Wednesday, November 02, 2005

ca$h and carry

The act of compensating Indonesian poor family from their slashed fuel subsidy is currently taking the hot seat in the arena of public debate. The idea of giving cash money in helping out poor family may not jive well with the average person’s sense. Average person would often think that this cash compensation is useless or stupid. Some would go as far as to question the logic of compensating individual and what does that have anything to do with helping the poor.

First, average view is relative and affected by any person lack of knowledge. Second, more importantly, the rationale behind the act of compensating is often forgettable. Almost every individual has some experience on taking compensation from certain grief. When we were a child, our parents would compensate us with toys, ice cream, a ride around town, and even cash, from their ill promises. You also often have to compensate you spouse for your negligence toward her/him.

Compensation is meant to reduce loss or heal wounds. The compensated individual should be offset from his/her undesirable misfortune, or at least, endure les s suffering. This is the basic for thinking about the economics of compensation.

Poverty is not an easy subject. People like Amartya Sen of Harvard University got a Nobel prize for defining and sharpening the idea about being poor. However, the idea of injecting cash to compensate a poor person's income should not be difficult to grasp. We all have needs and most of them are measurable in monetary terms. Therefore, giving cash is one way to compensate misfortune individuals in helping them to achieve their needs. A child will be happy to forgive their parents forgotten promise in exchange of a new toy car. A stranded airline passenger will be less pissed after receiving a free long-distance call and meal vouchers. Finally, a poor person can maintain his consumption bundle even at a higher price level after receiving cash.

Most poor Indonesian family spend most of their money on food, particularly rice. Increase in fuel price will also have an indirect effect through increase in the price of food and other goods. Therefore, a cash transfer for the poor can help alleviate suffering from inability to fulfill their needs.

Simple eh..

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