On Fears for Free Trade

Tyler Cowen argued that:

What’s really happening is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature — namely, our tendency to divide people into “in groups” and “out groups” and to elevate one and to demonize the other. Americans fear that foreigners will rise at their expense or “control” some aspects of the economy.

Dani Rodrik retorted:

So the "us" and "them" characterization that Tyler attributes to irrational nativism perhaps has more to do with the absence of a common set of international rules on labor standards, environment, consumer safety, and so on.

Now, an anecdotal evidence from the English Premier League (I know Rodrik roots for ManU, and I Arsenal -- not that this fact's important though), on foreign players' impact on the three-lions national team performance, its Chairman said:

Does the Premier League hurt the national side? I think the answer to that has got to be yes.

What is more common than football's set of rules and standard? Yet, this Englishman prefers to blame those non-Britons players for the lousy performance of its national team that even doesn't qualify for Euro 2008 final round.

I can not imagine the EPL without foreign players.

Why (Not) I?

Aco could proudly claim that he's ahead of me by (dreaming) to write a novel about economics and politicians. But these guys, Ray Fisman of Columbia and Edward Miguel of Berkeley, seem (way) ahead both of us. They are about to publish a story (or stories) on how economics (with data) can reveal how the gangster's (read: dirty diplomats, politicians, dictators, bureaucrats) minds works. The title is Economic Gangsters: Corruption, Violence and the Poverty of Nations.

And more embarrassingly, they even devote a whole chapter on Soeharto --the man the two of us should know better.

Another embarassment comes from Elisabeth Pisani, who wrote about Taman Lawang and Lapangan Banteng --a book that now is recommended by Marginal Revolution. The title is The Wisdom of Whores: Bureaucrats, Brothels, and the Business of AIDS

Here's some excerpt:

Lenny, another doyenne of the city’s transgender hookers who was putting on her make-up while Nancy pontificated, laughed. Lenny is not thrilled that the Department of Social Affairs has tossed her, along with all waria, into a box marked “mentally disabled”. But she had to agree with “over the top”. Lenny had organised a group that was lobbying for equal rights for waria. She interrupted her face-paint rituals to tell of a recent meeting with a parliamentary sub-committee. “We’re in the national parliament asking to be taken seriously as a community, and I see that two of the girls are missing. I send someone off to look for them and guess what? They’re screwing the security guards in the bathroom.” She shook her head in disbelief and went back to her mascara.

I've ordered my copy. The book seems terribly fascinating --and more importantly, because it makes me enviously feel: "it should have been I who write books about those interesting things just under my nose with that kind of style". Oh, well.

Is it real or just bubble?

Many considers the recent oil price hike is driven by speculative motives, not a real phenomenon. You know, like what happened to the stock market, currency, housing, property and the '90s dotcom companies. This article (from The Economist) said it may not be the case.

Here's the argument:

[There is no] evidence that the growth of speculation in oil has caused the price to rise. Rising prices, after all, might have been stimulating the growing investment, rather than the other way around.

And that is because:

Investment can flood into the oil market without driving up prices because speculators are not buying any actual crude. Instead, they buy contracts for future delivery. When those contracts mature, they either settle them with a cash payment or sell them on to genuine consumers. Either way, no oil is hoarded or somehow kept off the market.

Ergo,

That makes it harder for a bubble to develop in oil than in the shares of internet firms, say, or in housing, where the supply of the asset is finite.

Although,

[t]here is, admittedly, a growing category of inherently bullish investment funds that seek to track commodity-price indices, in which oil is usually the biggest component.

However,

... even index funds make unlikely suspects. For one thing, they too invest in futures, rather than in physical supplies of oil. So every month, they must trade contracts that are about to fall due for ones that will not mature for several months. That makes them big sellers of oil for prompt delivery.

What is more, their growth is not as impressive as it first appears. Paul Horsnell of Barclays Capital, an investment bank, puts the total value of index funds and other similar investments at $225 billion. That is less than half the market capitalisation of Exxon Mobil, he points out, and a tiny fraction of the $50 trillion-odd of transactions in the oil markets each year.

That means that:

... the oil price is still a function of supply and demand. For the past few years, the world's production capacity has grown only sluggishly. Meanwhile, demand, especially from the developing world, has been growing faster. So there is hardly any slack in the system. Only Saudi Arabia and the United Arab Emirates are thought to be able to increase their output from today's levels, and even then, there are doubts, since Saudi Arabia, in particular, is secretive about the state of its oil industry.

That leaves the oil market at the mercy of even small disruptions to supply. Prices tend to jump each time militants sabotage an oil pipeline in Nigeria, bad weather threatens production in the Gulf of Mexico, or political clouds gather over the Persian Gulf.

The problem is exacerbated by a growing mismatch between the type of oil being produced and the refineries that must process it. The most common benchmark prices, including the one used in this article, refer to “light” crude, the least viscous sort, which produces the most petrol and diesel when refined. “Heavy” oil, by contrast, yields more fuel oil, which is used mainly for heating.

All of the above can be summarized in two words: demand, and supply.

Dismal science, again

Constrained by work, I was unable to attend a roundtable discussion co-hosted by Kompas and Lingkar Muda Indonesia a few weeks ago. I forgot the exact topic -- it was something to celebrate the national awakening.

Through an old friend who attended the forum, I learned that my article three years ago was cited by another friend of mine. Not in a positive way, however, although neither did he directly criticize the facts I quoted in the article. Rather, he criticized the article for being too pessimistic (know what, education doesn't matter for growth!). Young people, he argued, aren't supposed to be that pessimistic. Well, this reminds me on how economist was tagged dismal science.

I wasn't there to clarify the main message of my article. These are what I would have said:

1. If we define 'level of education' as 'share of population who complete a certain level of schooling (be it primary, secondary or tertiary), then, controlling for other factors, it couldn't explain the variations of growth across countries since the 1960. Some countries grew without big increases in education, but some countries failed to grow despite big increases in schooling rate.
2. I didn't argue that education is not important (depends on how we define it). Nor did I argue that per capita economic growth is the only outcome variable we should see.
3. We need to understand more on how education works in improving welfare. Increasing education level is not just about expanding the budget, but also how to make each Rupiah spent more effective.
4. Also, be aware that increased level of education may increase inequality, at least in the short-run.

On being a 'pessimistic, young economist,' well, your honor and respectful jury, do you think I am guilty as charged?

Hammering on the Hummer

If you are in Indonesia (and manage to stay rich), I suggest you to buy Hummer as soon as you can for two reasons: first, these gas-guzzling toys are on the verge of extinction, as the maker, hit by prolonged high gas price, is considering to stop producing it. So it may soon become a rare vintage.

And second, because, after all, many people in Indonesia are always willing to give you gas subsidy --and publicly defend it at all cost.

Hey, where are our friends environmentalists lately?

Discussion: Capital and Power

This is the second in the series. More to come (upcoming events will also be informed via the cafe's group in the Facebook)
-- Manager

Relasi Modal dan Kekuasaan Pasca Soeharto

Majalah Tempo dan Globe Asia baru-baru ini memuat liputan tentang para pelaku bisnis di Indonesia. Globe Asia menunjukkan “ranking” termutakhir tentang siapa orang/keluarga terkaya, sementara Tempo lebih melihat siapa saja pemain lama yang bertahan dan pemain baru yang muncul setelah berakhirnya era Orde Baru. Kesimpulan kedua media itu cukup menarik: meski banyak wajah baru muncul, sejumlah pemain lama dalam peta bisnis Indonesia tetap bertahan.

Dalam perspektif yang lebih luas, kita bisa melihat fenomena ini dari kacamata relasi antara modal dan kekuasaan. Studi yang mencoba menjelaskan hubungan antara keduanya di era Orde Baru sudah cukup banyak. Ben Anderson melihatnya sebagai sebuah relasi patrimonial. Richard Robison menganggap negara sebagai kepanjangan tangan kepentingan modal global. William Liddle dan Andrew MacIntyre melihat adanya pola yang lebih kompleks. Sepuluh tahun setelah krisis dan tumbangnya Orde Baru, apa yang berubah dan apa yang tetap? Seberapa jauh teori-teori klasik tersebut bisa menjelaskan fenomena saat ini? Bagaimana desentralisasi dan pluralisme politik mengubah pola hubungan modal-kekuasaan?

Freedom Institute, bekerjasama dengan Friedrich Naumann Stiftung dan Café Salemba, akan mengadakan diskusi yang membahas topik menarik ini dengan Chatib Basri (FEUI, Diskusi Ekonomi), Rizal Mallarangeng (Freedom Institute) dan Ari A. Perdana (FEUI, Café Salemba) di Freedom Institute, Jalan Irian 8 Menteng, Jakarta, Kamis 5 Juni, pukul 19.00-21.00.

You're welcome to join.

Why econ is sexy

Libertarian Jeff Miron explains why in Harvard economics is the most popular major.

I heard economics is also becoming more and more popular in colleges and universities in Indonesia. If so, why? Here are some knee-jerk speculations:

• Econ is easier gloomier than physics or pure math but sexy enough to outshine its fellow social sciences -- at least on the newspapers.
  
• Econ allows you to become a "pengamat ekonomi" (economic commentator), the most respectable position in the media these days -- Wait, as a second thought, you don't even need training or certificate in econ to become a popular "pengamat ekonomi". Accounting and management science will do, any engineering will do, agriculture is alright.
• Econ is flexible: you can teach its principles in the classroom and do the exact opposite in politics or in media. No one will sue you, you're still an economist. Just say: the assumption changes. People will forget.

What else?

Why Science Matters (and Conspiracy Theory Doesn't)

I like this heartwarming passage about science:

But here’s the thing. The reason science really matters runs deeper still. Science is a way of life. Science is a perspective. Science is the process that takes us from confusion to understanding in a manner that’s precise, predictive and reliable — a transformation, for those lucky enough to experience it, that is empowering and emotional. To be able to think through and grasp explanations — for everything from why the sky is blue to how life formed on earth — not because they are declared dogma but rather because they reveal patterns confirmed by experiment and observation, is one of the most precious of human experiences.

And the opposite of it is called, well, conspiracy theory ---the game of blaming everything to neo liberals, marxists, foreign power, own weaknesses, capitalism, socialism, infidels, (....insert whatever you want...).

Alas, it seems that even many of our educated class, self-declared scientist, and supposedly respectable media just love it.

Statement from the Cafe (2)

Café Salemba condems the brutal and criminal attack by FPI on AKKBB in the June 1st rally at Monas Square, Jakarta.

Jakarta, June 2, 2008

Economic Growth As We Know It

Like Arya Gaduh, I also haven't yet got time to read a new report on growth by The Commission on Growth and Development. But it seems that problem of growth and development economics now resurface in public discussion, thanks to the books of Sachs, Easterly, and Collier.

After some years of detour to more exotic agendas and plans for the developing world such as Millenium Development Goals and Bono-type of Aid; economic growth, the most crucial element for developing countries, yet hard to understand, is back

It was an ambitious research, probably to the scale of another report on global warming by Nicholas Stern. So it is surely worth to read the whole report. But for the time being, let use the interview to its chief, Michael Spence, from the Foreign Policy, to catch a glimpse on what's inside the report.

He said that:

This report is really more about a framework. How do the growth dynamics work, and what kind of policies tend to support it? When you get to the country level, it has to get very specific and depends entirely on history and the initial conditions and things like that

I am actually rather surprised with this kind of stating-the-obvious argument. In an earlier posting, I wrote that we already pretty much had an idea what make a good espresso economic growth, and as the Report's summary for Asia says:

These nine high-growth countries all share common characteristics: engagement with the global economy, macroeconomic stability, high rates of saving and investment, the market allocation of resources, and credible and capable governments.

But each characteristic is, alas, minutely variable. And it is not really clear to me the degree of importance of each variable: say, the market allocation or capable government?

The better question, I guess, is not how to find recipes for sustainable growth, but how to get into a turnaround from a low growth trap to an accelerating pace of growth, the focal points in which a country then could orchestrate themselves into those desirable characteristics --hopefully without curtailing democracy.

Usually such turnaround doesn't come from much grandiose scheme, but a small but critical reform.

HT: Arya Gaduh