Thursday, November 30, 2006

poor farmers, is it always the price that matters?

Well this morning, digging up to one of my favorite blog, founding interesting article,Oke then, what in the hell people is talking about anyway, rising price of rice would hurt the farmers or not? , well that's an old story i have had in the past, and really, till now, i'm still wondering why would that happened anyway.

The Quarrel between works of economist in development economics, in a certain manner would however change a cross time. My guess is the man, from whom kompas has quoted his words in this article is an old fashioned one -if I say he to be an economist though. What he’s arguing is nowadays still being such a controversy among development economics, whether rising price of rice would make farmers better off? whether farmers will increase their production as a result of price effect?, would the income-marshallian effect would eliminate slutsky substitution effect ? Well I would say, that depends, depend on where do you look, what do you seek, and when.

You see, that’s the problem being Political economist, you’ll never be, or- even better - consider to be neutral, though I should say Economics were never been neutral anyway, but policy must be neutral, neutral with what you keep in your tiny head, because your head could not keep up with all complexity in this growing market economies. Neither if you are market fundamentalist, nor I should say Structuralist.

That’s why I’m completely disagree with people considering themselves as an economist,development economist, talking to the news, about policy, without solid facts, to me, they are nothing but politician needing some vote for another election campaign success. What these guys were telling the news is that Farmers are often abused by the global market, and therefore we need to accelerate their income by keep the price (of rice) rising, well guys.. reveillez-vous… have you heard anything about such a complex problem with agricultural households?

There is a problem called Separability problem, which shows that agricultural household is facing two intertwined problem in the same time, because they are acting as a producer and consumer at once, for agricultural products. Therefore their profit maximizing condition were constrained in a non-recursive way and instead, simultaneity occurred. Thus the agricultural household could not operate as a common maximizing behaviour individuals.

Even when price is rising up to the sky, farmers will surprisingly might reduce their production, and therefore cause a higher gap of income, because the price negative effect is not only the rice, it multiplies a lot,seeing that the other consumption goods will rise as well.

So when will farmers will have a greater profit, and becoming rich?, frankly I don’t really know, what the answer for this, anyone has a clue? I’ve been thinking about this since I was studying Introduction to Development Economics, well, I suppose that farmers will get better off by increasing their production, not by raising their price, because their welfare is endogen to the price itself.

Nevertheless some research as Benjamin(1992), Pitt and Rozenweig(1987) has proven that there is no such things like separability condition in Indonesia, well I think they have overrated our country, first of all, their research is only conducted in Java region, could not aggregate their result though,What happen if this separable thing were concentrated in some areas without adequate source of water, with pathetic quality of soil? Seeing that Jakarta is so polluted, then what happened in Jakarta, would be totally different with what would happened in Papua for instance.
Secondly, their stories were way out of our time, it’s been almost 20 years now, and were facing a lot of up and downs in our economy. Thirdly, these researches were concentrated in labor market imperfect market, in a general term. Off course there should be another way in having another conclusion totally way around.

Another thing to look more precise is that often, the cause of non-separable problem is complex, it might comes from any different kind of market imperfection, and even the source might come from one market that is totally perfect ,why? Well because this one single market that is ironically perfect has caused some other market imperfect as noted by some of easterly in his critics of multi tasking of MDG

Looking to the facts on the field, people has a large constrained of collateral, thus access in credit, Farmers have a large barriers of trade because no easy access to the market, then the transport cost is high, people in the mountains were so isolated that their cultivated their land on and on without sufficient fertilizers, there are too many imperfection against the farmers, and I agree that these guys need help. But saying that rising prices of basic needs is a fair deal for consequences of oil price shock is confusing and misleading.

Instead of using our budget for subsidizing rice, we should increase the ability of trade and access on information, by giving them decent infrastructure, friendly bureaucracy, cutting some hands in the bureaucracy in export and import for example, do you know that rice produced in Thailand is far more “pulen” and More tasty, and it smell so good, that people would prefer buying it than other cheap rice. Here, thousand miles from Thailand, we eat Thailand product, and we pay in euro, and no indo-rice product made it to come here. Anyway how many Indonesian people, having opportunity to go abroad, who consume Indonesian rice, if they already had a chance to have Thailand rice? not many I guess, with a small disparity of price I’d prefer to let go my nationalism in rice, though.

You may argue that they are dumping their products, I would say, if they do that, why don’t we do the same thing? We import rice from Thailand, which is relatively cheaper, and then we export, say to France, all of our commodity, or may be even exported it to Thailand, in the end, the price would converge, and the only thing that that we could use in comparing the two is their quality, that is our base line, and In the end, no one will buy our rice, since we’re consuming the same Thailand rice.

So the bottom line is, the problem is not what Thailand has did with their price, but why they could make such quality to be well known to the world. Another example is another close neighbor of ours, Vietnam, they Exported many kinds of things, small agricultural things, like chilies, spinach, noodles, fisheries, fast food-kind of things, which were really fancy in this country. As a result, their price goes up, with a single addition in their package, a usual package of frozen “tongkol” mixed up with ingredients,-with a little help of Microwaves- will change to a well prepared Vietnam gourmand, , and so is fast food, we could get a tasty Chinese foods by buying all the ingredients available there.

A strange thing is Indofood, and KOKITA stuff were easily found here, but no Indonesian imported it, it licensed to some Indian company, in contrast, Chinese supermarket “tang frere” were amazingly famous, and we can find all asian taste ingredients there, even Indonesian’s sambel oelek, what's I’m going to say about this is that,global market were not so racial to the agricultural goods, the thing is. you have to improve your quality, your package, your additional values, and the most important, increase your market. That’s where Chinese success came from, they have already ruled the world, even before Chinese open up their market. That’s why we always find Chinese restaurant every where, Chinese banks in every corners of the street of Paris.

What I’m saying is, if you want your farmers to be rich, stop them of being a farmer, and a farmer only, instead, becoming a farmer and entrepreneur as well. Farmers in Indonesia were so characterized with lack of education, and information. Indeed, they lack of source of money, but they need education and information the most, to reveal what is really the meaning of globalization, what is to have freedom to choose, and how they could sell their product. Of course we have no means to give such policy like the common agricultural policy in Europe, and certainly we could not let the farmers hurt by the prices.

But still do not give up hope, we could make it, as long we stop complaining, and stop listening to politician, pretending as an economist.

Rizal Adi Prima

Monday, November 27, 2006

A letter to Mr President

Dear Mr SBY

It is has been quite a while since you officially be the president of Indonesia. During this three years, you already travel a lot to foreign countries. As far I know, you have already been in US, Cuba, Rusia, Japan, etc. You told us that during the visit you will promote Indonesia into foreign investor.

Let me ask several question : Do you know that firms is a rational economic agents. {Even in bouded rationality literature, firms always assume as a rational agent. this is not a kind of man-made-so-that-analysis-could-be easier assumption. firms have lots of resources so that they could analyze everything (most of things) before they make their investment decision}. Do you know that the higher-the wider the hierarchy of public servant In Indonesia, vertically and horizontally, the less productive they are?.Do you know that the corruption and bribary level is so high that the cost of doing bussiness in Indonesia is so high. (for your reference, you could see the research by Ari Kuncoro and Henderson in NBER). Do you know that any Doctorate Honouris-Causa you have do not make any difference to Indonesia economy.Do you know that how hard you are being a good guy in UN will not give any much effect on indonesia economy yet -silly-nasionalism-pride.Do you know that as long as the cost of doing bussiness in Indonesia is still high, there is no way will an investor go to Indonesia and invest here. Do you know that as long as the bussiness contract is not protected, then the firms will not sign any contracts in Indonesia.

No matter how hard your effort to go to foreign countries and persuade the firms there to invest in Indonesia, they will not go here for sure. Firms are not a charity organization. Going abroad for this reason, without any correction on Indonesia Bussiness climate, will not give any effect on their belief on Indonesia. Now, Mr Presiden, let me give you one suggestion. Please stay in Indonesia. Do your homework. Clean up all the mess. Going abroad for state visit has a huge opportunity cost. It is better for you to use the money you spent during the visit to somewhere else more productive.

Thank you very much for your attention

Best Regards

The Dreamer

Sunday, November 26, 2006

A Question on Perfect Information

by The Dreamer

In economics understanding, moral hazard is happened because of imperfect information between economics agents. Due to this hidden information, the agents -who knows better- abuse this knowledge such that it affects the pay off of the another agents. Off couse this problem would not be exist if this knowledege is available to all agents. It is already analytically proved (by Stiglizt, Salanie, Dixit,etc.) that perfect information give higher social welfare rather than the imperfect information.

Now let me tell you two stories : If u ever think to change ur occupation to be a criminal, there are some notes u should remember :

1. Always clean all the trace, finger print, shoe print, etc. It is all can be used to take u down

2. Do ur plan carefully, observe, observe and observe . Most people have pattern. Rarely do this people break the pattern. Observe the pattern on the next victim

3. Do not expense all the money you just get.Do not put it into bank or in your house. Police can always have a search warrant into ur house. It is better to send it to Swiss Bank or ask people to have legitimate bussiness.

4. Do not change ur life habit

5. Provide a very good alibies, and stick with the alibies. Police can not do aything without a clear evidence.

6. etc..

Any man can learn and extend the list by wathich regularly the FBI files and True Crime Scene in discovery channel. (a police in Indonesia must also use the same method) More over, if you want to be a rob an empty house or car, you can just join the lock pocket society (here)/read the manual on the internet (here ) and buy the lock pick kit through internet. It is max US$30 for a standard kit (here , here )

By telling a first hand story on how FBI, any police agency, and Locks works, any people can beat the system and harm any other people. For sure the agency and the lock industry can always reserach for a better method to fight the crime or a better-and-uncraked key. But once the this new method implanted, thanks to the perfect information, any people can can spread the method to crack the new method. (I do not have any statistics on the proportions of crime solved (wrt total crime committed) in US before and after the FBI, true crime scene. If there is, we could do the empirical test)

Contradicted with the common knowledge, in these two situation, the higher the degree of perfect information, the higher the possibility of moral hazard. My point is perfect information is good. But there is always a people try to abuse this perfect information for their benefit in cost of other ( is also called moral hazard). May be something is just meant to be imperfect

Tuesday, November 07, 2006

The Economics of Sexual Behaviour

by Berly

I was just thinking to write a piece about economics of happiness since my department going to organize summer school about it.

That is until I stumbled upon two interesting articles. The first article was published on Lancet, the Econometrica of medical journal, with Professor Kaye Wellings from London School of Hygiene and Tropical Medicine as principal author. The second one was presented by Todd Kendal at Stanford Law School’s Law and Economics seminar. You may wonder what those two articles got to do with Economics.

The first paper is aptly titled “Sexual behaviour in context: a global perspective.” (Now that’s a topic people can think global and act local). Welling et al found that the richer a country, then the later people married and the higher incidence for premarital sex with men enjoying (no pun intended) higher increase than women.

The rich country’s citizen experience larger age differences between men and women when they loose their virginity (in case you are wondering, it is 16,5 year and 17,5 year for UK and 24,5 year and 18,5 year for Indonesia). Lastly, the high income country saw more sexual partners for women than in low income countries (in Cameroon, Haiti, and Kenya, men on average have multiple partners while women tend only to have one).

The second paper studies relationship between pornography, rape and internet. Kendal used state level panel data in US from 1998-2003 to found a 10 percentage point increase in internet access is associated with a decline of 7.3%in reported rape victimization. Cross checking the data with arrest list, he found the decline is largest on young male but having no significant correlation with other crime types. One of the main arguments against porn is its addictive properties (like smoking) that push users for more and more stimulation that could lead to rape if continuously feed upon. The study refutes it.

So increasing education and investment for higher income are only a façade for glorified pervert world? When Todaro talked of development as increasing choice and Sen spoke of development of freedom, they may not realized that they are also advocating rich women to be able to choose between multiple sex partner and teenager boys using their freedom to substitute rape with internet porn.

But I can’t help but wondering how my undergrad development economics class would be much more interesting if these topics were covered. Development is indeed an elusive concept.