Monday, February 27, 2006

On education and economists, again...

Despite being on my lurking mode, I've been following the discussion in this cafe. That includes Rizal's serial quarrel over education with his secret lady. The debate was interesting, though as expected, it went into different frequencies. Expected, because this is a common thing in any debates involving economists... :-)

Of course, education is important. No doubt about it. It provides human dignity, self-respect and so on. On the other hand, education is also an investment -- human capital investment. That's where we enter the economic frequency. Here are some scattered comments, mostly based on my old piece.

First, the usual grievance is "government should improve education." What do we mean by 'improving education'? Before any of us start arguing with each other, please do make sure we are on the same wave length about this.

Second, is education as endowment, or is it a choice variable? It is both, for sure. When we agree that it is an endowment, that makes it justifiable to call for an overall improvement, as well as ethical it is ethical to call for a more equal distribution. However, since it is also an individual choice, that's where we start talking about trade-off.

Put it simply in an example: why does A go to an elementary school and B does not? A usual answer is because B is too poor to go to school. OK, now why X goes to Harvard Business School, and Y does not? Well, maybe because Y is too poor to go there (mind you, everyone except the son of a Dubai sheikh is too poor to go there). But might it also be that because Y chooses not to go there? Because it is not worth spending 2 more years in school, while Y can do some other things within those forgone 2 years? The answer is also yes.

But the 'choice' answer is not always the case for MBA degree. Going to any level of education is always a choice, because spending 6 years in primary schools, another 6 years in high school, another (...) years in the university are also choices. Read the case of Indian farmers in my article.

The moral of the story is: if the government is to improve education level, that should be both from the supply and demand side. What affects the demand for education is the return of education. It can be anything, but labor market is one important aspect of it. We can build may schools, and/or better schools. But no one would come if there is no where to go after finishing schools.

Third, let's suppose we agree that the government should do something. Does 'something' always mean more budget? More regulation (or even less regulation)? Fourth, let's suppose that there should be more budget for education. What should we spend the budget for?

Well, we see that there are more questions than answers. That what makes economists like Rizal seems to be blunt, unattractive people... :-)

(BTW, I keep asking myself, what the hell am I doing here, forgoing my modelling career back home...)

Saturday, February 25, 2006

From the Manager


Of course we grant Ape's request. We're playing Summertime a la Janis Joplin. Or, even Eddie Cochran's Summertime Blues. (Coincidentally, we might play the Van Halen's interpretation of it, since Sjamsu -- himself a guitar player -- is in town).

But I can't resist this one: Billie Holiday's interpretation of Gershwin's Summertime (Porgy and Bess)...


Summers' Time Blues...

Passing through my final paper presentation means a breathing time out... for a while. That explains my long absence. Will try to compensate it, promise!

In the meantime, I'd like to request our manager to play Janis Joplin's Summertime Blues. No, not the jazz version.. The Joplin's version, please. The title should be twisted to 'Summers' Time Blues,' following the recent resignation of Harvard President Larry Summers. Poor Larry. I think the faculties (some of them actually) have been too harsh for him.

There are too many politicking behind his resignation, for sure. But if the reason for his being forced to resign was his remark on men and women 'innate differences in aptitude' last year, that only means something: academic environment are not that free. There are some taboos for academics, gender issue is one of them.

If that's true, than it is sad.

Thursday, February 23, 2006

False Positives

A recent article in the journal Demography (November 2005) discusses, in an interesting way, the relationship between longetivity (how long you live) and non-morbid obesity (body mass index over 25 but less than 40, the threshold for morbid obesity). Instead of focusing on obesity of individuals and how it affects their mortality outcomes, Gronniger, a researcher at the US Congressional Budget Office (don't ask me why) looks at whether an individual has a family member who is obese (he calls this familial obesity) and see how it influences the individual's own mortality outcome. Yes, it sounds implausible that someone else's obesity should adversely affect your health, at least we would not think there is a direct effect.

But that is precisely the idea. If the risk profile coming from estimation using individual obesity measure was to be intrepreted as the 'correct' profile of how obesity influences your longetivity, replacing the measure with familial obesity should give a different risk profile, one with less or maybe even negligible effects of (familial) obesity. Lo and behold, not only was familial obesity statistically significant, the risk profile from using this measure turned out to be similar to the one using individual obesity measure. In other words, the adverse health effect of having someone who is obese in your household is similar to actually being obese yourself. Gronniger argued that this suggests that the estimates using individual obesity measure are actually capturing a lot of household characteristics that are correlated with, but being unobserved, falsely attribruted to, obesity. Familial obesity effectively acts as a proxy for these unobservables. He then concludes that many previous studies that ignored these unobservables may have overestimated the mortality risks of non-morbid obesity.

This approach, identifying false positives, are not unique, we do see it from time to time. Indeed, the paper refers to a well-known study by DiNardo and Pischke (Quarterly Journal of Economics 1997) who studied the effects of various office equipments on wage and productivity. Their study was motivated by a previous study by Krueger (QJE 1993) who argues that the use of personal computers has change the wage structure in the US, after finding that controlling for workers characteristics, those who use personal computers earn 15 to 20 percent more than those who don't. DiNardo and Pischke argue that the observed differential was more likely a reflection of the difference between the types of worker (i.e., selection problem, by now a standard objection) but they show it in a clever way. They use a micro data from Germany and run their estimation using data on personal computers use and also found a wage differential, just like in the US study. Then they performed similar estimation using calculators, telephones, pens, and pencils, and found similarly-sized wage differentials! Their paper was cheekily titled "The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?"

The examples above show us what those of you who have been frequenting this Cafe already know: we are a skeptical bunch when it comes to claims about causality (this, I believe, is also one of Roby's pet peeves). In the absence of a truly random experiment, it is difficult in social science to show empirically the relationship between one variable and another without running into all sorts of statistical problems, even more so to establish causality. And I think this is not some technical details that only those in research need to worry about. In recent policy debates, we hear policy makers, scholars, and pundits make a lot of sweeping conclusions, a number of which ought to be put under more scrutiny, for examples: "the increase in gas price causes the increase in the number of malnourished kids", "the increased availability of porn causes an increase in rape cases in Indonesia", and so on. Just listen to what the social issue du jour is and you'll hear similar statements. I'm not saying they're false. Most of the times we don't know the answers. Yet. Finding false positives is not the only way to answer these questions, but it may direct us closer to the truth. Like they say, a little dose of skepticism is always healthy.

Tuesday, February 21, 2006

Globalization: mini story part-2

They may look alike. Speak the same languange at work, bow to customers in a culture where hospitality and punctuality (and cuteness) are highly respected. But apparently they are different nationalities working for the same company. I don't know since when Japan Airlines and its group have been employing stewardess from Thailand. But they are many of them, mainly employed in domestic and regional (China, Korea) routes.

I guess this phenomenon is part of evolution in the global aviation industry. Increasing fuel prices, competition from international carriers, resulting in thin - and perhaps volatile - profit margin. The story goes that in the old days, working for Japan Airlines is one of that young Japanes female can dream about. Highly paid and able to travel around the world, visiting those I call Dunhill cities: Paris-London-New York, in a frequency matched only by movie stars or member of the Rolling Stones (airline tickets were more expensive in real terms compared to nowadays).

Now wages in aviation industry seems to be stagnant and benefit are trimmed, as airlines profit are squeezed. In short, real income compared to other industries is not that great. Thus working as an Airline stewardess is no longer that glamourous. With Japan real appreciation due to increase in price of non-traded goods in the late '80s, labor market went tight and wage in all services industries also creeped up.

But Japan Airlines can not give up and start to hire old women (sometimes mean too) like what the US airline carriers have been doing for their domestic route. What would Japanese (and myself) passengers say if their well-being in 14 hours of trans-Pacific flight are in the hands of Oba-san (old, mean, fat, women) ?

Thanks to Thai women, who are highly skilled in the services industry. They came in to fill the gap. They trained themselves Japanese language, perfected their attitude on serving customers, and then they flew.

Similar story is also happening in the US' health care industry where nurses from the Philippines are filling in the gap. Not only they work for hospitals, but they also work in retirement houses, taking care the elderly.

Indonesia also supplies thousands of maids to countries where working as servants are not an attractive job. Also, since more than ten years ago Indonesian musicians have been performing in bands in clubs in Brunei and the Middle East.

Thus, in services, global factor mobility has started in what the WTO classified as Mode 3 of labor movement across border. The key to sucessfully joining the movement is constantly arming our labor with skills needed in the services industries.

Globalization: mini story part-1

On the way to Jakarta again. Outbound from Chicago O'Hare to Tokyo, I sat next to an ordinary looking American guy. By looking at his appearance, you can tell he's from the heartland (Midwest states): thick brown hair - combed just like '77 Saturday Night Fever, blue sweater with Ohio State University logo (apparently his daughter went there), slightly baggy jeans and a white tennis shoes. Indeed he is from Ohio, from a small town (I forgot the name) one hour from Columbus.

Americans love to chat. So does he. He said that this was his first trip to Japan in the last 8 years (this is my 2nd in the last 2 months). I asked him about what he does. Then we chat over several cans of Sapporo beer. He explained and for me the rest is a story of globalization, a story about falling trade and investment barriers, and an example for intra-industry trade theory.

The guy works for a glass factory, a Japanese owned one, Asahi Glass Corporation, with headquarter in Nagoya. They opened a plant in Ohio, nearly 15 years ago as a Foreign Direct Investment to supply car windows for Honda automobile plants in the US. Now, Asahi Glass also supplies car windows for the General Motor and Ford.

In 1989, Gene Grosman and Elhanan Helpman wrote a paper (in J. of Political Econ.) describing how technological innovation drives specialization and induce trade. The paper is a prologue to their 1991 seminal paper (in Review of Econ. Studies) on quality ladder and endogenous economic growth. One of their main predictions, or perhaps illuminations, is that countries with abundant high-skilled labor have the incentive to be the leader in the quality ladder. In a world with a free-entry, imitating is almost costless, therefore leader can not afford to loose and will push their research and development (R&D) to maintain their position. As a result, these countries tend to specialize in a high quality, research intensive, products (high definition TV, digital technology, high end textile fabrics), while the rest specialize in products with lower quality that requires less research (ember plastik or plastic bucket, tooth brushes, low end textile fabrics). However, if barriers for trade and investment fall, then there is nothing to stop a country - or its multinationals- to fragmentise their production: doing R&D in the home country while manufacturing in countries where labor is relatively cheaper.

Asahi Glass and Honda fit their story very well. Honda came in to the US to be closer to its market, reduce manufacturing costs, but mantain most of their R&D in Japan. Similarly for Asahi Glass, it came to the US to follow its customer (Honda) and mantain its R&D in Japan and manufacturing their glass in Ohio. They also continue to innovate. Both Asahi and Honda started to do R&D in the US, employing US' engineers, and as a result, they found new customers: GM and Ford.

Saturday, February 18, 2006

A wisdom from the loser

I'm no big fan of The Born Loser -- not as much as I am of The Boondocks, Peanuts, or of course our "own" Panji Koming. But today, the Born Loser, or more precisely, his junior delivers an important message. Let me quote the whole scene.

Brutus is sitting on his couch, talking to his son Wilberforce. The latter is standing with a dollar bill in his hand.

Brutus: I don't want you to spend that cash grandma gave you for your birthday!
Brutus again: I like to say, money saved is money earned!
Wilbeforce: Yeah? Well, I say, money saved is money I could have bought somethin' good with!
I can't agree more with Wilberforce.

From the Manager


I plan to spend the weekend somewhere internet-free (yeah, right). So let me bring you our upcoming week's pick in advance. They are 1) Poinciana (Ahmad Jamal), 2) Second Balcony Jump (Dexter Gordon), and 3) Epistrophy (Thelonious Monk).

See you next week.

Wednesday, February 15, 2006

In defense of ... television

I confess, I always have a mixed feeling when I hear parents blame television for their children's bad grades in school. Something tells me this can be right and wrong at the same time. If memory serves, my childhood was full of tv-watching, far exceeded today's standard for children. But I wasn't the dumbest in the class. I know many friends who still remember perfectly the characters from movies or series we watched when we were kids. And they did well in classes. Of course this should not be for generalization. Today, many school kids are forbidden to watch tv more than 2 hours a day (poor them...). Some of them make good grades, some not. Some go to school at 7am and came back home at 7pm ("You'd better take this course and that course, not watching tv" -- moms say). Ask them calculus, and you'll be ashamed.

So, the best I dare to conclude about the effect of tv on children is: it's ... inconclusive.

Fortunately, some people have time to think about it more seriously. Here is their paper. Below is the abstract:
We use heterogeneity in the timing of television's introduction to different local markets to identify the effect of preschool television exposure on standardized test scores later in life. Our preferred point estimate indicates that an additional year of preschool television exposure raises average test scores by about .02 standard deviations. We are able to reject negative effects larger than about .03 standard deviations per year of television exposure. For reading and general knowledge scores, the positive effects we find are marginally statistically significant, and these effects are largest for children from households where English is not the primary language, for children whose mothers have less than a high school education, and for non-white children. To capture more general effects on human capital, we also study the effect of childhood television exposure on school completion and subsequent labor market earnings, and again find no evidence of a negative effect.

But, speaking of tv, of course we should think about what actually is shown on that thing. Because that might make a big tilt on the conclusion. If your kids grow up watching Discovery Channel rather than MTV, probably they will have better grades (so far as school gives more weight to science than to fashion or music).

Tuesday, February 14, 2006

From the Manager

I was out of town last weekend, I couldn’t manage to announce our week’s picks. So here they are… Molten Soul (Joshua Redman), Nuages (James Carter), and A Love Supreme Part 3: Pursuance (Branford Marsalis Quartet).

You ask, why the youngsters? Right, we’ve been playing the old schools these past weeks. It’s probably time to hear some fresh interpretation (B. Marsalis on Coltrane, and J. Carter on the great Django Reinhardt) and invention (by J. Redman).

Maybe the excitement of upcoming Java Jazz Festival is a call to appreciate the younger jazzers. Indeed, don’t miss Nial Djuliarso and Zefanya, newest prodigies. And there will be the established Dwiki Dharmawan and Margie Segers. Or the overlooked Wayan Balawan.

But hold your expectation there. The organizers seem to invite everyone to play. Don’t be surprised, names like Glenn Fredly, Dave Koz, and Kahitna are also on the list!


Update: Someone informed me, not only Glenn Fredly will perform with his annoying falsetto, but even Ello will be there. Man! What is this, a smoothie?

Thursday, February 09, 2006

Who wants labor market inflexibility?

I was invited by friends from Akatiga and Sociology Lab, FISIP-UI to discuss their research on Labor Market and Investment Climate. It was a good discussion.

In their sociological research, they particulary concern that labor market flexibility would degrade the labor condition and job security --and argue that due this flexibility there's a shift of permanent employment to non-permanent one (outsourcing, contract, etc) so that the labor's wealth and income becomes less certain.

My take: it is the labor market IN-flexibility that causes all of those problems abovementioned. In fact, so far our labor market is not yet flexible. The inflexibility imposes high cost for firms to hire permanent workers --and to fire when necessary(the severance payment is as high as 10 months salary, according to a fellow discussant from CSIS)--. Therefore the firms opt to hire non-permanent workers.

It seems to me that they're alarmed by the current formal worker's job security status, but as you may know the labor market rigidity harms the ones who are outside the formal sector --the unemployed and the informal sector's worker. It is a trade-off indeed between employment creation and job security of the labors already within formal sector.

Moreover, another discussant from SMERU revealed a bad news: he estimates that 1% economic growth may only absorb 225K employment --way below the government's figure. And according to our CSIS fellow, there is a recent shift from labor intensive to capital intensive investment --to partly confirm the low employment absorption.


When Lionel Luthor told the son:
"Altruism is not in your blood, Lex. Believe me."
I was stunned. Somehow my mind brought me back to the day when I was struggling to model altruism in into a paper I was working on -- and gave up. What is altruism? Most people associate the term with something about morality. Many economists have come to believe that even altruism (as opposed to egoism) can enter into one's utility function. That is, even when someone engages in a altruism-spirited act, he or she is actually doing it for his or her own self interest. Hence the birth of oxymorons like "egoistic altruism" or "egocentric altruism". One seminal paper along this line is of course Becker's Rotten Kid Theorem.

Assuming Lex Luthor represents a rational man, who of you thinks Lionel was right? When you give charity, or do good deeds in general, what do you expect? What do you feel?

While I do believe that many altruistic acts are driven primarily by people's belief in some moral value (religion, etc), I can't deny that there's always a slightest "warm glow" feeling involved...

Think about Soros' charity foundation. Many if you, I was told, partly blame Soros for an economic crisis that hit Indonesia some years ago. Assuming you are right. Do you think his foundation was built out of pure altruism? I guess you don't. No self-interest whatsoever? How about the Gates' foundation? Rockefeller? I hear whisperings: "They do it for ... profit", "Don't trust them...", "They're mean capitalists...". Now, let's look at here, in our own home. What do you think of TV7's "Rejeki Nomplok", or RCTI's "Uang Kaget"? Do I hear whisperings?

Lionel might be wrong. Altruism can be in everybody's blood. But even altruism can add to your own utility the way self interest does...


Wednesday, February 08, 2006

From the Manager


It's the Manager again. I'd like to thank Satya for his suggestion. Now I'm applying technorati-tagging. See how it plays out.

Tuesday, February 07, 2006

From the Manager


I was thinking. How about 1) creating a logo for the Café, 2) designing an own skin and template for it, 3) signing each posting with category-label, and 4) moving the publishing to an own ISP. The reasons, respectively are: 1) brand rules, 2) uniqueness sells, 3) organized is neat, and 4) control over data is important.

One of the hosts responded to my ideas: 1) "Agree, but ask an artist to do that, you're just a café manager -- you don't have the skill to design a "powerful" logo"; 2) "Why? Blogger® has lots of options -- why bother design your own?"; 3) "Great. Can you do that? I was told, Blogger® doesn't have that feature. Ask any blogger out there to help you. There's this thing called "Technorati®-technique", I heard"; and 4) "Why? Blogger® provides free storage. Afraid it might collapse one day? Well, it will lose big time -- the people there don't want that to happen, believe me".

You think he's right?

Sunday, February 05, 2006

From the Manager

Hi all,

Hope everybody's well. Many things have happened during the foregoing week. We're not going to list them up here. You surely are better in googling.

This week's picks are 1) Out of Nowhere (Charlie Parker), 2) Moritat (Sonny Rollins), and 3) Cucumber Slumber (Weather Report). What a combination. Enjoy.

Sutiyoso is an environmentalist

... or at least that's what he might think he is. The Jakarta mayor has just agreed 1) to ban smoking in public place and 2) to run compulsory emission test on vehicles.

I don't think any of these green policies could work well. Not as environmentalists would like them to. For smoking ban, see my takes here (on New York's case two years ago) and here (on the right to smoke and externality). As for emission standard, here's a related post. In short, I am skeptical on command-and-control approach. It's too much prone to abuse. I'm risking my face for papercup throwing session once again; but I'm gonna just say it: if clean air is the goal, gasoline tax* will do better than emission standard. You ready with another increase in gasoline price?

*) ... and I mean a uniform tax on kilometers, not an emission tax. See a paper by Sarah West here.

Saturday, February 04, 2006

JK's business nonsense

Vice President Jusuf Kalla likes to pride himself of being a businessman. But his statement over Sampoerna's decision to withdraw from some investment projects shows he thinks like a lousy businessman. The Jakarta Post yesterday (the link was not permanent; it's lost now) reported,
Vice President Jusuf Kalla criticized the Sampoerna family ... for the uncertainty it had allegedly caused in the local economy after withdrawing from several investment projects sponsored by the government... "The Sampoerna family is not showing consistency... I think the family should make up its mind"...
Why does he think he has the right to somebody else's investment decision?

Speaking about uncertainty, it's the government who should be warned. They've been silent on the exact plan of electricity rate hike. It's creating uncertainty leading to inflation expectation. And unlike Sampoerna, it's our money they're using.

Wednesday, February 01, 2006

It IS illegal

So the government via Minister of Communication and Information has said it. Playboy magazine is illegal in Indonesia. Congratulations.

I respect the decision if it really is the reflection of what Indonesian people demand. But we should probably be more consistent. So, let’s as well do the following:

  • Ban FHM magazine. It teaches s*x.
  • Ban Popular magazine. It has nude pictures.
  • Ban Cosmopolitan magazine. It runs s*x astronomy.
  • Ban Matra magazine. It uncovers Jakarta’s dark side.
  • Ban Female magazine. It promotes miniskirts.
  • Ban Femina magazine. It has consultation forum with sexual innuendo.
  • Ban Hai magazine. It caters boys’ adrenalin.
  • Ban Ayahbunda magazine. It shows those areas.
  • Ban National Geographic. It details how animals do it.
  • Ban Cita Cinta magazine. It motivates girls to try stuff.
  • Ban Cek&Ricek tabloid. It peeks into everybody’s bedroom.
  • Ban RCTI. It has pervert and ghost series.
  • Ban SCTV. It has pervert and ghost series, too.
  • Ban Metro TV. It is full of violence and blood.
  • Ban Lativi. It replays old Indonesian porn movies.
  • Ban The Jakarta Post. It embraces market economy – ain’t good for your health.
  • Ban Pos Kota. It has naughty hotline ads.
  • Ban Cosmopolitan FM. It invents naughty slangs.
  • Ban the Internet. It’s the root of all evils.
  • Ban DVDs, VCDs … wait, just raid Glodok, Ambassador, Ratu Plaza, and Mangga Dua.
  • Ban ... blogs -- what?

I hope we're not forgetting that corruption, hunger, diseases, flood are also important...