 bn IDR Can Make

2010-06-08T01:51:00.003+07:00

If I had 15 billion IDR (1.62 mn USD) at my disposal, I'd buy a new espresso machine.

With that, I can make a new brewing called espresso aspiratiano a.k.a pork-barrel, sold exclusively to Indonesian lawmakers.

There Is Something About Bagel

2010-06-05T00:01:00.015+07:00

I was sitting in a bagel shop this bright mid-morning with Lintar. Overlooking an intersection in a typical suburb scene, you can always tell some of people's psyche from traffic and city landscape -- the way Sartre did on New York city some decades ago. Or, you can do it by observing simple things like a cup of coffee and donut, like what Umar Kayam did on the same city.

And if you come to think about it, I guess 95 percent of our life and thinking is spent for things that are trivial and, quite simply, light, in Kunderan sense. Like bagel with sun-dried tomato shmear -- or a lone old man sitting behind me with his iPad on, reading probably today's WaPo's gripping stories on retaliative killings in the southeast neighborhood.

All these make the idea of politics is getting harder to comprehend. It gets me thinking why people with vast resources in his/her hand are interested in politics. After all, a bagel and a cup of coffee cost you about two bucks and they can make your day.

Maybe, for them, it is a game worth playing and winning. But for what? Is evading tax a good game? Is crushing many people's hopes for a long-awaited reform a game worth playing?

Those politics and the following rhetoric also tend to suffocate. I am recently reading the biography of Marx (Karl, not Groucho, nor Richard). Putting him into perspective as a human being, albeit brilliant, really lifts up the heaviness of Marxist ideology. With politics, the complexity of a human's mind is wrapped into talking points and, in many cases, guns. Of course, this is not just the case for Marx, but also for many others brilliant minds whose thoughts are evolved into political movement.

Enough said. Moral of the story is that, perhaps, even Noam Chomsky and Gary Becker need to sometimes just have good bagel and coffee.

In the meantime, let the Cafe play ~~jazz~~ rock and roll to you, now. This time, double LP of Exile on Main St. by The Rolling Stones.

A Short Note

2010-05-29T08:31:00.008+07:00

It's been quite awhile. We, the baristas, are busy doing something else -- like twittering or discussing Indonesian public debt somewhere else. Kate, I believe, is planning to visit DC this summer. She wants to see The Phillips Collection.

Maybe it is time for Naryo to start delivering his kind of brew. But he said that he is not yet confident about it and still needs some time to master his skill on wit and rhetoric (and conspiracy theory) under tutelage of our friend Haryo Aswicahyono.

We'll be back with another economic serving soonish. I know Ape is working on something about the monopolistic nature of medical doctors' market in Indonesia.

In the meantime, why don't you spend some time in this long weekend pondering this Oxford University's All Souls College essay exam?

The Day I Morosely Picked a Side (by Lynda Ibrahim)

2010-05-11T07:28:00.000+07:00

Dear all,
We are sad that the country's top reformist is finally leaving us. Sri Mulyani Indrawati is our role model, as we believe she is to many of you, friends. While wishing her success in her new endeavor in Washington DC (Rizal, Ujang, please take care of Mbak there, will you?), Cafe Salemba would pay tribute to her. Today, Lynda Ibrahim share hers with us. Kate

THE DAY I MOROSELY PICKED A SIDE

-Lynda Ibrahim-

One rainy afternoon in November 2008, I attended a birthday soiree in a South Jakarta’s novelty patisserie-cum-café. The US credit crunch was fast snowballing into a global financial crisis, and everyone was bracing for the worst.

On domestic front, Finance Minister Sri Mulyani Indrawati was persistently defying all kinds of pressure to bail out Bakrie-owned mining company Bumi who got itself into a mess by, in laymen’s term, having borrowed more than its assets could ever pay back for. She rightfully stood her ground, declaring that her main job was to manage or safeguard the country’s assets and created policies for market player, not to rush rescuing the assets of market players who got into trouble. Or as I unreservedly added—a player who got into trouble due to their own imprudent corporate practices and complete disregard of Corporate Finance 101, duh.

There were three male guests in the soiree that I found myself debating with amid lattes and piecrusts. A man who might know more than he could say, a man who wanted to know more than what he said, and a man who wanted to be known for knowing everything and everyone. Despite the psychodynamic sidebar, they shared an opinion that, after crusading against corruption and publicly taking an opposite stance from the Bakrie the Behemoth over Bumi, in addition to having previously refused to open the state’s coffers to compensate for Bakrie-owned Lapindo Brantas’ mudflow victims, Mulyani had garnered enough enemies that her Cabinet days were numbered.

Fueled by linear logic, trust of human intelligence, conviction of greater good, and perhaps too much caffeine, I ardently argued that our dear President certainly understood that not only his Finance Minister stood her ground for some valid, nation-serving, reasons, she was also a highly valuable asset on his Cabinet who was valiantly trying to reform deep-corrupted institutions under her ministry. An uphill battle that was long overdue, until she stepped up and shook down both Custom-Excise Office and Tax Office, Indonesia’s most notorious devil’s lairs of corruption. The boys called me over-optimistic, and I called them status-quo suckers.

SBY got reelected on a landslide about a year later. Indonesia was relatively shielded from the global crisis’ worst nightmares thanks to Mulyani’s rock-solid acumen and policies. Seemingly oblivious to the plentiful of accolades, Mulyani went tending to her business, riding the reform wagon further up and around. I thought about those three doomsayers from the birthday soiree and was seriously tempted to call and sing ‘nyah, nyah, nyah’—but resisted and danced to Mamma Mia tunes by my living room instead.

What a difference six months make! Last Wednesday, still limping from a podiatric procedure, I almost tripped when news broke that Mulyani stepped down to work as World Bank’s Managing Director. For two days it was all hazy for me, and it wasn’t the work of the painkiller prescribed for my left sole, but because I just couldn’t settle with the issue. I refused to believe that, after showing unwavering focus and unflagging spirit in carrying duties, even during months-long Centurygate that soon reshaped into a personal vendetta against her, she just went off to accept some job to enjoy a greener pasture, to spite the seemingly thankless stakeholders, or as insultingly suggested by some political potheads, to flee the country avoiding legal battle. Probably the same potheads who said that the prayer beads she was seen clutching under desk during Pansus hearing as a sign of fear—whereas I saw it plainly as a pacifier in dealing with loaded questions and hostile attitude served before her for 12 straight hours. Heck, there were some blatantly nasty moments then that, had I been her, and clearly this is why she’s the Minister and I’m not, I probably would’ve leapt off the desk in an ass-kicking, take-no-prisoner, Jennifer Garner’s Alias way.

The weekend prior to Mulyani’s resignation I just had watched Alejandro Amenabar’s latest epic, Agora, which starred Rachel Weisz as Hypatia, the fourth century’s renowned philosopher and astronomer who taught in a much-acclaimed science academy under the dome of the legendary Alexandrian library. As a remote Roman province, Alexandria was a melting pot that wasn’t spared from the embroiling conflict among the old guard of pagan belief-- mostly Roman-educated and Greek-influenced scholars such as Hypatia--, the fast-growing Christians coming off centuries of oppression and now armed with their FPI-like parabalani, and the struggling Jewish population.

Religion or realpolitik, Agora’s blood-curdling scenes that were eventually followed by blood-spilling kind showed that once a leader standing idly as a limited group’s vested interest was schemed as public issue and maneuvered onto public stage, bolts would unscrew sooner than Paris Hilton undress, and by then it would be too late to enforce any legitimate law and order unless, or even in spite of, a sacrificial lamb being served up the platter to appease the berserk beasts. Ancient Alexandria and modern Indonesia have so much in common I still have chills down my spine 10 days after I watched the movie.

This past week there have been so many rumor swirling around, ranging from the ‘hush-hush’ to the ‘you spill, we kill’ variety. Maybe this was the graceful exit for her, or the most amicable solution for many. Maybe she is being ‘safe-kept’ until sensibility returns. Maybe she retreats to regroup, so she can return for a bigger ticket in 2014. Everything and anything is possible at this point— but to me one thing is crystal clear. I grew up dancing and I can spot choreography, however subtle, when I see one. And this was one.

I started out objective when the whole Centurygate unfolded. I admittedly got disturbed by the Salem witch trial style that some Pansus members were demonstrating during the hearing week that I made my thoughts public, yet I still strived to remain fair. But somewhere along the way gloves have been off, claws are out. And although I didn’t draw the first blood, on the morose Wednesday May the 5th, I got to pick a side.

And as I understood, so did many previously non-committal, middle-ground mass.

Hence, for those of you dancing victory laps screaming ‘rah-rah’ around the bonfire, just thought you guys might want to know.

Jakarta, 10 May 2010

RIP: Hadi Soesastro (3)

2010-05-04T17:13:00.020+07:00

I believe it was in 2002, in a discussion at the CSIS on, of all topics, Hayek, that I came to know Pak Hadi personally and I am grateful to have that opportunity for many reasons.

As a scholar and intellectual, no doubt he was among very few Indonesians that the world highly regards. The title of one of Asia's best minds is also of no exaggeration. In some international meetings and conferences I happened to join in, everybody seems to know Hadi Soesastro and want to talk to him.

He was also a very fine economist with a strong awareness for political constraints and context that made him an effective consensus maker. In particular, Pak Hadi was very well versed in trade and technology issues -- two hot topics in contemporary Indonesian economy; but he seemed to avoid (media) controversy and quietly worked in an unassuming way in trying to materialize the benefit of trade and technological progress to the country.

His passion to international cooperation also showed that he believed that the country can only move forward by getting along with the world's community -- a perspective that, alas, many of the country's leading figures tend to underestimate and dismiss, probably due to some inferiority complex. But he was no self-willed and this is why you might find him talking to the other discontented parties, sincerely listening to their concerns -- no matter how absurd they appeared to me.

Above all, Pak Hadi was a very good mentor and teacher. From friends at the CSIS, you would hear that Pak Hadi had put lots of confidence to his younger colleagues to present paper or attend prestigious meetings here or abroad. But his attention was not limited to his home-base. I am not working for the CSIS, but that was what he had done to me, too.

Pak Hadi sent me to one of the earliest conferences where I present paper -- the ASEAN Economist Forum. Probably little that Pak Hadi knew, I was nervous like hell. He also asked me to join the working group for manufacturing industry policy of the Indonesian Economist Association (ISEI). I still remember how I felt in awe sharing the same table with Thee Kian Wie and the likes prominent economists discussing (more accurately, listening to them talking about) what happened to our manufacturing industry.

For that, I sincerely thank Pak Hadi in believing in me as then a young economist to gain academic and policy-related experience. Those exposures mean a lot to me, Pak.

The last time I saw Pak Hadi was in the PECC meeting in DC in which he also asked me to join. Among other things, we talked about food. Pak Hadi knew good food and he suggested me to visit Central where the food is good and --this is important for student like me-- the price is affordable.

He was always modest. I was surprised to learn that Pak Hadi, after the meeting, continued his trip to New York City by taking Chinatown bus with his son late at night. The reason: for him it's comfortable enough and inexpensive. I am speechless. With his stature, taking Acela would not be too much, but his modesty was really admirable.

Last thing, I regret that I would not be able to fulfill my promise and take him to Ray's Hell Burger next time he visited DC, but I guess, Pak Hadi, you will always get the better burger up there. And the ice cream too.

So long, Pak Hadi. May you rest in peace.

RIP: Hadi Soesastro (2)

2010-05-04T11:12:00.001+07:00

As a rejoinder to AP's obit, please allow me to copy-paste my twits from Twitter this morning.

1. I took his class, "Technological Progress and Economic Development".
2. He tought us how you could push the production possibility frontier by advancement in technology
3. Yet you should not pursue technology without considering the entire economic development stage
4. He was a great teacher. Soft spoken, fatherly. At times we held the class in CSIS Tn Abang. He made us feel at home
5. With Mari Pangestu and others he brought CSIS up to international calibre. He was respected as one of the leading economists in Asia
6. Hal Hill (ANU) dubbed him as 1 of 4 economists saving Indonesia in the aftermath of 97/98 crisis. Others: M Sadli, Thee K Wie, Boediono
7. Seeing him with his mastery of the topic, we were all proud. Of him, and of the country.
8. Last September we went to Tokyo. He briefed the audience on the current geopolitical landscape of Asia and the rising Indonesia's role
9. In that Tokyo event he looked so healthy, after having the cancer for quite some time
10. Last March he attended a China-Indonesia event in Beijing. To my regret, I couldn't join (was in Incheon). His condition dropped again
11. After Beijing conference his condition continuously worsened. He had to cancel many trips and schedules. Yet, he's a man of commitment
12. He texted me Apr14 "Maaf Sdr Aco, saya krng sehat, tdk bisa hadir dlm Sadli Lecture bsk". I always protested the prefix "Sdr" :)
13. He also emailed us "Maaf, sy tdk bs selesaikan chapter saya untuk buku Pak Emil". We understand, Pak.
14. Then came the coma. As I visited, he was all tied up to machines and cables. Brain hemorrhage. My heart ached, eyes teary.
15. April29 last week was his 65th birthday. Now he's gone. Selamat jalan, Pak Hadi

RIP: Hadi Soesastro

2010-05-04T08:37:00.004+07:00

This morning I was shock when my wife Juli found out in Facebook that Hadi Soesastro passed away. We've been anticipating this when we heard pak Hadi was admitted to Pondok Indah hospital in a deep comma following a brain hemorrhage. But still, it was a sad sad news.

My last communication with him was in April 15th. I asked him if he could write an introduction for my 'book.' He replied shortly, "Please send me your draft. I'll see what I can write." Two days later he was admitted to Medistra Hospital because his Hb dropped. He left Medistra a few days later, and he was OK. But then in April 24th I heard he fell into a comma and rushed to Pondok Indah. He stayed unconscious until his last day.

Pak Hadi has been battling against his prostate cancer for the last few years. He's been back and forth to Melbourne for his treatment. In an email he sent in December last year, he mentioned that the cancer has been expanded to his bone. A radical approach is needed to remove the cells. I sensed an admission that he's done almost everything, and whatever comes next would be beyond what human can do. But at the same time, it was a very positive and inspiring email. Yes, anybody who knows him would say that Hadi Soesastro is one of the most positive thinking person.

Everybody can tell how a great economist and researcher pak Hadi is. But to me and all CSIS current and former staffs, and I believe to many other people outside CSIS, our interaction with pak Hadi is much more than a professional one. He's been a big brother or father (grandfater for some) figure for many of us. He was a senior, a mentor. But he preferred to be considered as friend or colleague. In 2001, in a seminar at CSIS, I addressed pak Hadi as 'my boss' to Julia Suryakusuma. Pak Hadi corrected me. "Colleague," he said.

You can see him during a session break in may CSIS seminars, even the international ones, wandering around with a bell, urging people to start the session. Yes, him, the Executive Director. He is also a warm figure in the office, and outside. As an Executive Director, he regularly come upstairs to meet us, his junior staffs. Sometimes with an information about a scholarships, a seminar, or even just to say hi, chat with us, and even... gossiping. In many occasions during my study abroad, he'd invite us to visit his place. As usual, he's always been a nice and entertaining host. His oxtail soup in Canberra (around 1999-2000), or his mushroom and salad in NYC (New Year's Eve 2006) are some example.

In autumn 2005 pak Hadi and bu Janti visited Harvard. Juli and I visited them in the hotel at breakfast -- we planned to take them around Boston. Then we learned the couple's habit of 'stealing' bread rolls from the hotel. "What for?" we asked. "To feed the birds in the park," they answered. So then we went to Boston Common and feed the birds with the bread they brought from the hotel. After that we invited them to spend a night in our small apartment. Pak Hadi agreed, in one condition: it didn't create any hassles for us.

I can go over a very long list on his accomplishment, on his warmth and greatness as a person, and so on. But still that won't be enough to describe him. In short, in many ways Hadi Soesastro is a person you'd want to be like.

One last thing. In 2006 when our daughter Rara just joined our family, he presented a Teddy Bear. We named him 'Teddy Hadi' or 'Hadi Bear' (now I wonder why it was not 'Teddy Soesastro'). Someday Rara will learn that it was a precious gift from a great person.

Don't Tell Kate

2010-05-01T11:47:00.005+07:00

that three of her five full-time baristas just have had a rendezvous in a bistro and rather obscured cafe far away from Salemba.

It's labor day, for crying out loud.

Esther Duflo

2010-04-24T10:43:00.005+07:00

I first met Prof. Duflo in 2004 when I was a student at the Harvard Kennedy School. She came as a guest lecture in our seminar series. She presented her work on the impact of a quota for female politician in India's local government.

During my two-year time in Cambridge I hadn't had too much opportunity to interact with her. But I learned much about her works and MIT-based Poverty Action Lab, the organization he leads with Abhijit Banerjee and Racherl Glennerster. Her most cited work was, of course, her dissertation-turn-seminal paper on measuring the return on education using Indonesian data. In the paper, she exploited the fact the SD INPRES policy in the 1970s could serve as a exogenous quasi-experiment. By comparing the average years of education and wages between the pre- and post-INPRES cohorts, she corrected the endogeneity and omitted variable biases.

In 2008 I had a privilege to get involved as one of the te aching assistants in the Poverty Action Lab's short course in Bali. There I had some chance to discuss some technicalities in doing randomized experiment studies with her and her co-workers. I also learned that she likes to go hiking and mountain climbing. In fact, after the Bali course finished, she and Pascaline Dupas went to Lombok to climb Rinjani.

This week the American Economist Association awarded her the John Bates Clark Medal (see the story here and here). It is a highly prestigious award, given every 2 years to "American economist under 40 who have had a significant contribution to economic thought and knowledge." (Note: Prof. Duflo is now 37). Former medalists include Milton Friedman, Joseph Stiglitz, Paul Krugman, and recently Steven Levitt, Daron Acemoglu and Susan Athey. Duflo is the only second medalist after Susan Athey. And in the past, Clark Medal is a good predictor for winning the Nobel Prize.

Prof. Duflo had her Ph.D from MIT, and has been working there since then. In the US academic job market (in economics), it is very unusual for a Ph.D to work in the same institution immediately.

If I can summarize her contribution, it will be 'helping to understand which development policy or initiative work, and measure the impact, using randomized experiments.' True, there has been so many debates over the use of randomized experiments. The fact that is has been debated only shows its importance. Although Prof. Duflo was not the inventor of the technique, she and her co-workers are the ones to make it popular not only among academia, but also for policy makers and pracitioners.

For those who have always been skeptical, even hostile, to economics and economists, please spare some time to take a look at her and the Lab's website, and see how diverse the discipline has been.

And The Medal Goes To

2010-04-24T00:07:00.006+07:00

Esther Duflo of MIT. She obviously very well deserves for the medal indeed. Congratulation.

Your barista Ape, her fellow randomista, will probably serve you a review on what Prof. Duflo has done and brought her to the prestigious John Bates Clark Medal.

Torture of Book Sale

2010-04-20T23:00:00.007+07:00

I am at my local library now and could not decide what to buy from their ridiculously low-priced ongoing book sale: Goethe's The Sorrows of Young Werther, Carlos Fuentes' A New Time for Mexico, or Toni Morisson's Sula.

One thing I know I won't take is anything from Michael Moore.

I think I'll go for Goethe.

Update: Goethe's Werther has gone. No wonder, it costs just 50 cents.

Who Wants Industrial Policy?

2010-04-14T13:21:00.005+07:00

Dani Rodrik of HKS is one - with some twist from the old definition.

Nonetheless he said:

The standard rap against industrial policy is that governments cannot pick winners. Of course they can’t, but that is largely irrelevant. What determines success in industrial policy is not the ability to pick winners, but the capacity to let the losers go – a much less demanding requirement.

Uhm, I am not convinced. Letting the losers go is very hard, and probably equally demanding with picking winners. I made a serving in this Cafe sometime ago, arguing that old policies don't simply die.

Which books?

2010-04-02T06:59:00.001+07:00

Dear Kate,

I'm off to Kelapa Gading today. The Gramedia there runs a handsome price discount. Any suggestion on books?

Thank,
Bookbuff @ Karet

Dear Bookbuff,

First, forgive me that I doubt you're a book buff. Book buffs don't ask suggestion on books. They know what they want.

But I'd tell you anyway what I just did in my latest shopping spree. I bought SuperFreakonomics (Levitt-Dubner), Nudge (Thaler-Sunstein), Animal Spirits (Akerlof-Shiller), The Return of the Great Depression (Krugman), and The White Tiger (Adiga). All but Tiger are with econophone, but Tiger is equally entertaining - it's the winner of 2008 Man Booker Prize. My usual formula in bookshopping is 4:1, four econ and one literary work.

Oh, while we're at it, why don't I share with you what I would not buy? Here goes. I don't buy books of authors who put their academic titles on the front cover. They're usually bad bad bad. I don't trust self-help books. And I don't like books with dry title.

Finally, I also judge books by their cover. And sometimes I buy books just for the sake of ridiculing them: John Perkins, Naomi Klein to name two.

Happy shopping,
Kate

For Auction: Freshman Seats

2010-04-02T04:16:00.007+07:00

Greg Mankiw told us that Harvard admission committee has decided to auction off 100 freshman seats for the next academic year to overcome their budget shortage.

Of course, you may want to be little bit careful in reading the date of such announcement.

On the second thought, the idea is not as outlandish at it may seem. What about the FEUI follows the suit and would launch an open auction for, say, 30 seats next year -- and use the money to buy books for library and send their junior lecturer to study abroad?

I think it is a good idea as long as they make it open and transparent. On a smaller scale, they can try to auction off seats in Aco's class -- I wonder how much the true market value of his lectures is :-D

What do you think?

Pricing the environment

2010-03-30T06:11:00.003+07:00

Dear Kate,

I gather, you took a minor in environmental economics. I once heard that you guys like to value clean air, healthy water, sequestered carbon etc by putting a price on them. How do you do that?

TreeHugger @ Borneo

Dear TreeHugger,

There are many ways to do that. Let me take one here, called hedonic price estimation. You are Foke that governor. Suppose you want to clean the Jakarta's air. Calculating the cost is easy: sum up the prices of labor, equipments, capital, etc. But you would need an estimate of benefit. After all, you can only approve a project when its benefit outweigh the cost - especially because you're using public money from the taxpayers, you would be held accountable. Measuring the benefit of cleaner air is not straightforward, because air is not market good ie it doesn't have a price tag ready like the t-shirt you buy in Plasa Senayan.

This is where hedonics comes into rescue (I'll tell you someday why it is called 'hedonic' approach). It measures the benefit of non-market good via the price of a market good. How? Think about the time when you were about to buy your house. What were your factors of consideration? Of course you would care about its price, its structure, its location, its neighborhood. But you also care about the environment, the air right? With only price and environment vary, other things being the same, which one would you buy: House A, cheaper but with dirtier air, or House B, more expensive with cleaner air? Keep in mind, life is about choosing and tradeoffs.

That is what hedonic approach exploits. It tries to extract the environmental part in your set of consideration when you buy a house. Using an advance econometric approach, you set all variables but price and an environmental proxy unchanged. Then you can see what a change in environmental variable would impact on the house price. Then you multiply this number by the population house in the area. This is the social benefit of having clean air in Jakarta.

You want more? Ahem, hire me :)

Greeny yours,
Kate

Twitter

2010-03-29T22:37:00.002+07:00

Hi, I'm officially on Twitter now (@katesalemba). As in the other social networkings, I'm a latecomer. I gather, the baristas are there too: Aco (@acopatunru), Ape (@ari_perdana), and Ujang (@ujangw). Rizal is still in denial, while Sjamsu 'can not handle one more additional networking' (what, is he Paris Hilton or something? Haha).

So, let's see how this Twitterati plays out. Wanna bet how long I'll be ... what's the term, tweeting?

Twittery yours,
Kate

Gary Becker's World View -or Something Like That

2010-03-28T23:17:00.011+07:00

One feature I like from Chicago political-economy school is their optimistic view on market-like competition and the ability of people to generate it --regardless of any (usually government) attempt to suppress such competition.

Gary Becker interview here is one example. Unlike the right-wing radicals who saw the passing of healthcare bill as a doomsday for America, Becker remains rather optimistic that voters as well as competing interest groups generally would place more realistic assessment and control on this political and politicians' product.

I share his view on the role of interest groups competition - including on the latest Pansus brouhaha.

My favorite lines, however, is his explanation on people's anti-market bias. Becker says at ease:

"There's one bias that we're up against all the time: Markets are hard to appreciate. People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we're always up against a kind of in-built suspicion of markets. There's always a temptation to believe that markets succeed by looting the unfortunate."

Yes, indeed market is hard to appreciate - mostly based on appeal to emotion.

Akerlof and Kranton's Identity Economics

2010-03-24T06:01:00.006+07:00

Do economists simply disregard social norm in their analysis?

Contrary to common belief, economists have tried to incorporate social norms in at least three ways. First, in collaboration with psychologists, they tried to model an agent's maximizing utility behavior with additional constraint of psychological bias. Second, they also tried to take into account other's utility function into the representative agent's utility function; known as endogenous preference approach.

This first two approaches still hold up a single representative agent behavior as micro-foundation of a social phenomena.

Akerlof and Kranton, in their latest book, Identity Economics, 2010, offer a different perspective. They use more than one representative agent and respective utility function (they called it identities) in looking at a certain social pattern.

I have read this interesting and readable book for the general public, but haven't had time to peruse the more technical academic journal articles behind this book --those on the bibliography. With that in mind, this is my knee-jerk reaction: how do we decide the number of agents' types and utility functions we need to put into account in analyzing, say, gender and labor market in Indonesia? Two, three, four? What is the general rule for determining that number?

Nevertheless, the book shows that economics, after all, has never been an isolated subject full with stubborn students. It did not stop with Milton Friedman's book on Price Theory.

Obamacare, this week's name of the game

2010-03-23T08:45:00.004+07:00

Obamacare, or the triumph of Obama/Democrat's health reform bill in the House is the name of the game this week. (Especially after Liverpool's loss to MU).

The whole process is interesting to follow. Not for its 'heroic' moment for Democrats. Not for the contents, which I am still learning about. Well, I like that there is finally an attempt to fix the problems in the US health care, including the market failures associated with it. But, like Greg Mankiw wrote, we still need to understand the trade-offs of each policy choice.

For professional purpose, I have been trying to follow the issue, read here and here. Oh, by the way, the blog is my new playground -- a nerdier version than this Cafe.

I was entertained by how the politics are played in Washington. Not because it's beautiful. On the contrary, we've seen the good, bad and ugly side of Washington politics. Where ideas, idealism and ideology meet pragmatism, negotiations and bargaining.

Also on what I considered as 'the cattenaccio of politics' played by Obama. He distanced himself from the micromanagement, orchestrating the Democrats in both chambers of Congress to get bogged down with the nitty-gritty details. When Mass. senate seat went to Republican Scott Brown, eliminating Democrat's supermajority, they changed the tactics. House voted for an earlier Senate version, so they don't need another round of vote from the Senate. Big kudos to Nancy Pelosi who led a successful army of arm-twisting, nail-pulling efforts, making sure the bill was passed.

Now, compare that to the Pansus drama...

Sure, some friends argued it was all about ideology. It was the triumph of government over market and big corporations. Well, fine if you think that way. But for all the pro-government enthusiasts, two things are missing from Obamacare: a government-run commercial insurance and single-payer system.

Ah, and of course some DPR members failed to get the story right. This guy screamed Obama's Asia-Australia trip delay was a sign of diplomatic failure. Our government (SBY, that is), failed to convince the US that Indonesia is safe. Well, what can we expect?

Undergrad Student The Cafe Would Love to See More

2010-03-18T02:45:00.008+07:00

I used to think that going to Juilliard and studying whatever there is always more fun than taking economics. Thus it came as a bit surprise that taking economics, after all, is more interesting than studying violin, even at Juilliard, at least for A.K Barnett-Hart.

And more importantly, her excellent undergrad thesis on Collateralized Debt Obligation (CDO) is indeed worth perusal (see the link on that WSJ piece)

The Cafe would like to see more undergrad students like her, not those who love to throw stones at KFC or fight against the police. In fact, the Manager is thinking to give free coffee to students who produce an A+ thesis.

(HT: Greg Mankiw)

On Obama's visit

2010-03-15T15:29:00.002+07:00

Visitors of this cafe might remember, I wasn't very thrilled by Obama when he was first elected (as channeled by the guys here in Warung Sebelah). But I shared many observers' view that he's much better than Bush.

Now, with Indonesia's rising role in international fora (e.g. G20) as well as its impressive economic achievement (e.g. upgrades by Fitch, Moody's, S&P), I think the Obama factor has become even more important than before. Yes, there's an ongoing change in the geopolitics in the area with China's leadership esp. as the locomotive of the so-called regional production network. But issues like currency talk, global economy rebalancing with US and China will be around for quite a while. Add the tension between China and Japan on ASEAN+3 or ASEAN+6 to it, we would all see that Indonesia should really take these other countries very seriously. And that includes giving proper respect to their leaders, including that of the US, namely Obama.

But why am I bringing this up? And why here in the cafe rather than there in the boring and pretentiously serious Exegesis? Well maybe because I'm sick of this die-hard Americo-phobia displayed by many elements in the community, e.g. HTI and some other religious-based groups. Ah yes, some lazy students too plus narrow-minded media. So I'm saying this with the usual cafe angst.

And I post here so as the other baristas will chip in :D

On Good Coffee, Jazz, and Economic Data

2010-03-12T22:35:00.015+07:00

Let us discuss those things this Cafe loves to talk about.

First, coffee. Finally New York City took their coffee seriously. This is actually a problem for almost all of American cities, that is, low per capita good coffee places. Come on, if you think Illy is the best coffee you can get, then you're in a serious need for better taste caffeine.

Unlike their counterparts in Europe, America needs much more good coffee -- and bread, I must add.

Second, jazz. Brad Mehldau is about to issue a new album, Highway Rider (HT: Sisil). It looks promising and you can listen to some of the sample here. Mr. Mehldau is one of Cafe Salemba's favorites for contemporary jazz --along with Joshua Redman and Branford Marsalis, to mention some. Of course we also listen to Vampire Weekend and Arctic Monkey, while on Lady Gaga, there's been a wide disagreement amongst us.

In this new album, apparently Mr. Mehldau is back to his old style as in Largo album. He seems indeed really good in expressing the melancholy of journey in life.

Third, economic data. Google launched visualization of the World Development Indicators subset (HT: Tyler Cowen). Any serious development economist must have been familiar with this data set at one point or another. The visualization is fun too. You can now see how good (or bad) Indonesia is, relative to other countries, using a real data --not an appeal to emotion.

(Not) the Java Jazz

2010-03-07T11:02:00.012+07:00

I've overheard that the Java Jazz Festival 2010 was disappointing.

Well, I am not sure if it's true. But anyway, you still have us, the Cafe, keep playing the jazz as we know it.

Here some for you, a real cool (and touching) piece from Dave Brubeck's Allstars Quintet, The Jazz Ambassadors of US Army Field Band, and The Four Sons of Dave Brubeck, played the medley of Unsquare Dance, Kathy's Waltz, Take Five, Blue Rondo ala Turk, and Happy Birthday, honoring Dave Brubeck at the Kennedy Center, December 2009.

And John and Toni who, again? :-D

There Are Many (Much) Better Reasons to Hate Economics

2010-02-27T11:48:00.028+07:00

Emmanuel Subangun wrote in Kompas 2/27/10 op-ed:

As recognized by anyone who ever attended university and had economics course, economics suffers from two plagues. First, to support the claim of economics as a science, the limitation has to be clear. In economics lingo, economics has to be separated from other social facts -- boldly called as, from Latin, ceteris paribus. From this point, economic model is born and, alas, all economic policies are based on models generated this way. The second plague, economics(sic!) is not willing to be registered as social science, so that (sic!) it self-regards as a star (science) that has best understanding on social issues. This creates a superiority complex.

Geez!

Those who ever took econ courses (and elementary research methodology) seriously would understand that ceteris paribus doesn't mean a separation from the so-called economic and social facts. Ceteris paribus (or all else being held constant) means that when you try to explain the effect of a change of variable, you assume that other variables are constant.

Let me repeat this clearly: This has nothing to do with separating the facts, let alone between economic and non-economic facts.

It is about how to tell the effect of, say, proper Econ 101 education, on ability to write a well-informed op-ed. In your observation, you can not really tell it if you do not hold other variables (e.g overall educational level, writing skills, exposures to relevant readings, political bias, the number of economist friends, etc) constant.

Moreover, who said that economists do not consider non-economic facts in their analysis ? Mr. Subangun probably needs to read a whole series on non-economic factors in economics at the diskusiekonomi blog.

On his second claim that economics refused to be categorized as a social science, well, it surely has different methodology than, say, sociology, but it is a social science. Suppose it weren't a social science, does it mean that now we have social sciences, natural sciences, and economics?

Then Mr. Subangun also thinks that Boediono and SMI represent scientific economics, while Pansus common sense. The former fails to convince the latter, hence political communication dysfunction.

Common sense makes you think that the sun revolves around the earth.

Beside, Pansus does not use common sense, but play ill-informed politics. They just either, like Mr. Subangun, don't get the economics right, or, worse yet, for whatever reason, refuse to take well-founded economic arguments for bailout.

Additional flaw: From the quote, Mr. Subangun argues that economists want to separate non economic social facts; but at the same time he suggests that they claim to have best understanding on social issues. Alas, this argument is a contradictio in terminis.

Happy Birthday, Village Vanguard

2010-02-25T10:32:00.007+07:00

Yesterday, the Village Vanguard had its 75th anniversary.

To celebrate, Cafe Salemba plays some memorable live recordings from that mecca of jazz. Here is the line-up and you can listen to the youtube link we put on the song's title:

1. Sonny Rollins' Old Devil Moon, from the album A Night at the Village Vanguard, 1957
2. Bill Evans' Alice in Wonderland, from Sunday at the Village Vanguard, 1961
3. John Coltrane's Spiritual from Live! at Village Vanguard, 1961
4. Brad Mehldau's Monk's Dream from The Art of the Trio 2, Live at the Village Vanguard, 1997 (sorry, no youtube link found)

Enjoy and please don't spill the coffee over the last AER you just read.

Why I'd Rather Buy Two Cups of Coffee and Muffins

2010-02-18T03:58:00.021+07:00

Following a Facebook discussion here, Ujang and I are amazed on how our friends on the left take Naomi Klein's Shock Doctrine seriously. I can not say anything on Klein's argument since I haven't read the book. And here is why.

Imagine you have 10 bucks in your pocket. Then somehow you read Tyler Cowen's review that says

Rarely are the simplest facts, many of which complicate Ms. Klein's presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation in the world, including in America, and it hardly seems that a far-reaching free market conspiracy controls much of anything in the wealthy nations. Second, Friedman and most other free market economists have consistently called for limits on state power, including the power to torture. Third, the reach of government has been shrinking in India and China, to the indisputable benefit of billions. Fourth, it is the New Deal — the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein — that was imposed in a time of crisis. Fifth, many of the crises of the 20th century resulted from anti-capitalistic policies, rather than from capitalism: China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms; New Zealand and Chile abandoned socialistic policies for freer markets because the former weren't working well and induced economic crises.

You may then say, but hey, Tyler is a conservative free-market economist. Fine, what about Dani Rodrik -- a respectable Harvard's KSG economist who is sympathetic to industrial policy and once write a book asking whether globalization has gone too far?

You may expect at least a kinder view. Instead he said that Shock Doctrine is a bad book needs to be trashed and it is very hard to understand how Klein felt good about Argentina in 2002 that just collapsed into a severe economic crisis, with a more than doubling of the share of population in extreme poverty and a 10 percent decline in GDP.

Need more evidence from the left? What about Will Hutton from The Observer, UK?

In her delusional, Manichaean world view, privatisation, free markets, private property, consumer freedom, the profit motive and economic freedom are just other terms for corporate self-enrichment, denial of voice, limitation of citizenship, inequality and, sometimes, even torture. The discredited electro-shock psychological treatment of the Fifties, we learn, informed the thought system of the free marketeers; it is guilt by association and assertion rather than proof, a weaknesses of too much of the book.

The only positive review I came across is from Stiglitz (I can see your baristas here yawn). But even he said:

Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies.

Enough said, it is a small wonder that I'd rather spend my 10 bucks for two cups of good coffee and muffins than Klein's book.

But then the Facebook discussion and the overwhelming praise from my comrades on the left gets me thinking that probably I should give Klein a fair chance. Maybe I can borrow the book from local public library, if they have a copy. Yet one thing for sure, it would have a very hard time to compete with other books I considered worth reading -- and I have a long list of them already.

A Too Tall Order for Politics and Democracy

2010-02-16T01:49:00.004+07:00

Maybe it's just me but it's hard to read Yasraf Amir Piliang, our Indonesian post-modernism guru, in Bahasa Indonesia (not that I have ever read his English pieces, too). Take his latest (seemingly Baudrillardian) op-ed here.

Basically he wrote that ideally:
#1. Political communication is to disseminate ideas, knowledge, and political enlightenment.
#2. Democratization is to build an architecture for a well-informed, ethical, and aesthetic political society.
#3. Political action is to bring virtues of goodness, nobleness, uprightness, honor, enlightenment, and authenticity.

But, he thinks, thanks to the (stupid) media, what we now in Indonesia get are:
#1. Political communication as an arena for rhetoric, parodies, and virtual political seduction.
#2. Democratization as a scheme for banality, artificiality, and electronic media virtuality based on the logic of commercial, popularity and media celebrity.
#3. Political action that brings banality, shallowness, manipulation, and mass deception.

OK, I agree that in general Indonesian media and their ill-informed press corps indeed still have to do a lot of their homework. I also could not say anything about Baudrillardian (or for that matter, any philosophical) approach on current Indonesian media practices since I know next to nothing on it. But I have to say that Yasraf Amir Piliang's ideals on political communication, democratization, and political action above are probably over the top.

I'd rather set a lower but by no mean easy metric. Political process and democratization shall hold the ruling government accountable, in a sense that they can not just make a redistributive policies go unchecked. Democracy should enable a citizen not only exit, but also voice their disapproval as well as to root for certain political affiliation (loyalty).

Yes, it's Albert O. Hirschman's insight.

What Surnames Can Tell You

2010-02-04T07:50:00.005+07:00

When you hear the word England, what crosses your mind?

Harry Potter, Prince Harry, David Beckham (meh), Spice Girls (yes), fish and chips. Maybe if you are a bit literate Jane Austen's Pride and Prejudice, and if you're exposed to social science a rigid class structured society.

The last bit is problematic. If indeed England has low social mobility, why the industrial revolution took place there after all? Capitalism, innovation, and technological progress would not flourish if there is no reward for innovators. A rigid class based structure prevents social reward goes to the capitalists or innovators.

Greg Clark of UC Davis investigates this question in a very clever way. He goes back 800 years earlier, digs the archival records, and looks at the surnames. Yes, surname, as it indicates the initial position of a family in a social structure 800 years ago, and tracing it all the way to today can illustrate how social mobility takes place.

Clark finds:

England, all the way from the heart of the Middle Ages in 1200 to 2009, is a society without persistent social classes, at least among the descendants of the medieval population. It was a world of complete social mobility, with no permanent over-class and under-class, a world of complete equal opportunity.

This work shows that economic history is a vibrant subject. Contrary to common belief, they have a very creative way to look at historical record and come up with often times striking new finding out of old stories. Greg Clark is one good example, Avner Greif of Stanford is the other.

Our own economic historian is the respectable Prof. Thee Kian Wie, and you know what, having attended his seminar, I can say that Greg Clark resembles young Thee Kian Wie -including his remarkable humility.

RIP: JD Salinger

2010-01-29T07:23:00.013+07:00

I read Catcher in the Rye rather too late. Of all places, it was Fopp records store in Sidney Street, Cambridge, England, that I bought that small red book from. And for the rest of that night, I feverishly followed Holden Caulfield's life, ignoring even the charm of English pub in that alluring ancient college town.

Since then, cliche as it may sound, Catcher in the Rye set my standard and becomes the best book I've ever read. I even always had it on my desk back in Salemba, along with Che Guevara poster. I recall Aco, then my office roommate, in the midst of a deadline for a research report on rice liberalization, grudged as he had to try really hard not to reread that book upon seeing it between my messy piles of stuff.

I am never sure why I really like Holden Caulfield, but maybe somehow I can relate what he felt to be a young man in an uncertain world where (almost) everything seem very wrong. A rite of passage before you end up living as economist, barista, et cetera, and see some things not that wrong after all, and now you remember that time with smile or grin.

Today the man who introduced us to the life and angst of Holden Caulfield passed away. Salute and rest in peace, JD Salinger.

Sunaryo The Faux Editor

2010-01-27T12:03:00.025+07:00

Our cafe's office boy, Sunaryo Sunaryoto, has had lots of spare time yesterday (Yes, Kate was not around). So, while enjoying his daily somay intake, he idly edited page four, the Opini section, of Kompas daily. This time, he did the last section of Professor Liek Wilardjo's op-ed, Etika Penyelamatan Century, Kompas, 1/26/10. He gave his editing on the paper's hard copy, as follows (in Bahasa Indonesia)*

Normatif?

Dengan asumsi ~~KSSK~~ Pansus berpegang pada etika normatif, ~~secara aksiologis~~ dengan ukuran kualitas dan nilai-nilai kebaikan, tentu ~~KSSK~~ Pansus berusaha menghadirkan kebaikan tertinggi (summum bonum). Kalau ~~lebih deontologis~~ dengan ukuran ketaatan pada aturan , komite ini menunaikan apa yang diyakini sebagai kewajibannya dan tunduk pada ~~imperatif kategoris yang diyakininya~~ standar moral tertinggi yang ingin dicapai. ~~Apakah summum bonum atau imperatif kategori~~ Apa bentuk kebaikan tertinggi dan standar yang ingin dicapai itu, ~~yang tahu~~ hanya ~~Sri Mulyani~~ Bambang Soesatyo dan ~~Boediono~~ Gayus Lumbun (dan ~~Tuhan~~ Fahri Hamzah) yang tahu

Kalau ~~mereka~~ seperti Immanuel Kant, mereka melakukan ”kehendak baiknya” secara otonom dengan menempatkan manusia bukan sebagai sekadar alat. Tekanannya terletak pada niatnya, tidak pada konsekuensinya. Namun, mereka tidak boleh cuci tangan ala Pontius Pilatus. Mereka harus mempertanggungjawabkan keputusan dan menerima risikonya kalau salah. ~~Cendekiawan~~ Setiap orang memang harus begitu.

Lain halnya kalau ~~KSSK~~ Pansus ~~memeluk antinomianisme~~ menganggap dirinya berada di luar hukum. Dalam hal ini, ~~KSSK~~ Pansus memasuki proses pengambilan keputusan itu tanpa bekal norma moral apa pun. Keputusannya ~~ad hoc, impromptu, dan~~ ditentukan oleh apa yang dirasakan dan dipikirkannya ”di situ dan pada saat itu juga”. Ini bisa terjadi kalau ~~KSSK~~ Pansus ~~mengidap gnostisisme, yakni paham yang penganutnya mendaku memiliki adi nurani (superconscience). Mereka~~ merasa (sok paling) tahu apa yang harus dilakukan.

Konon ketika ~~Miranda Goeltom~~ pendukung Pansus diberi tahu bahwa ~~Burhanuddin Abdullah dan Anwar Nasution~~ cafesalemba mencela ~~keputusan KSSK~~ sidang-sidang Pansus, ia mereka mengatakan bahwa ~~kedua tokoh~~ barista-barista culun itu ~~sudah berada ”di luar”~~ tidak mengerti politik dan tidak dapat merasakan apa yang dirasakan ~~”orang-orang dalam”~~ rakyat kebanyakan. Kemungkinan ~~adanya Einfuehlung~~ empati terhadap orang lain yang notabene ~~berpengalaman di dunia perbankan~~ tidak tidur di kelas pengantar ekonomi dinafikan. Suasana menghadapi krisis yang sudah di depan mata ~~(imminent crisis)~~ akibat ~~gagalnya~~ penyelamatan Century dianggap unik dan merupakan momen ~~eksistensial~~ yang menentukan kelangsungan hidup rakyat. Orang ~~lain~~ yang belajar ekonomi tidak berhak menjadi ”hakim kursi malas” yang memvonis dari posisi yang aman. Kalau benar begitu, anarkisme mewarnai ~~keputusan penyelamatan Century~~ sidang-sidang Pansus.

~~L Wilardjo~~ Sunaryo Sunaryoto

~~Guru Besar Fisika Universitas Kristen Satya Wacana~~ Office Boy, Cafesalemba

*Naryo reedited the old version on my fb notes.

Don't Swap Horses in the Middle of the Stream

2010-01-26T04:25:00.011+07:00

Jim Hamilton of UCSD wrote in Econbrowser:

I sometimes hear Bernanke's critics speak as if there is some kind of shallowness to his world view, as if he is somehow incapable of seeing what is obvious to those with common sense. If you want a bumper-sticker-size summary of what he's all about, here it is-- Bernanke believes strongly that a credit crunch can be devastating to regular people, and has done everything in his power to mitigate that damage. You may agree or disagree with his claim that the extraordinary steps taken under his leadership "averted the imminent collapse of the global financial system." But you must agree with two things: the global financial system did not collapse, and preventing its collapse is the reason Bernanke did what he did. If you think his motives were anything other than this, you have been sucked into a groupthink far shallower than the world view sometimes ascribed to Bernanke.

Sound apt and ring a bell? Hint: Pansus.

and

I shake my head when I look at the list of senators who say they'll vote "no." How could there possibly be an alternative whom Barbara Boxer (D-CA) and Jim DeMint (R-SC) would both prefer to Bernanke?

Ring another bell? Hint: Those lawmakers and their political parties.

Update: Even Krugman said

But — and here comes my defense of a Bernanke reappointment — any good alternative for the position would face a bruising fight in the Senate. And choosing a bad alternative would have truly dire consequences for the economy.

Again, still relevant to us

Good News

2010-01-16T09:27:00.003+07:00

Andi Suruji of Kompas, today in his column, makes a good argument in supporting Asean-China FTA. Thumbs up.

Market for Lemons, Jobs, and Friends

2010-01-06T18:26:00.011+07:00

The year 2009 ended with "moral hazard" becoming a household phrase, so it is only appropriate to start 2010 with a post on "market for lemons". Our on-and-off favorite sociologist Roby will soon be returning to Indonesia where we suspect he will continue to pester the Cafe baristas with his sometime acidic and bitter but often useful (just like lemons!) questions, comments, notes, links, and whatnot. In this intriguing post, Roby ponders his foray into the job market back home which led him to enter the market for friends, and explains why many times what one finds in those markets are "lemons". - Kate

Market for Lemons, Jobs, and Friends
by Roby

I have decided to return to Indonesia and before experiencing Jakarta’s infamous traffic, undependable electricity, and dysfunctional bureaucracy in Jakarta, I must first solve the most important problem while I’m still here: getting a job.

If I were applying for jobs here things would be much simpler. Although getting a good job is still a challenge, the process of getting a job is simple. Just look at job ads where they are looking for someone resemble my qualifications, send dozens of applications, and wait until you get a response. When the first batch of applications doesn’t work, then repeat the process and send another batch and so on.

It is very unlikely that the above method works in Indonesia. I think, in Indonesia most jobs that are advertised are lemon jobs in the same way that the market for used cars are saturated with lemon cars. The mechanism is the same. People try to move out from bad jobs just as they try to sell bad cars. While if they find good jobs they will keep it. Therefore, the average quality of advertised jobs tend to be lower than the quality distribution in the population. Moreover, the worst job tends to circulate more rapidly.

The best strategy to avoid getting lemons is to get inside information. Typically, this inside information comes from social networks. Furthermore, the best inside information tend to come from friends. Not because friends have better knowledge or better judges, but because they have incentives to not ruin us. Thus, the rational thing to do in a lemon market is to ask friends.

I asked around and got some potential job offers. Being a sociologist, however, I know that I’m surrounded by people who tend to have the same information. To get more diverse information, strong ties are less useful than weak ties. Strong ties tend to create cliques and the same information tends to circulate among the same person. On the other hand, weak ties eliminate redundancy and expose us to novel information. Wanting to throw a wider net, I started making new acquaintances in new communities. In short, in addition to be in job market, I’m also in friends market.

It turns out friends market is a lemon market as well. In a new community, our first acquaintances tend to be lemons. People who are not pleasant to be with tend to have more free time – because others who know avoid them - and hence it is more likely to meet them. Again, inside information is imperative in this case.

Markets solve matching problems. But how markets look like depend on the kind of goods. In lemon markets, it could be that the market mechanism is highly embedded in social relations because people strive for inside information; renders the outcome depends as much on social structure as on individual preferences.

More books to ban?

2010-01-03T06:57:00.001+07:00

According to the Jakarta Post (3/1), 20 books are considered "very dangerous to the public" by Justice and Human Rights Ministry. The Minister will "soon ask the AGO to ban them".

Some people never learn.

So Long, Gus Dur

2010-01-02T03:30:00.019+07:00

Like many of my peers, I first learn about Gus Dur from his writings in Tempo and then from writings about him in the same magazine (where else?). It was in the mid 80s – I was in high school- that I realized that Gus Dur was not “just” a columnist but also a leader of the largest Islamic organization in Indonesia, the NU. There were a number of articles in Tempo at that time that dwelled on NU’s decision to adopt Pancasila as the azas tunggal and to return to their 1926 khittah, and what those would mean for the coming election.

For someone like me, who spent most of my childhood in Jakarta, who had no deep roots in either NU or Muhammadiyah, and at that time was attending a catholic high school¹, it pained me a lot to have to learn about the word "khittah" just to get through an edition of Tempo. But I remember buried in the dull and tedious discussions about party politics and NU internal politics, was Gus Dur’s argument about Islam being compatible with pluralism.² Being in confined comfort of a school where religious and racial tensions were non-existent, I thought his argument was compelling if not relevant.

During my college years when, to my shock, I found college to be much more heterogenous than high school (duh!) Gus Dur’s views suddenly became more relevant to me. Dynamics between majority and minority as well as racial and ethnic differences became more apparent in college. I started to consciously seek what he and other “public intellectuals” had to say about the issue. When tensions between racial or religious groups became highly charged, I learned that Gus Dur often was the figure who helped resolve these tensions. During these years there were very high profile cases such as where he defended the right of Arswendo for free speech in the Monitor case, very much a lonely figure. But it was the little skirmishes, the low profile battles that he fought, that impressed me more. Our campus in Salemba was very close to LBH Jakarta where Gus Dur sometimes came to give a talk. I remember attending a talk he was giving there on the marriage rights of a couple who were Confucians. Their marriage had been presented before a court because of legal and administrative issue and Gus Dur was an expert witness of some sorts, in favor of the couple. I never knew who the couple were but during the talk Gus Dur was defending their case like they were his own relatives. There were many low profile events similar to that, and I tried to attend some that didn’t require much effort on my part. It helped a lot that Gus Dur had such an acute sense of humor, and one did not need to be a student activist steeped in rethorics to be able to digest and enjoy his talks. I was never an activist and never saw myself as one anyway, so I only read from the printed press the more vocal (and more political) views that he made as the chairman of Forum Demokrasi. Our Salemba campus was also close enough to STF Driyarkara where Gus Dur was often invited for discussions - and almost always came late. It was always worth skipping a few neoliberal (ha!) economic classes for those events.

Then 1998 happened. During the tumultuous years, I was away. Like many others, I was somewhat surprised by the turns of events that resulted in Gus Dur being elected the president. But I remember being very proud to have a man of such conviction becoming the leader of our nation.

As I read through his obituaries in recent days, while trying to recollect what I learned from the man, it strikes me how often people use the word “erratic” (=highly inconsistent), to describe his short presidency and even his personality. This is perhaps the biggest irony, since of all the public figures who were his contemporaries, no one is as consistent in sticking to his principles on humanity, pluralism and democracy as Gus Dur.

Thank you, Gus Dur, and so long.

¹ Like many of my peers in high school, I was interested in the 1987 election primarily because election campaigns were fun (Truck convoys! Free t-shirts! Free concerts!). Incidentally, most students in my school were PDI fans, at least outwardly. Gugun Gondrong was the only student coming to school donning a non-PDI attributes (he wore green PPP headband while riding his motorbike across the schoolyard, but that is another story).
² I’ll leave it for historians to debate how much of Gus Dur’s NU maneuvers were driven by political pragmatism, appeasement, or NU internal politics.
³ As a student studying economics in Salemba, I was perhaps already predisposed against IPTN and everything that had to do with it (funny how an undergraduate thinks). It was not surprising that when ForDem was formed partly as a reaction to the establishment of ICMI, my preference was clear.

RIP: Gus Dur

2009-12-30T20:30:00.002+07:00

We were deeply saddened to hear KH Abdurrahman ‘Gus Dur’ Wahid has passed away.

Gus Dur became the fourth president of Indonesia in 1999. At that time, I was in Canberra, Aco in Champaign, Ujang in East Lansing, Sjamsu on the way to Washington, DC from Ithaca, and Rizal in Kukusan Beji, Depok. It was a funny process. There was yet to be a direct presidential election. The president was elected by the MPR which consists of 500 elected DPR members, and another 195 non-elected members.

Megawati’s PDIP was the winner of the election. That made her the strongest candidate to become the president. But there was a strong resentment against having a female president, mainly from the Islamic parties. Some last minute maneuvers inside the MPR, known as ‘Poros Tengah’ initiated by Amien Rais (then MPR Chairman) broke the deadlock by installing Gus Dur as the president and gave Megawati the VP chair.

Gus Dur was a great pluralist, humanist, pro-democratic, moderate Muslim leader. Unfortunately, he was not a good president. Worse, he was an erratic president. Of course, he had great agenda. Some of which he could achieve – like bringing down the discriminative barriers against ethnic Chinese, pushing forward pluralism ideas, eliminating SIUPP and removing 'culture' from the Ministry of Education and Culture. But his erratic style made it hard for almost everyone to understand what he was doing, let alone to execute his other agendas. Soon the supports for him waned.

His most famous catchphrase was “Gitu aja kok repot?” In some ways, this proved to be an optimal strategy to deal with criticisms and dirty politicking. The problem was he used this strategy too much, even for things that needed his serious attention. Our senior colleague Hadi Soesastro once told a story when he, Prof. Emil Salim and some other senior economists gave an economic briefing, Gus Dur literally fell asleep. After someone woke him up, he just said, “Right, you take care of the economy…”

His presidency reached the anticlimax in July 2001 when the same MPR which elected him less than two years earlier agreed to impeach him following the infamous ‘Buloggate’ and ‘Bruneigate’ scandals. The same MPR which rejected Megawati then elected her to be the fifth president.

Nevertheless, no one can disagree that he was a great person. One of the best Indonesians we’ve ever had. And we will surely miss him. So long, Gus… Have a nice rest, now you no longer have to be repot…

On the octopus book

2009-12-29T18:36:00.001+07:00

Re all this brouhaha on a new book by George Aditjondro, regular visitors might already know my take. Yes, I'm against any book banning -- regardless of the type and the quality of the book.

I'm not a big fan of Aditjondro. Far from that. So I have no interest in finding or reading his book. But if the center of criticism ie The President feels disturbed by that book, ban is not an option. It's good that SBY has expressed his will not to do that.

How to Read Newspaper Without Feeling Sorry

2009-12-29T11:29:00.005+07:00

Let us read two examples on how journalist writes a column on bailout issues.

One is Andi Suruji's Kolom Politik-Ekonomi, Sistemik...!, Kompas, 12/26/09. The other is David Leonhardt's Economic Scene, Perhaps, It's Time to Play Offense, NYT, 9/16/08

If I gave Leonhardt's piece an A, what should I grade Suruji's?

Books banned, again

2009-12-26T20:56:00.001+07:00

Five books are officialy banned by Attorney General Office (Kompas, 26/12). They are: "Pembunuhan Massal Gerakan 30 September dan Kudeta Soeharto", "Suara Gereja bagi Umat Penderitaan Tetesan Darah dan Cucuran Air Mata Umat Tuhan di Papua Barat Harus Diakhiri", "Lekra Tak Membakar Buku Suara Lenyap Lembar Kebudayaan Harian Rakyat 1950-1965", (until this, I thought the ban was because these books had painfully long and tasteless titles -- of course I was wrong) "Enam Jalan Menuju Tuhan", and "Mengungkap Misteri Keragaman Agama".

Book ban? Again? What an insult to humanity.

Defending infotainment

2009-12-26T09:57:00.003+07:00

While we defend Luna Maya's right to express her anger towards some infotainment crews, we should make it clear that we likewise defend infotainment's rights to exist.

We therefore disapprove recent call (notably by some clerics) for banning infotainment. If you don't like such program, just turn off your TV or switch to other programs.

Merry Christmas!

2009-12-24T21:21:00.001+07:00

To those celebrating it, Cafe Salemba wish you all a lovely Christmas!

Luna Maya

2009-12-24T20:55:00.001+07:00

We hereby declare our full support for Luna Maya and against the infotainment journalists who sued her for expressing her ill feeling towards the latter, in her own twitter account.

Luna, from now on you can have coffee here for free as long as you like. Ariel can join, if he so likes.

Take-Home Final Exam Question

2009-12-21T04:06:00.011+07:00

Suppose you have these finding from Reinhart and Rogoff (AER: 2009) showing that a banking crisis on average causes:

a. Unemployment to rise for 4.8 years, with an increase in the unemployment rate of about 7 percentage point.
b. Real GDP to decline for 1.9 years, with a decline in real GDP of about 9.3 percent.
c. Cumulative public debt to rise 186.3 percent in the three years following the crisis.

Questions:

a. What is the probability (P) you are willing to assign that not bailing-out Bank Century will not lead to a banking crisis?
b. Multiply P with either a, b, or, c finding above-mentioned. Do you still let Bank Century collapse? Of course you can put the cost of moral-hazard into your equation.

Instruction:

Submit your answer to those Indonesian lawmakers in that special committee before they get confused.

No Century for You (Yet)

2009-12-02T14:42:00.006+07:00

Some of you may wonder why I don't serve something on Century brouhaha. It's for a simple reason: I do not have reliable data or information that can, to some extent, be verified. I follow the newspaper and some facebook debates, but the best I can have is something called investigative reports based on either BPK's audit report or BI's press release.

And crime investigation is not my thing.

But let me tell you my normative stance here. First, bank's bailout at time of crisis is theoretically defendable and systemic risk is not a snake-oil jargon. Second, any corruption related to the bailout should be investigated by authorized parties with credible tools and skills. As for political accountability ~~joke~~ process, just bring it on. I am always confident that ordinary citizens in general aren't that stupid.

Fair enough, yes?

Now, what Manohara has to do with Century? That's the question.

Slowly Reading Superfreakonomics

2009-11-14T13:31:00.005+07:00

I am reading Superfreakonomics now. Very slowly. It's been two weeks and I haven't even reached the controversial global cooling chapter.

Somehow I don't find the book a page turner; perhaps because I found out that reading the original journal articles behind all of those anecdotes are more interesting. Those articles might not be as entertaining and have definitive finding as the book suggest (and oh, the math, too); but it is actually nice to see how those article's authors use their creativity (and hard work) trying to make interesting (and robust) case based on data.

Nevertheless, the book still serves a good entry point to those cute economic papers. Of course, you may have different opinion.

Facebook Solution

2009-10-29T13:22:00.013+07:00

On a recent visit to my favorite secondhand bookstore here, I bought a small book with nice cover titled On Rumors, by Cass Sunstein. I like this short book while discussing its first two subtitles -- how falsehood spread and why we believe them-- (answer: informational and confirmatory cascade and group polarization) ; but not so much on the third -- what can be done.

It's a small wonder nonetheless, knowing that Sunstein, along with Thaler, is the leading figure in paternalistic libertarianism. He goes that to prevent falsehood to spread, we need to create a "chilling effect" against rumors through law.

But actually I like what he describes as (overly) optimistic market-for-ideas solution when he write:

"Perhaps the Facebook generation and its successors will treat a wide range of rumors, including negative and vicious ones, with bemusement or a yawn."

This is spot-on.

Econometrics Agony

2009-10-27T03:19:00.006+07:00

Agony is when ManU/Liverpool/Chelsea/Arsenal lose to one and another --depends on what team you root for.

But for ones who ever do econometrics exercise for their paper, few beat the definition of agony in a short haiku by Keisuke Hirano that appeared in the highly recommended Angrist and Pischke's Mostly Harmless Econometrics.

T-stat looks too good
Try clustered standard errors --
Significance gone

OK, it's not as depressing as infamous Hemingway's six-word story ("For sale: baby shoes, never worn."); but trust me, if you ever work with regression and robustness test, you would share the pain.

Dr. Doom* says

2009-10-26T11:31:00.005+07:00

"Indonesia, moreover, has shown resilience not only economically, but also as a nation. In spite of its diverse ethnic makeup and far-flung island territory, the country has made a quick transition from military dictatorship and has recovered from myriad challenges and setbacks, including the 1997 Asian financial crisis, the tsunami in 2004, the emergence of radical Islam, and domestic unrest. While Indonesia’s per capita GDP remains low, it is a country’s potential that matters in economic affairs, and here Indonesia shines."

" *Nouriel Roubini of NYU, in this commentary

On Banking Crisis

2009-10-23T11:22:00.007+07:00

So if you like Kindleberger's Manias, Panics, and Crashes, chance is that you'll like this Reinhart and Rogoff's This Time Is Different.

One of the reasons is that the latter gives not only narrative, but also some simple numbers to ponder. My favorite chapters are on banking crisis, inflation, and currency crisis. The discussion on the Second Great Contraction (a.k.a current US financial crisis) is also worth for perusal.

Chapter 10 starts with these sentences:

"Although many now-advanced economies have graduated from a history of serial default on sovereign debt or very high inflation, so far graduation from banking crises has proven elusive. In effect, for the advanced economies during 1800-2008, the picture is one of serial banking crisis."

also,

"...there is indeed significant theoretical and empirical support for the view that a collapse in a country's banking system can have huge implication for its growth trajectory."

Moral of the story: dealing with potential banking crisis is bloody difficult and easier said than done.

On the role and limit of community

2009-10-18T13:14:00.004+07:00

If I were a newspaper journalist, writing a story on the Nobel Prize winners should not be a difficult job. Just translate and rephrase the 5-page public information prepared by the committee, which has neatly summarized the contribution of the Laureates. Unless if you had a prior ‘agenda’ in your mind; e.g. attacking mainstream economics cum economists cum global capitalism. Then you risk writing something that has no connection between the report and your conclusion.

My favorite newspaper provided a good example on how a single paragraph had successfully driven the article way out of context:

The economic collapse caused by the crisis was a blow to the Nobel Committee’s credibility. The public has seen how economic theories, which have been developed by economists and brought them previous Nobel awards, were proven ineffective, leading to the global economic catastrophe.

Surely, if the ‘reporter’ has spent some time in researching previous awards, he or she may have understood that a significant portion of the awards were given to economists who have devoted their career to show how market can fail. Moreover, although Ostrom and Williamson’s work was about non-market transaction, it is misleading to conclude that non-market transaction is a solution to the market at anytime and any place.

Remember, also, that the Nobel Prize in Economics is awarded to studies that have made significant contributions over the past two or three decades. That means, there is a 2-3 decades lag between the time the theories were developed and the Prize. During the period, many studies have followed the original works. So it doesn’t mean that this year’s Nobel marks a significant U-turn in the economic discipline.

One particular area is how communities can solve the coordination and allocation problem in the absence of working market – Ostrom’s contribution. In the past two decades, there have been a significant number of economic papers that studied this issue. I summarized some of them in this note.

In addition to that, I’d also want to point out some interesting papers written by MIT’s Ben Olken. Here he showed that higher level of ‘civic participation’ in the village is not associated with lower village corruption, contrary to the standard theory of social capital. In another paper he argued that, external monitoring (for example, audit by a government agency), is still more effective in minimizing corruption of local public expenditure compared to monitoring by community.

In this work in progress (co-authored with others), he showed that in identifying who are the poor in a community, full community-based targeting is no more dominant than the top-down approach. However, a combination of the two provides the best result. Then, in another paper, he concluded that higher level of civic participation in local political decision making has little effect on actual decisions. However, the inclusive process in itself can substantially increase satisfaction and legitimacy.

The bottom line is, while the role of community should be appreciated more and paid greater attention in economic works, we also need to understand the limit of community in solving the problem of allocation and coordination. No need to say, we should be very careful before making inferences on the relations of Ostrom’s works and the solution to the economic crisis.

Note: all Ben’s works above are using Indonesian cases.

On market, behavioral economics and poverty

2009-10-16T11:35:00.002+07:00

In my Facebook note, which have somewhat become the substitute for blogging, we have a productive exchange on, again, market. Specifically, on why most economists believe in the market, what are the limits of the market, and how the economics as a discipline has evolved and integrated the so-called 'non-mainstream' approaches. One of the 'non-mainstream' approaches is the field of behavioral and experimental economics. Basically, they show how the rationality assumption is often violated due to cognitive, emotional, bounded rationality etc.

I just recalled some readings by Harvard's Sendhil Mulianathan that addressed how psychology and behavioral perspectives can help us understand more why rationality assumption often fails, particularly in the context of poverty: this one, this one (with Richard Thaler), and this one (with Marianne Bertand and Eldar Shafir). Those three are basically emphasizing each other. He discussed some cases in which the rational maximization model may not be a very good approximation of human behavior, especially when we talk about poverty: underinvestment in education, undersaving, loss aversion in property rights assignment, misaligned teacher's motivation or low take-out rate of social programs.

I admit that, yes, we have to keep rethinking our epistemological position on rationality and how the market works and doesn't. On the other hand, we as economists do know that market often fails, hence it results in suboptimal outcome. But what we doesn't always know why it fails, let alone what solution should we prescribe. The reason is because "all working markets are alike, every failed markets fails in their own way." Meaning, we need to see things case by case and come up with specific - take a deep breath - policy implication, if any.

So why do we still stick to our mainstream or traditional economic tools? Because it is still a good tool. It enables us to: 1) compare the outcomes when the market works (called the benchmark condition) with the one under market failure, 2) analyze which assumptions are violated, 3) think about what - take a deep breath - policy implication, if any.

And The Nobel was (not) given to…

2009-10-13T08:21:00.005+07:00

Update: a typo in the 7th paragraph has been corrected. Thanks, Roby. Also, take a look of Haryo Aswicahyono's nice analogy of Williamson's work here (Facebook member only).

If you are betting on Oliver Williamson winning this year’s Nobel Prize, congratulations! According to Ladbrokes, his odd was 50/1. Elinor Ostrom was not even on the market as she is a political scientist by profession. (Don't forget also that Ostrom is the first female Laureate!).

But this is what makes the Nobel Prize in Economics interesting: there is no good predictor whatsoever on who’s going to win in a given year. You may tip someone to win it within, say x years, or win it someday. But I guess no one have ever made a good fortune in betting on the winner. Kaushik Basu once said, he was tipping his mentor Amartya Sen to win the Prize for five years in a row before he gave up. When Sen did win it in 1998, Basu did’t bet. In the 1990s, almost everyone predicted Paul Krugman will win the Prize. But just when everybody stopped thinking Krugman will win it at all, the Committee awarded him in 2008.

To be honest, I am not a follower of both works, so I won’t be a good reviewer of the decision. But the official Nobel Prize website has written a nice summary of their works (as well as a more elaborated one). What I am interested is what is the message, if any, sent by this year’s award? It’s not that the Nobel Committee has ever taken into account the recent economic situation or discourse in making their decision. However, it’s hard to disagree that the current global crisis has put economic science and profession under the spotlight more than ever. In that case, I am more interested in taking a closer look on who don’t win it.

Prior to the announcement, several names were being tipped as the strongest candidates. One name that has been constantly in the circulation for some years is Chicago’s Eugene Fama. He was referred to as the father of the ‘Efficient Market Hypothesis.’ I do think he deserves the Prize (most likely shared with Kenneth French), based on how influential his work is. But for many reasons, I can see that if he wins it this year, it will spark controversies, even bitter and harsh debates, however unfair it will be.

Another strong candidate was Ernst Fehr. He was well-known for his contributions in behavioral finance, experimental economics, even neuroeconomics – where people see how human makes economic decisions from neuroscience perspective. Fehr, and some other people that may share the Prize like Matthew Rabin, Richard Thaler or Armin Falk, has worked in a field that can somehow be a counter-argument to the efficient market argument. Bounded rationality, cognitive and emotional factors and other things make rationality assumptions are often violated. No one will doubt their significant contributions to economics. However, if the Prize goes to Fehr et al, I can see a wave of ‘I told you so’ attitudes, or even disproportionate attack against the rational agent vis-à-vis efficient market camp.

Well, I may be wrong. Those controversies may not happen at all.

Back to this year’s Prize. If there is any message from the decision, then it would be “Let’s pay more attention to other things apart from the market.” Ostrom and Williamson’s work show that many transactions happen outside of the market: within society or ‘commons’ (Ostrom’s), or firm (Williamson's). True, in many cases market fails to exist or work properly. But even in the absence of the market that is working properly, agents can still coordinate actions that is optimal, and that the government intervention is not always the answer. A closer look on what happens within the mezzo-institution will help us understand ‘what-to-do’ better.

That’s the best I can summarize. Better comments include:

The common theme underlying the prize this year is that markets do not solve all problems of resource allocation and incentives well or even at all. That is not a new idea. What is important is that people and societies find ways through organizational structures and arrangements, political and other institutions, values, incentives and recognition, and the careful management of information, to solve these problems. (Michael Spence).

Issuing the award to these two economists is a welcome trend because it once again leads us to focus on the microeconomic issues that have, when aggregated, macroeconomic consequences. … The joint award to Ostrom and Williamson could be read as a needed corrective on this macroeconomic approach. The common thread that links these two authors together is their concern with mid-size institutions that face serious questions of coordination and control. (Richard Epstein).

… the Nobel selection committee … is expanding the scope of "economic sciences" into the social sciences. That is probably a good thing for several reasons. … I think the point to emphasize is that Elinor Ostrom does great economics at the same time as she does great political science. So does Dan Kahneman. The overlap between the two disciplines is great. (Thomas Schelling).

They show how firms, communities and organizations come to solve these problems absent government regulation and how the choices they make can be disrupted or worsened by bad state policy or sustained by good rules that promote stable property rights and reliable contracts. (John Nye).

Yes, the market works for the poor

2009-09-30T11:55:00.004+07:00

In 2005, The Economist published their special reports titled "A Digital Divide." The argument was one of the main reasons for the persistence of poverty is the lack of access to market (goods, labor, or financial). Information and Communication Technology (ICT) has the potential to provide the access to market. The problem is the poor tend to have limited access to such technology. Hence, one way to help alleviating poverty is to provide greater access for the poor to ICT.

A few years ago, this idea did sound absurd. What? Internet or mobile phones for poor farmers or fishermen, while most of them still even struggle to buy food? (Even Rizal once was skeptical. Back in 2005, I asked him how ICT can help the poor. "Sell the computer, buy them rice," was his answer).

However, anecdotal evidences do show that ICT can, and does, help the poor. The Economist's this week special reports provide a series of article - one may see it as a conclusion for their 2005 reports - on how ICT, mobile phone in particular, have transformed lives in the poor world in almost a revolutionary way. It connects buyers and sellers in remote areas; helps small businesses taking orders on the spot; enables farmers to get weather forecast hence deciding whether or not to plant their crops. Amongst all, in India and Africa, mobile phones are the new financial intermediaries:

... mobile money, which allows cash to travel as quickly as a text message. Across the developing world, corner shops are where people buy vouchers to top up their calling credit. Mobile-money services allow these small retailers to act rather like bank branches. They can take your cash, and (by sending a special kind of text message) credit it to your mobile-money account. You can then transfer money (again, via text message) to other registered users, who can withdraw it by visiting their own local corner shops. You can even send money to people who are not registered users; they receive a text message with a code that can be redeemed for cash.

The question is, are anecdotal evidences good evidences? Contemporary studies seem to support the idea. This study is an example. (Of course, there is always a debate on external validity, generalization, etc.)

There is a bigger picture I'd like to point out: this is an example of how market incentives work, and work for the poor. Ten years ago, mobile phones were still a luxury. But in just a decade, costs have fallen dramatically so virtually almost everyone who wants to have a cell phone can have one. Competition and market liberalization has contributed to this falling costs.

On the other hand, (poor) people in the developing world are potential consumers. The market sends this signal to the producers and network providers, who keeps innovating their products. The innovation did not stop there; came Grameen Phone, came M-PESA, and so forth.

So, don't lose faith in the market economy, yet...

Surprising Conversion

2009-09-25T21:31:00.005+07:00

No, I am not talking about your barista Aco who, after those years, finally uses Mac. It's Richard Posner, one of the Chicago gang's members, that became (old) Keynesian.

When it comes to macro, it is indeed hard to resist Keynes and his elegant aphorism.

HT: Greg Mankiw

Chicago Strikes Back

2009-09-12T03:43:00.013+07:00

By way of a New Keynesian (Greg Mankiw's blog), I learn about John Cochrane's draft of counter attack against Krugman's innuendo.

I like this particular para:

(H)e argues for a future of economics that “recognizes flaws and frictions,” and incorporates alternative assumptions about behavior, especially towards risk-taking. To which I say, “Hello, Paul, where have you been for the last 30 years?” Macroeconomists have not spent 30 years admiring the eternal verities of Kydland and Prescott’s 1982 paper. Pretty much all we have been doing for 30 years is introducing flaws, frictions and new behaviors, especially new models of attitudes to risk, and comparing the resulting models, quantitatively, to data. The long literature on financial crises and banking which Krugman does not mention has also been doing exactly the same.

Which I would also like to ~~shout at~~ emphatically say to our friends the economics no-no (some are within the profession itself) who keep complaining about the lack of behavioural/social interaction/(insert what you want) contents of the discpline,

"Hello, where have you been?"

Addendum:
I recall a conversation with Ujang. He used different words, that is, "ke mana aje, elo?"

To Fast or Not To Fast

2009-09-09T11:49:00.012+07:00

When Sisil was pregnant with Lintar, we decided that she skipped fasting during Ramadan. Our common sense says that it'd be healthier for the baby if the mother doesn't fast --and pay the financial compensation to the poor instead. But apparently, as seen from our friends' wall status at Facebook, our thinking differs from many who prefer to keep fasting during pregnancy.

Recently I come across two papers on pregnancy and subsequent offspring's health status. One is from Douglas Almond on the long term impact of in utero 1918 influenza pandemic in the US (JPE, 2006, vol. 114. no. 4); the other is from Reyn Van Ewijk (LSE's CEP working paper, 2009) on the long term health impact on the next generation whose mothers were fasting during pregnancy.

It seems that our common sense is vindicated. Van Ewijk writes:

Using Indonesian cross-sectional data, I show that people who were exposed to Ramadan fasting during their mother’s pregnancy have a poorer general health and are sick more often than people who were not exposed. This effect is especially pronounced among older people, who, when exposed, also report health problems more often that are indicative of coronary heart problems and type 2 diabetes. The exposed are a bit smaller in body size and weigh less.

We are aware that religious interpretation is a very personal affair, yet we still keep wondering what is the ~~selfish~~ true reason for insisting on fasting during pregnancy despite the available exemption option.

Flexible Professor's Wage

2009-09-05T02:58:00.005+07:00

What makes economics professors (well, Jim Hamilton, to be precise) different from their non-economics colleagues (to be exact, the other UC's professors)?

The former is more willing to adjust their price and take salary cut (and be explicit about the term, instead of using an obscure word of furlough), when the economy goes bust, and demand for economics teaching and research down.

Of course when thing is the other way around, no difference between the two. Both would love to have a raise.

Krugman on Macroeconomics

2009-09-04T09:55:00.004+07:00

Bias toward old Keynesianism and against Chicago school aside, Krugman writes a useful summary on the state of macroeconomics here. It'd help anyone who wants to know the difference between saltwater and freshwater schools as well who's who in the discipline.

My take is here, and for sure I don't take hostile perspective to the freshwater school the way Krugman did. Nonetheless, one thing I agree with Krugman: his opinion on the use of math in the profession that prefers beauty over truth. But it just reinforces my intention to learn more (gasp!) math. A heroically tall order for me indeed, but I just see no other way.