kaFE depok

Why Business entered Politics

2010-03-09T11:02:00.002+01:00

These days, we bluntly saw political show of Century case on TV. Serial interviews held live so those who were not in the DPR building could follow on what happened with the case. Politicians asked related stakeholders involved in the case in the sense that the show should be watched by adult only. The shows brought politics into your home directly.

Apart from the case, we should see who is behind member of parliament who investigate the case. It was political parties controlled by businessmen or family businessowner who also control financial resources. It is also not surprising that political party needed large amount of financial resources to run and win the election.

Last posting was interesting. It was recommended for businessmen running in politics should divest their wealth in order to avoid conflict of interest. This sound plausible but difficult in practice. How could you let somebody manage your money but you don't know how much the return is?

It is a political system in our country, we must accept that system and it is not necessary bad. Political parties need resources where they could not find it anywhere. So, businessmen walk in political parties are very welcome.

Being in business is a human right and this should not be reduced when someboby is a political appointee. The issue is to avoid conflict of interest, public accountability should be improved. People should be educated for public budget awareness be with media or public education. It might hold every session in DPR live on TV like what DPR did with century.

People also could see whom should be voted in the next election

Politician and business

2009-06-10T16:22:00.000+02:00

Politician's business is one of the hot issue in this election (nope, I havent get around to write about neo-liberalism...maybe not enough market incentive)

Does politics and business mix well together? They could, but the possible downside is also quite severe.

To forbid businessman to go into politics is as mistaken as to allow politician take advantage of state apparatus for their own private benefit. Some middle path is required.

I took cue to practice in some developed country and proposed a blind trust where a politician's money is invest without him knowing where it is put to avoid conflict of interest.

More on this link

Neoliberalism and law formulation

2009-06-04T01:29:00.003+02:00

Megawati recently made these written statement:

"Kejadian yang dialami oleh Prita merupakan bukti kasat mata, dampak dari neoliberalisme, di mana kekuatan pasar bebas dengan lembaga-lembaga multinasionalnya dapat dengan mudah menggunakan hukum seperti UU 11/2008 tentang Informasi Transaksi Elektronik (ITE)"

Despite much sloganism inside and citicism to it, would Indonesia would be better off if all the legal product is evaluated publicly whether it will benefit corporation more than commom citizen. Even more so if it is done by an independent body with competent people on it.

Let the debate continue.

The war of slogans

2009-05-28T04:08:00.002+02:00

The election fever is reaching new height with labelling effort to box the opponents.

I'd like to know more concrete policy and the number of each presidential candidate instead of empty slogans and the race to steal narrative.

Indonesian deserve a real and substantive debate on economic policy in order to make an informed choice.

Anyone know the website of economic platform of each candidates?

Financial crisis & behavioral economics

2009-05-09T01:57:00.003+02:00

TNR pubilish an article (click here) by Akerlof (Berkeley-Nobel Prize Winner) and Shiller (Yale). The title is provocative "Our New Theory of Macroeconomics' and very powerful excerpts below:

"The role of irrational behavior in the macroeconomy is not trivial and obvious to see. It requires the development of a new theory, which we only just have begun to provide in our book. In this book we strove to put together an array of evidence, some of it from psychology, some of it from economic research, that gave an overall picture that we think is in stark contrast to the usual paradigm.

It is a picture that stresses factors that are totally absent from conventional macroeconomic theorizing: that the economy is affected by variations in the level of trust, by storytelling and human interest, by perceptions of corruption or unfairness, by anger and optimism, by social epidemics causing changes in gut instincts and feelings. Those factors, we firmly believe, are ultimate causes of the boom we saw a few years ago, and the bust we are seeing now".

respond to Posner's (Chicago) review (click here) of their book "Animal Spirit.

Seem like a worthy book to read. And a call to arms for behavioral macroeconomist.

Update: more book reviews on origin of financial crisis (click here)

Election conduct and election system

2009-04-18T02:32:00.000+02:00

So many interesting things happened during this election, sometime hard to choose which one to focus on.

Should it be the meteoric rise of Democrat Party? or the plot within plot of coalition? or the disenfrachised voter by KPU incompetence?

But they all have been covered rather extensively. and so little coverage has been given to systemic analysis of election system. District system has many advantages that is sorely needed in a large and plural country like Indonesia. Thus I argued (click here)

Econoland

2009-04-03T08:41:00.002+02:00

The Economist has a graphic, and hilarious, description on the global state of economy. Among the thrilling experiences Econoland will offer are:

The currency high-roller: Float like a butterfly with the euro and drop like a stone with the pound! Chamber of horrors: Tremble at the wailing of distressed debt! Fiscal fantasyland: Watch the economy shrivel before your very eyes as you struggle to stop growth falling! Bankrupt Britain: Pit your wits against the government as you try to sink sterling and bring the country to its knees! The Severe Contest: Try your strength against a bear market!

Click here to see it.

Economist and Election

2009-04-02T08:28:00.002+02:00

The economist magazine have an interesting article about Indonesian election (click here)

and Nurkholisoh, an old time friend, publish a splendid article on the Economics of Election (click here)

I am also still optimist on Indonesian democracy eventhough acknowledge there likely to be many, avoidable, glitches in this election... May the journey continue smoothly.

update:
Another excellent article (click here) on the Economist on Indonesia election

Show off to buy less

2009-03-29T18:36:00.001+02:00

Earth hour is a very interesting experiment. It turn the bandwagon effect upside down.

The standard bandwagon effect is to display consumption so peer pressure lead more people to consume similar item. It worked especially well on luxury and branded items.

But enviromental concern could also be treated as luxurious consumption item and peer pressure could be used in many ways. Slimming down and going to the gym is one example where it work to reduce consumption of high-fat substance.

The number is quite encouraging. Just in Chicago area it save 100 megawats of electricity (click here). Anyone has corresponding number for Indonesia?

Prabowonomics?

2009-03-29T16:24:00.003+02:00

Have been reading some opinion article on Prabowonomics.

Among them are Teguh Dartanto in Koran Tempo, Bersihar Lubis in Medan Bisnis, Heri in his blog dan Vivanews feature.

Does it really deserve a school of thought by itself?

The strands of policy seems to have emphasis on role of the state and primary sector, with a healthy dose of scepticism to globalisation. Dartanto put forward a thoughful critics of some of its target.

Name-nomics is a good cacthphrase in the time of frenzy campaign. So I am looking forward to read more of SBY-nomics and Megawati-nomics as well as JK-nomics.

It would be interesting to have more debate on economic platform of each party though and less musical campaign.

Even though also quite likely that Indonesian campaign promises are, in Ron Ziegler's immortal argot, "inoperative" on the day after the election.

Mother Nature's Wrath or Government Negligence?

2009-03-28T23:33:00.001+01:00

Almost one hundred people dies and more than one hundred still missing in Situ Gintung tragedy.

It is a shock indeed. Especially since I live nearby.

Is it mother nature striking back due to lack of water absorbance or negligence by government? I think its a little bit of both.

Checking the bottom of dam is not a high priority in budget allocation. But maybe it should.

The incentive is heavy on building new infrastruture but much less on maintenance.

Deepest condolescent for many lost of life and livelihood

Debating the toxic

2009-03-24T10:08:00.003+01:00

Fianally comes the long awaited Obama-Geithner plan (click here) to clean America's bank from toxic asset.

But Krugman attack the plan as causing despair. head investor won and tail investor loose. (click here)

If government is subsidizing private investor and protecting them from risk, why bother. Just do it directly and nationalize the bank. Those director should be held responsible for their action.

No more USD 165 million bonus after destroying the financial system.

Bradford de Long provided Q& A version of the plan here. But its positive tone is criticize by Krugman (click here).

Let the debate continue.

Stimulus and election

2009-03-20T10:16:00.003+01:00

Never let a crisis goes to waste. Thus said Obama's chief of staff.

As election looming, this is a chance to propose something grand and visionary in stimulus without worry (too much) about inflation and international credit rating.

Must admit quite dispapponted with both the detail of stimulus (click here) and the way election candidates present themselves (click here).

Looking for silver lining and rainbow after the rain.

The Economics of Money Politics

2009-02-22T06:51:00.003+01:00

Money is the root of all evil. But money also make the world goes round. So I guess the trick is not to let evil bloom but keep it to stirs the world.

That is the same tricky balancing act to be done in campaign financing. The political party needs money but country as a whole loose when the party need more money than the money need the party.

A regulation is especially needed in Indonesia where income inequality is very wide. f allowed, some rich people could capture government policy and use it to their advantage with little regard for the rest of population.

My to cents worth (not sure can buy how many politician) in this article at Jakarta Post (click here).

Of Dinosaur and Mammal

2009-02-15T06:46:00.002+01:00

An economy deserve a second and third chance. Usually done by discarding old business and business model replace with new ones.

That is where entrepreneurship comes in.

An ossfied economy where the big dinosour continue to rule is not in interest of anyone, except maybe those dinosaur. That is why Indonesia need to use this crisis to ease entry barrier and improve climate for entrepeneurs.

After all, mammal was only come late in earth history. And now we are the most successful start up on this planet.

More on my Jakarta Post article (click here).

The long smoke of MUI 'fatwa'

2009-02-01T17:56:00.006+01:00

I penned an op-ed in Jakarta Post (click here) on MUI fatwa.

The go-to model to analysed addictive behavior is the one developed (click here; JSTOR subcribtion required) by Gary S Becker, a Nobel Prize winner and briallant economist. A more recent model by O'Donogue and Rabin is worth a look (click here)

Interesting how religion could play part (or could they?) in policy debate. Even more so since there is no punishment (or excommunication) for disobeying the fatwa in the way MUI structured in Indonesia. It is more of moral suasion than a directive. Would be interesting to analyzed the impact on cigarette sales figure

The responds to more article on the comment section of Jakarta Post website are quite lengthy and passionate. Still thinking whether to respond and in what tone. Any suggestions?

What caused the crisis

2009-01-25T17:38:00.002+01:00

It will take years and many arguments to settle the questions

But Alan Blinder from Princeton and former vice chairman to the Fed provided a preview in NYT of decisions that lead us closer to current circumstances

Wild Derivatives
Sky-High Leverage
A Subprime Surge
Fiddling On Foreclosures
Etting Lehman Go
Tarp’s Detour

(for complete article click here):

Econ matter in Obama Inauguration Speech

2009-01-22T08:53:00.003+01:00

State of US economy:

"Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet. "

Remaining potential:

"Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions"

What to be done:

"The state of the economy calls for action, bold and swift, and we will act — not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do."

Role of government and market:

"Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control — and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our Gross Domestic Product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart — not out of charity, but because it is the surest route to our common good."

Europen Economist on Financial Crisis

2009-01-15T06:42:00.004+01:00

Just find out a link to download a complete book for free by strong list of European economists o financial crisis. The authors including Guido Tabellini, William Buiter and Paul de Grauwe.

Highly recommended to anyone interested in non Anglo Saxon point of view. Click here to read in full

P.S.
The VoxEU website is an excellent portal of column and papers of many top European economist. Ignore at your own perils.

Economist on Indonesia

2009-01-11T14:31:00.001+01:00

Economist put out an article on Indonesia. they are quite optimistic

Most banks are healthy, thanks to radical reform after the Asian crisis of a decade ago. And in 2008 the country achieved rice self-sufficiency for the first time in 24 years. Manufacturing is starting to feel the heat but only 25,000 workers have been laid off since November. And, according to research by the Asia Foundation, an American NGO, the huge informal sector has yet to feel much of an impact of the crisis.

Click here to read complete article

Getting NPWP is quite a taxing effort

2009-01-05T13:01:00.009+01:00

I was calculating the benefit against cost of having NPWP. Being a student with unsteady job(s) make worry about the hassle of filling a tax return especially if I am abroad.

But Pak Darmin, the director general of tax, is a shrewd economist and he knows how to tilt the incentive. Just like busway make life harder for non-busway user. Now the non-NPWP have to pay higher percentage from salary and property sales as well as, a deal clincher, got to pay 2.5 million if ever going abroad.

Thus I went at final days of sunset policy, turn out to be extended to end of february, to the my area-designated tax office. It was pack with people, one official there told me they got 600+ applicant in one day.

But the system could be improved for sure. They dont have numbers but one must wait to be called to get the NPWP card after submitting the form. So people stand shoulder to shoulder close to the announcer to be able to hear him. It get really hot and exhausting. If they better planned then we could have a seat while waiting for our number to be flashed on the announcement.

Yup, it was quite a taxing endeavour. While the IT system of tax has been improved, the human side still need more work.

Could You Purchased Knowledge?

2008-12-26T12:25:00.009+01:00

Today I finally put aside the unfinished task to chase discounted books at Gramedia Grand Indonesia. The 35 percent discount is just too much too ignored for a bookworm like me. I arrived a bit after 10 am and finish the shopping before Friday prayers so I managed to beat the crowd.

One things that struck me is how books is a elastic goods. There are certainly more than 35 % increase in people coming (and the amount of purchase they make). More like 5 fold increase, and my friends told me yesterday and tonight is even more packed.

Elastic goods should get more revenue if they reduce price by getting larger sales volume. So why the bookstore doesnt hold sales more often?

Or maybe because this feel like a onetime only so people are more willing to splurge on it? Why there is a massive coordination failure when what is needed is to put a list of books we want to buy with friends, pooled our money and take turn reading the book? Where have all the library gone?

Even more systemic, why govenrment not following the steps of India and China by forcing major book published to print the book locally or buy the copyright (yes, some also just ignore it). Thus. reducing the price significantly.

Some people (like me) still believe that buying books will make them more knowledgable. Bad news, only reading will. So asked me what I learn after I finish the pile of books above, if ever.

Death, tax and alcohol

2008-12-24T05:21:00.002+01:00

They say that the only certain things is death and tax.

I found an article in Freakonomics blog (click here) that after crack down on illegal trading and closing of an incompetent license holder there is only one legal importer of alcohol in Indonesia

So what happened when a supply is lower than demand? the price increase. In this case, when year end as the excuse of excessice drinking is nearing, four fold. (complete article here).

Another article in CNN report a study between death and alcohol tax (click here). Now we know the price to pay to reduce (alcohol-reated) death.

Isn't economics a great (if a bit gloomy) science?

We can't explain why the story is not reported in Indonesia newspaper though. Please comment and send the link if you find any

Creative monetary policy

2008-12-21T05:35:00.004+01:00

Found a 2004 paper with Bernanke (yup, the Fed chairman) as one of co-author.

It listed alternative policy when the rate cut is neither feasible nor having impact (click here to read in full).

America is so lucky to the someone so prepared for the crisis at in charge of the monetary policy. BI still have a lot of ammunition to cut rate but its good to be prepared.

All you need is marketing

2008-12-20T05:42:00.003+01:00

The maker of shoes thrown to Bush is surprise to see the demand for Ducati model 271, soon be renamed “The Bush Shoe”, sky-rocketed after the incident.

Click here for the full article in Bloomberg.

The shoe-cide managed to send a sock-and-awe and in-your-face moment in marketing.

P.S.
If you need some weekend diversion, click here or here

Rural is down but even more for urban

2008-12-18T07:09:00.002+01:00

Very interesting article in Jakarta Post (click here) by Chris Manning, director of indonesia project at ANU and Sudarno Sumarto, director of top notch Smeru research institute.

The highlight

Overall, compared with 1998, the looming economic slowdown may have a greater impact on less flexible urban labor markets than in rural areas, where small-scale enterprises are much more common.

To Keynes or not to Keynes

2008-12-16T18:31:00.002+01:00

Well, the question is more of how much than either-or.

I am arguing that fiscal only interpretation of Keynes is not suitable for Indonesia since we still have room for monetary expansion.Read the article in The Jakarta Globe here.

Too bad the editor cut creative liquidity measures that I proposed.

The Political Economy of Iedul Adha

2008-12-08T16:04:00.004+01:00

I am currently reading a couple of Ha-Joon Chang's books. The Korean-born and lecturer at Cambridge has fascinating analysis of globalization today and how we got to it; not by free market but selective industrial policy and protectionism.

In East Asia Development Experience. he cited import restriction of luxurious goods in South Korea as strenghtening national unity and work ethics. The rich and powerful are not seen as splurging with expensive imported goods while the worker is working his ass. The common practice is to used locally produce car as official car of government head (Proton in Malaysia, Toyota in Japan and Hyundai in Korea).

So what Iedul Adha has to do with all the above?

Ramadhan and Iedul adha is an amazing pair. In the first, all eligible population (rich or poor) is going through thirst and hunger together. While on the second, the richer population is getting the poor population some good and meaty meal; it even forbidden to fast on Iedul Adha. How is that for solidarity.

Maybe Indonesia should consider to restrict import of >1 billion car and >10 millions handbags in the spirit of Iedul Adha

US-led Global Capitalism is Dead! Long Live US-Led Global Capitalism!

2008-12-04T19:12:00.003+01:00

The first part is the title and opening while the second is the ending line of my today's article in the Jakarta Globe.

The editor change the title and cut the opening/closing line, I guess to make it more sexy and rebelling. Hope the careful reader still get my intended meaning.

The system of buying and selling with market is still the preferred option when it is the best means to increase welfare but stronger transparancy and government regulation is needed more than ever. The same with the role of US, they are still there in pedestal but maybe not much longer if they stumble again.

Roller Coaster, Sutainable & Stability

2008-12-02T12:30:00.002+01:00

Indonesia must not have a roller coaster economy,
we need sustainable development"
-Prof Emil Salim in today's FEUI seminar-

"Stability is a public good"
-Title of Tony Prasetiantono's book-

The economics in the mirror

2008-11-30T15:40:00.004+01:00

How bad/long would it be?

That's the most often question come out when people meet me after the crisis unfold and think I (am supposed to) know some economics.

Tim Hartford say it best:

"Consumers should cut back their spending if they believe that their earning power will fall for an extended period of time, but if they believe the hard times are temporary—say, a short period out of work—then they should "smooth" by borrowing in hard times and paying back when things pick up"

But what consumer belief affect their action and expectation of companies/banks while government trying to project both to come up with appropriate policies.

Since so much (but not all) of the problem is self-fullfilling and paradox then I'd suggest an (slightly altered- in italics) jadul song lyrics as big part of the answer

I'm starting with the economics in the mirror
I'm asking it to change its ways
And no message could have been any clearer
If you wanna make the world a better economics
Take a look at yourself, and then make a change

Little reunion with Keynes

2008-11-30T15:11:00.002+01:00

Recent economic crisis has made me read and read again several macroeconomic theory, especially the Aggregate Demand and their relevant subject. This has lead me to one prominent economist in the century - I believe so. This economist is John Maynard Keynes.

I am not a big fan of Keynes as I am not also a big fan of Macroeconomics. But, I've just have little reunion with Keynes in very "introductory" ways. If you feel that you need to refresh some macroeconomics with Keynes, Greg Mankiw's article in The New York Times titled "What Would Keynes Have Done?" is an interesting one for you.

To lightened up further your reunion with Keynes, "An open letter to President Roosevelt" that appeared in the New York Times on December 31, 1933 is next to be your delicious desert.

They are all Indonesian now

2008-11-26T02:25:00.003+01:00

What is the world if not Indonesian now? They got our crisis, only on larger scale.

The question is, what they can learn from our experience. Hints, one of them is to treat the stock market like a lady.

More on my musing out loud at The Jakarta Globe column (click here)

The intuitive economy

2008-11-24T05:38:00.003+01:00

New York Times has this incredible piece:

Since September, when the Dow collapsed, Mr. Taccetta, has talked with his psychic about once a month, roughly twice as often as a year ago. “There is no rhyme or reason to the way the market is trading,” he said. “When conditions are this volatile, consulting a psychic can be as good a strategy as any other....Ms. Hartman, the Los Angeles psychic, said her Internet traffic has picked up substantially, from about 30 visitors a day to more than 200. She charges from $150 for a 30-minute telephone reading to $500 for 90 minutes of “intuitive counseling."

So when the rational is down, the intution is up.

But when the market is a stochastic or random walk proces, any advice is as good as any.

Another Move by Nelli Kroes.

2008-11-13T10:05:00.003+01:00

DG of competition again fines another cartel with a record USD 1.12 bil. This fine beats the the previous highes individual fines to ThyssenKrupp in Elevator and Escalator Cartel and collectives fines to the cartel for Elevator and Escalator Cartel in medio 2007.

This is the news from IHT
"...In 2005, EU antitrust authorities raided several car glass producers across Europe following a tip-off from "an anonymous informant", the commission said in a statement.

The French company Saint-Gobain was fined €896 million; Pilkington, a British unit of Nippon Sheet Glass, was fined €370 million; Soliver of Belgium will pay €4.396 million; and Asahi will pay €113.5 million. ...."

This remarkable fine joins the lines of convicted cartel as the results of a tough DG Competition under Nelli Kroes. Furthermore, since June, 2008, this tough reputation of DG competition is added with kinda-soft program, so-called settlement program. With this new program, DG can offer up to 10% fines reduction in exchange of a guilty plea of any cartel members. With this new program, cartel members is encouraged to plea guilty rather, thus the long-and-costly fight in courtroom could be minimized

Hopefully, in the next future, the combination of tough DG, Leniency program and Settlement Program become a perfect mixture to detect and convict cartel.

Radical time call for radical solution?

2008-11-13T05:10:00.004+01:00

I am pulling out some not-so-mainstrem ideas in article (click here) at Jakarta Post for global economic crisis. Most part are taken from a paper I wrote and selected to be presented in a conference at Bordeaux Uni - France, just added some update of the moments.

I do neglect the prudent behaviour of preferrential treatment of FDI and limitation of secondary capital outflow for stock/bonds. I expect monetary authority to be aware of that already, maybe I'll mention on my next article entitle "Its time to get moderate"

The Runaway Rupiah

2008-10-29T14:10:00.005+01:00

Even thoug it is less than 30 % drop in Australian dollar, but this week saga has brought some panic in financial authority.

Will the ten steps help?

It was good policy and a detailed prescription. But we could not do it alone.

What needed now is real money put down the table by global institution or collection of economically strong states (east asia and middle east comes first to mind) saying they will help the country in need to protect exchange rate.

And by real money I am not referring to paltry USD 80 billion comitted at last ASEM meeting. Certainly not enough to scare off potential speculators.

I am disappointed that the amount was not even half the US bailout tag (USD 700 billion). Confidence to Indonesia's should is also headed south when our reserve shrunken more than 10 % (7 trillion rupiah) for Indover bailout.

This week will be a bumpy ride for rupiah. Hold on tight.

Addendum:
Indover is getting the bail out (click here) and rupiah is steady close to 11 thousand.
As Keynes said; "if one must forecast, forecast often." Especially true in this fast pace and changing policy

Economist are Running the Obama Campaign

2008-10-28T14:38:00.003+01:00

Read this quote from Slate magazine on Obama campaign decision to used sms as major campaigning tools:

Green and Gerber estimate that a door-canvassing operation costs $16 per hour, with six voters contacted each hour; if you convince one of every 14 voters you canvass, you're paying $29 for each new voter. A volunteer phone bank operation will run you even more—$38 per acquired voter. This is the wondrous thing about text-messaging: Studies show that text-based get-out-the-vote appeals win one voter for every 25 people contacted. That's nearly as effective as door-canvassing, but it's much, much cheaper. Text messages cost about 6 cents per contact—only $1.50 per new voter.

If Obama win, dont forget the part played an army of economists with cost benefit analysis as weapon. Politician, ignore economists at your perils!

And Bakrie's stock will be unsuspend tomorrow

2008-10-26T12:35:00.005+01:00

Tomorrow will not be be bottoming out of the indonesian stock market after a month of sliding downhill.
Bakrie, how quick can you say suspension?
(my guess is less than an hour)

Addendum:
The suspension is extended. Thanks for treespotter for spotting it.

Do what you told to us, you lucky b*$&d

2008-10-21T16:47:00.002+02:00

Well, that's pretty much what the essence of my article about US and financial crisis in today's Jakarta Post

Its kind of annoying but relieving to be told of being wrong but to watch the doctor have to swallow their own medicine that they gave to us.

Click here to read in full.

Its Krugman

2008-10-15T09:25:00.003+02:00

Nobel Prize of Economics this year is fallen into Krugman's lap.

He got it for his contribution to trade and economic geography (Nobel citation here) but his role as columnist in Slate and New York Times is not less important. He is one of the consistent critic, with strong data and analysis, of Bush administration since beginning when everyone keep silent.

His explanation of monetary policy with baby sitting analogy (click here) is simply a masterpiece and who can forget that ideas move the world when couple of days after his famous column (click here) then Mahathir implement the highly successful capital control in Malaysia.

Three cheers for rigourous economist that also managed to communicate complex idea to the public.

Addendum:
Some post announcement analysis here, here and here as well as here

Persepsi kemapanan versus krisis

2008-10-12T18:13:00.003+02:00

Kita mungkin tidak pernah mengira persepsi mengenai kemapanan bisa menarik ke jurang krisis ekonomi. Sebuah tulisan di newsweek mengungkapkan bagaimana 'American dream' berubah menjadi resesi dunia. Bagaimana hal ini terjadi?

Konon di Amerika sono, persepsi kemapanan bagi masyarakat adalah masyarakat yang memiliki rumah dan fortofolio saham. Bagi negara yang pasar keuangannya sudah berkembang tidak mengherankan jika setiap orang mempunyai berinvestasi di saham. Demikian pula dengan rumah, kepemilikannya menggambarkan suatu ide dimana didalamnya hidup keluarga yang bahagia dan sejahtera.

Seperti apa persepsi kemapanan di Indonesia? Bagaimana persepsi yang sama berpotensi mendorong krisis? temukan bacaannya disini.

By all means neccessary

2008-10-11T18:18:00.004+02:00

That what the G7 leaders what they will do to unfreeze credit and money markets as well as reducing the impact of coming global recession (complete article here, complete G7 communique here).

Let's hope that the meetings of finance ministers in DC show similar resolve and more detail

Krugman - Minister of Finance of the world, (please) unite!

2008-10-10T08:31:00.005+02:00

Krugman always has a knack for explaining complicated economics stuff. This time he outdo himself (click here to read in full):

The current crisis started with a burst housing bubble, which led to widespread mortgage defaults, and hence to large losses at many financial institutions. That initial shock was compounded by secondary effects, as lack of capital forced banks to pull back, leading to further declines in the prices of assets, leading to more losses, and so on — a vicious circle of “deleveraging.” Pervasive loss of trust in banks, including on the part of other banks, reinforced the vicious circle.
...
But on Wednesday the British government, showing the kind of clear thinking that has been all too scarce on this side of the pond, announced a plan to provide banks with £50 billion in new capital — the equivalent, relative to the size of the economy, of a $500 billion program here — together with extensive guarantees for financial transactions between banks. And U.S. Treasury officials now say that they plan to do something similar, using the authority they didn’t want but Congress gave them anyway.
...
The question now is whether these moves are too little, too late. I don’t think so, but it will be very alarming if this weekend rolls by without a credible announcement of a new financial rescue plan, involving not just the United States but all the major players.
Why do we need international cooperation? Because we have a globalized financial system in which a crisis that began with a bubble in Florida condos and California McMansions has caused monetary catastrophe in Iceland. We’re all in this together, and need a shared solution.
Why this weekend? Because there happen to be two big meetings taking place in Washington: a meeting of top financial officials from the major advanced nations on Friday, then the annual International Monetary Fund/World Bank meeting Saturday and Sunday. If these meetings end without at least an agreement in principle on a global rescue plan — if everyone goes home with nothing more than vague assertions that they intend to stay on top of the situation — a golden opportunity will have been missed, and the downward spiral could easily get even worse.
What should be done? The United States and Europe should just say “Yes, prime minister.” The British plan isn’t perfect, but there’s widespread agreement among economists that it offers by far the best available template for a broader rescue effort.
And the time to act is now. You may think that things can’t get any worse — but they can, and if nothing is done in the next few days, they will.

Minister of Finance of the world, (please) unite!!

Ten percent lost and in suspension

2008-10-08T20:42:00.000+02:00

The graph said it all

The economics of Iedul Fitri

2008-10-05T15:51:00.001+02:00

The Jakarta Post wrote an interesting and blog-econ style article on the subject, click here to read.

The doctor of capitalism to swallow his own medicine

2008-09-24T09:27:00.001+02:00

“Now the world need a new openness in international finance that would require private financial institutions to disclose far more information about their loans around the world and force investors to pay their share of the cost of bailing out troubled nations. The global economy cannot live with the kinds of vast and systemic disruptions”

Was the word above a criticism to Wall Street’s practice of slicing and hiding risky investment among myriad of exotic financial engineering that caused recent financial meltdown?

Nope, it was Robert E. Rubin, US treasury secretary in Clinton administration, pointing out weaknesses in Asian countries ‘ financial system including Indonesia ten years ago (original article here).

Touche!

rasionalitas kemiskinan

2008-09-16T22:17:00.003+02:00

Meninggalnya 21 orang saat menerima zakat di Pasuruan, sangat memprihatinkan (disini). Zakat, disatu sisi merupakan salah satu mekanisme untuk distribusi pendapatan, namun disisi lain kesalahan dalam penyalurannya justru menyebabkan moral hazard, insiden seperti di Pasuruan maupun ketidakmandirian. Ketimpangan pendapatan jelas terlihat dari 40% penduduk dengan pendapatan terendah hanya menikmati 20% pendapatan sementara 20% penduduk dengan pendapatan tertinggi menikmati 40% pendapatan (disini).

Sebagai gambaran, potensi zakat di Indonesia cukup besar, sekitar Rp 17 trilyun setiap tahunnya (disini) bandingkan dengan alokasi dana untuk bantuan langsung tunai (BLT) sebagai kompensasi atas kenaikan BBM tahun 2008, sekitar Rp 14 trilyun (disini). Seandainya potensi zakat ini bisa maksimal, saat ini baru 2,5%-nya sekitar Rp 700 milyar, pemerintah tidak perlu mengeluarkan BLT dan alokasi BLT bisa digunakan untuk pengembangan program lainnya.

Insiden pasuruan juga mengungkap fakta nyata kemiskinan yang membelit masyarakat kita. Rasionalitas macam apa yang dimiliki oleh orang-orang yang 'mau' bersesak-sesak meng-antri pembagian zakat di Pasuruan itu? Bagi kita, mengantri untuk Rp 30 ribu mungkin tidak rasional, tapi bagi mereka yang kekurangan uang berapapun sangat bernilai. Saya teringat dalam ekonomi ada yang disebut bounded rasionality, rasionalitas yang tidak sempurna karena tidak cukupnya informasi (disini, disini). Kemungkinan besar ini yang sedang terjadi.

Ke depan, tampaknya perlu ada perbaikan mekanisme penyaluran bantuan (zakat, BLT dsb) agar lebih menjawab problema kemiskinan daripada sekedar menyentuh permukaannya saja. Tidak kalah penting, pemberdayaan yang menyertai penyaluran bantuan-bantuan tersebut, akan membangun kemandirian masyarakat.

The Economics of Bukber

2008-09-15T14:48:00.004+02:00

One of the things that come with ramadhan is the bukber (buka puasa bersama) invitation.

From the casual meal with office friends to gatherings of highschool/uni/sport club, from circle of family to high power meeting (and yes, romantically inclined randezvous) can come under the label of bukber.

So what's with the rush of eating together?

Two economics concepts thought up by two Nobel Prize winner are involved: transaction cost and focal point.

Assuming eat together is preferable than alone (not too restrictive and realistic assumption), then people would not dine together if the cost and coordination is manageble.

People eat all the time but to coordinate time and dine together is rather complicated. In big & busy city with tight schedule it is very difficult to have many people together in the same time.

But during Ramadhan all of people that fast will eat at the same time, so the around sunset time is a focal point of time to meet. Coordination effort (transaction cost) can be focused on finding a place and getting people to come.

There are also demonstration effect, where the more people you know come the more you want to come.

After all, having decent meal with great companions is indeed a step closer to heaven on earth.

Have a great bukber!

How to make the motorist behave?

2008-09-09T09:30:00.005+02:00

According to Kompas, there are 575 death motorist during January to August 2008 period. In fact, there are 3,029 accidents occur during the same period. How to reduce this incidents for getting intensify?

Some people argued that it occurs due to lack of discipline among motorist as well as lack of particular infrastructure for motorcycle rider, i.e. special line for motorcycle. However, if we understand the behavior of motorist you maybe need to read and understand about Peltzman Effect. The key issue in Peltzman Effect as far as I understand is we need to compensate motorists lack of concern on risk of their bad behavior during riding motorcycle.

As we may seen recently, the technology and safety equipment for riding motorcycle are getting enhanced and sophisticated. All of those support system for making the motorist getting safer during ride make them feel secure and abandon the safety riding method during travel. In addition, the method to buy new motorcycle is getting easier with credit payment system. Combining those situation, we will see two simple fact about motorists and their motorcycle: 1) their population (motorists as well as their motorcycle) will increase sharply, 2) their behavior will become more "barbaric" and potentially increasing number of motorcycle related accidents.

Now, what is the effective solution to reduce that problem? My simple solution is raise the cost of admission for motorcycle licences (to get SIM C in Indonesia). In fact, if possible, we need to make that getting motorcycle licence (SIM C) should a lot more expensive than getting driving (car) licence (SIM A). Why? Higher price need to be established in motorcycle licence as signaling that riding motorcycle are having more risks than driving cars. With such policy, we will obtain two results:

1) reducing number of motorist
Of course, we will have "rich vs poor" motorist that potentially discriminate them on riding motorcycle. But, since the rich might be able to pay for the risk (of having accident) then it should make sense to give them more chance to ride motorcycle.

2) increasing discipline among motorist
Higher price of getting licence for riding motorcycle will make only selected and better-skill motorist that able to ride motorcycle. With extensive bribery activities in police department who issued such licences, higher price is the only way to maximize the objective to reduce number of accidents while facing lack of law enforcement in traffic.

What do you think, guys?

The Economics of Fasting

2008-09-01T00:32:00.003+02:00

In welcoming the holy month of Ramadhan, I want to continue my long neglected first post on islamist economics series. But I first I must point out that fasting is not an exclusive domain of Islam, it is known in all religions and many ancient culture.

More is better, as the standard assumption in economics goes. Thus reducing consumption, the definition of fasting, should bring less utility right?

But there are also first Gossen law on diminishing marginal utility, meaning the more you consume of the same things the utility would be less on one additional unit of consumption. So less is more.

The first gulp of water at the end of long fasting day could worth more than a lavish meal on a full stomach. As they say, we don’t know what we got till we don’t get it.

So taking the two propositions above, could I conclude that less is better?

N.B

There are also interesting studies on how reducing calorie intake make bodies healthier and slow the aging process. Apparently human body work more efficiently if it has less inputs.

Happy Constitution Day

2008-08-18T17:13:00.002+02:00

While many remember than august 17 is the independence day ( and start the repetitive debate of whether Indonesia is free), only a few even remember that constitution is ratified today 63 years ago.

If one thing Indoensia need right now, is to focus on rule of law and designing a better law. There are certainly not lack of good Indonesian scholar or academic reference. The growing school of law and economics definitely worth more than a second look by indonesian legal and economic scholar.

Benjamin Franklin, one of the founding father of America, was asked what kind of government the Constitution instituted, responded "A republic if you can keep it."

I certainly hope we the Indonesian prove ourself worthy to keep our republican it.

Proportional election = parliamentary corruption?

2008-08-11T07:30:00.000+02:00

First I acknowledge there are many cause of parliamentary corruption.

Lax law enforcement (pre KPK) is certainly important factor. And so is the possibility of tradeoff between justice and money. The more money (from corruption) you have, the more likely you can hide evidence of wrongdoing.

But the path to become MP is very much up to discretion of party leader. At which province you will be put forward and at which rank number.

The discretion is basically something the party leader can disperse as he/she pleases since most party campaign not on individual MP but on a national figure and party history. And money is certainly one way to please a person. If a prospective MP has to pay significant to get his/her seat then the investment need to be recoup.

The incentive would be much less in district system where people choose a person. Each party has to put forward the most prospective candidate to win; a primary system where internal party election decides on candidate is even better.

Anyway, Indonesia certainly needs better campaign finance system so we know who give to party/candidates and how much.

Sjahrir, the political path of a political economist

2008-07-28T15:12:00.002+02:00

I am saddened to read an article on The Jakarta Post today is entitled,” Economist and 1974 student leader Syahrir dies.”

I know Pak Ciil (as he frequently called) more through his writings and his TV show and few of his seminars that I attended. Actually my mother know him much better, his wife is my mother’s classmate, and frequently mentioned about him even before I entered FEUI.

I never took his class at FEUI. He decided to stop teaching the Indonesian Economy course at 1998 after the crisis and he said he couldn’t continue teaching the same things after so many things change

As far as I know he never teach in undergrad FEUI again afterward. He published some books (I have almost all of them) and increased political activity that culminated in establishment of New Indonesia Party (PIB).

Even though he had the name recognition as a popular economist frequently quoted in newspaper and appear on TV but his political party suffer the fate of his namesake Sjahrir with PSI (Indonesia Socialist Party); filled with intellectuals but apparently not appealing the masses and gather little vote. His last formal position is advisor to president SBY, economist till the end.

He is best known on his part of student leader in 1974 where the New Order jailed him for three years. Released from jail, he managed to get scholarship until PhD in Harvard University with dissertation entitled Political Economy of Food. Quite a prescient topic that still very relevant today.

I met him just last month, where we both speakers for a seminar in UNAS. He is still the exuberant and energetic self, even though he mentioned that he is on short leashes from his doctors but it doesn’t show a bit. He started his speech by expressing, boomingly, his regret and apology for the police violence on UNAS and then go on to analyzed globalization’s impact to Indonesia.

His departure is a loss for today’s and future economist. He has shown that economist needs to uphold a value despite the risk and to be able to communicate it to the common people.

Good bye Pak Ciil.

On competition

2008-07-18T06:04:00.004+02:00

From Greg Mankiw's Blog, I couldn't agree more. Competition will benefited to consumers. It also encourage the business to be efficient, to some extent.

When I talked about competition, some people will speak behind me very softly, "Well, you are really do not care with other people business. Competition will kill those people's business".

Anyway, I will speak softly as well and said "I will not be a hypocrite by saying that I do not like cheap price. And I will definitely support any business that could offer me more. The rest is only about my budget and willingness."

FEUI Economists and Nationalism

2008-07-03T14:57:00.006+02:00

This is an unusual post which prompted by an extra-ordinary article written by first year FEUI student in Jakarta Post (click here).

FEUI, where all contributors of this blog get our bachelor degree, economists are getting more than our proportionate share of being called less than fully nationalist. Even accused by some of selling out .

The media played significant part to perpetuate bifurcation between the use of market power for the benefit of the people and to apply free market principled at all cost.

The first is usually FEUI economists' position and the second is what the public judge us to be.

One of the class by Prof Dorodjatun that still clearly stamped in my mind was when he stated that FEUI economist must always be ready to be summon to serve the nation and Indonesian people.

Putera wrote in his article that"The economics that I study at FEUI is not the science of greed; it is knowledge that can be applied to solve important social problems that Indonesia is dealing with at the moment"

....and that's why we (want to) become economist!

Do You Want Someone That Wants you?

2008-06-20T13:58:00.003+02:00

To mark the release of Sex and The City in Jakarta, its time for another post on relationship economics (The issue of fuel raise has reach fatigue point anyway, at least for me).

The main plot connector in SATC is whether Carrie will end up with Mr Big. She (and the audience) is taken to emotional roller coaster along the path to find the answer.

But why she did not settle for a-less-emotionally-draining-but-sufficiently-good-and-rich-man ?

Groucho Marx once quipped that,”I don't want to belong to any club that will accept people like me as a member.”

The logic of the statement is when a club willing accept him, without needing him to go through lengthy verification of good credentials/network, then it is not exclusive enough and good enough for him to join.

Change club to relationship and we got the Carrey dilemma. Should she wait until the flashy-and -almost-perfect -but-unfathomable Mr Big to proposed or to “lower” her standard and go for another man that clearly want her.

The problem is unobserved and asymmetric information. People can’t really know the inner quality of other people and his/her as partner in romantic/marriage relationship until they are in it.

But selectability is a good cue and signal. If one person has many possible suitors then maybe the quality for Mr/Miss Right is there. They can’t be all wrong.

But if one is too eager or too wanting then the targeted person is justified to wonder whether that is the best s/he can get. Couldn’t I do better (note: the notion is subjective as it is multi dimension)?

So what to do in this conundrum? If one don’t want person that want them then nobody get together with anyone.

One gateway is quality certification. So the two know that they are both in the same range of desirability level and could not do much better. It requires an independent arbitrage trusted by both parties to do the assessment.

In a classic proverb, that’s what friends are for.

Gender-in tuh BLT...

2008-06-05T07:39:00.003+02:00

Rame-rame ngomongin harga minyak naik, mikirin nasib subsidi yang mau dikasih ke orang miskin. tapi ngomongin isu gender kaitannya ke BLT sepertinya masih jarang. silahkan baca dan komentar disini

A Case for Price Control

2008-06-03T09:06:00.001+02:00

I know that economists are supposed to be against price control. Let market decide what is the appropriate value of goods and services.

But there is exception for every rule.

Galbraith wrote a little known gem entitled, Theory of Price Control. He was the price czar and ‘kind of” economic advisor to Kennedy in addition to be longtime economic professor at Harvard.

In essence he argued that price control should be in inverse proportion of market perfection. The worst the market function, the more price control can do to improve general welfare.

After the rise of fuel price in Indonesia, we fitness price of goods and services are rising. The bus transportation even pushes for 25 % increase for bus fee despite the fuel price increase "only" 28.7 %.

So we face some kind of prisoners’ dilemma in here. Everybody is raining the price of their product in anticipation of the rise of other products in order to protect there purchasing parity in addition of cost transmission.

In human term, the price increase is happening partly because increase in price of inputs and partlyattempt to maintain ability to consume similar bundle of items.

Considering the market for public transportation and agricultural goods are hardly perfect then what is needed for the expert (and economist) to start calculating the multiplier impact tof fuel increase, with solid methodological foundation, to the economy (especially tran sport and agricultural goods) and come up with just and appropriate price.

The Central Bank could help with a bit monetary tightening.

Somehow the public and newspaper overlook (again) that most people in Indonesia are public transportation user and food consumers that will bear the brunt of the price increase.

If the government need to step in to calm the irrational exuberance, so be it.

It's about increasing demand as well...

2008-05-30T05:32:00.003+02:00

As incomes rise, economies use more energy for transport, heating and cooling and producing goods and services. A broad cross section of nearly 180 countries shows that doubling per capita income more than doubles per capita oil consumption (Chart 2). How much each country contributes to increases in global energy demand depends on its population and rate of income growth. Big nations moving quickly up the income ladder have huge implications for oil markets.

Crude Awakening: Behind the Surge in Oil Prices by Economist's View Blog

I am sick and tired with so many Indonesian experts and commentators that saying the recent fuel price hike should be canceled because Pertamina (Indonesia Oil Company) must be able to increase their oil production to meet domestic demand. Despite of inefficiency within Pertamina production strategy, does anybody aware that the 4th population rank in the world to some extent contribute to increasing demand of oil as well - at least at national level?

If we believe that economic activities in Indonesia still on going progress (in other words, Indonesian economy still growing), then it is quite certain that demand for energy also getting higher and higher. In addition to that fact, higher population also adding up the potential. This is the simple proof that pricing policy in oil sectors become ineffective. Why? Because higher demand for oil with wider price differential i.e. market price vis-à-vis subsidy price will creating potential greater market disequilibrium. In short, higher demand with great price differentiation will always distorting the market that cause the price constantly rising.

Then people will questioning, what should we do with such condition? There are only three solution in medium and long term. First, consume energy in efficient way. Second, please support and demand alternative energy, especially the renewable one. Third, keep consuming energy in efficient way no matter what energy source we consumed.

Ready for higher fuel price?

2008-05-22T09:23:00.004+02:00

Scarcity causes higher prices, and that's a good thing. Higher gas prices lead to conservation on the part of consumers, exploration on the part of producers, and innovation on the part of alternative energy entrepreneurs.
… Price controls, gas rationing, windfall profit taxes, gas tax holidays … are all bad policies that may make you (and politicians) happier in the short run but will make everyone miserable in the long run. Your solution to high gas prices is to adapt"

"Who's to blame for $4 gas" Environmental Economics

I wish that Indonesian start to realize how long they enjoyed BBM subsidy and what is the impact of those enjoyment. For more than 30 years, low price of BBM - due to subsidy, not only affecting national budget but also over-consumption behavior, under-production strategy, lack innovation on energy efficiency. And, another but very long run impact of such low price of BBM is our environmental quality degradation. It happened not only by giving up our natural resources - i.e. oil stock - simply for consumption, but also pollution externality and other degraded environmental depletion.

Now, you may tell me that I do not care for poor people?

I can answer you the same way you rejected increasing price of BBM, "There are still another way". There are still a lot of ways to help the poor. Keeping price of BBM low only give the poor pain killer, but not panacea. When you force us to swollen the pill of "BBM subsidy", then whether you realize it or not, you close the door for another way to help the poor.

The Economics of Just-Do-It

2008-05-18T09:10:00.001+02:00

What is someone told you that the price your favorite candy (mine is Polo mint) will go up significantly in two week? Most candy-cholic will buy more and stock some of the candy. It is legal and the rational things to do.

But what if many people also want to stock the candy? And after a while the seller of the candy also stock and hoard the candy. That’s mean you can only buy a few or not at all.

So who benefit from the knowledge of upcoming price increase? Those with the most access and money to buy candy and sell it later. It is a sure profit since the price will be increased for sure. Not sound so pro-poor to me.

Sometime the best things to do are to just do it. Planned well and prepare all the administrative/organizational detail, then make the announcement. Information are not always best when they are disseminated early. Even Stiglitz will approve that asymmetric information in some cases make better output than (almost) perfectly symmetric information

Change candy to fuel (both are addictive and hard to live without). And you got to read things like this in the newspaper.

The Economics of Poltical conflicts

2008-04-14T16:57:00.001+02:00

Very recently, the media was bombarded by the clash within the Nation awakening party, the political party is divided into two different sides. I would like to see how the economics rational explaining it. It should be clear that I am not a supporter of both parties, it is interesting for me however, all that had happened are turn out to be logically rational.
A conflict by every means is costly, therefore they (both parties) are operating in a high cost, and below its optimum full production level. In economic term, we call it below the production possibilities frontier. This is represented by the graph on the left. any where inside the cone are feasible to enough to attained. In our case the two axis represent the two parties (M for vertical and GD for horizontal), the cone (PPF) is the number of potential voters, as internal split will cost them some voters, hence both are operating inside the cone, instead of operating in the blue line of PPF where the number of voters is much greater.

ISLAH on the way?
if that's the case, then why is so hard for them to do islah? it's not very surprising, because the islah is in fact not a sustainable point. This means that there are problem in dynamic inconsistencies in doing islah, preferences of both parties will change overtime. You see, say M is willing to accept islah, they might move from every point inside the cone to one point at the blue line, M groups are signaling, they are ready for peace treaty, calling disarmaments in their side. the problem with this, is that in the other side GD will now have a stronger incentive to wipe out all the M group, and therefore they will opt for a corner solution, choosing the 100 percent voters on the rightest point of the blue line. This happens for vice versa, with the benefit of the second mover. This explains why both parties decided to wait. As long as both parties don't have credible expected peace commitment there will no be islah. Both parties seem to send signals of continues fighting.

why are they fighting anyway?
I am not a politician, I honestly don't know. However,in economics literature conflicts might happen depends on the feasibility of such conflicts, internal splits or whatever we call it.
feasibility depends in two term, benefit and cost, according to Collier (2005,2006) , conflicts will happen wherever it is feasible to do.The benefit is high, since the general election is coming, more pie will be available in the near future, and if they are lucky, less mouth to feed. The cost is not enormous, some says in PKB, GD is irreplaceable, so preference toward GD is almost inelastic to external shocks. the last but not least is the probability to lose and to win, if we say the non-activating of M is a coup d'etat process then it's a rational thing to do, because historically, the other group tend to win anyway.

what about in the future?
the problem of conflicts is, it works in economies of scale framework, it gets better when it escalates even more. the losers will ask for friends and allies for help, and so do the winners, both parties accumulating their power in the expense of others which tend to be persistent Collier(2002) call this a conflict trap. I don't really understand politically, but fragmenting a political party in many small pieces is not very healthy for them, just look at PPP, or others. one thing for sure, if GD wins once more time, the more likely this things happen in the future, in an increasing scale of splits. this might happen in the future either because the probability of winning is getting higher, or whereas the cost turned to be insignificant. However no matter how significant that might be, it seems that the counter reaction is getting tougher everyday.

well, just see what will happen shall we?, time will tell.

by Rajawali muda

Globalization, neo tribalism & intolerance

2008-04-09T03:10:00.001+02:00

Should the first lead to the second and third? There have been too many instances where it is what happened, especially when economic downturn opens up political niche.

Here is my take on The Jakarta Post (click here) on the release of propaganda short movie by Geert Wilder from the Netherlands.

Marriage and the City

2008-03-24T17:08:00.004+01:00

Carrie Bradshaw once said that “Some people are settling down, some people are settling, and some people refuse to settle for anything less than butterflies."

Somehow the quote comes to my mind when I was reading an article in the Economist on Japan economy which said:

"Under the traditional (Japan) system, companies hired graduates and then invested heavily in their training and development. To keep workers loyal and protect their investment, they offered lifetime employment on steadily increasing pay, with generous fringe benefits and a lump sum on retirement."

Replace hired with marriage, companies/graduates with women/men and it could transform you to an episode to Sex in the City (by the way, the movie will be release soon)

In earlier (and better?) time, the women can focus on gaining skill on household chores and raising kid since they know the marriage is likely to last until death. The men would focuses on income generating skill. Division of labor works those days. But now marriage is not necessarily for life and people know it. What would be the rational response?

The Logic of Life (LIF) by Tim Hartford in the page 91-92 said that,

"The more people divorced, the more divorcees – that is, potential marriage partners – you could meet. …Because divorce was conceivable, women preserved career options. But because women had career options divorce became conceivable."

An interesting part of independence is that you depend less on other, and other less on you. Education and career bring all the above to both women and men. But it brings the credible threat (in game theory lexicon) that one can bail out of marriage in less hesitation than in earlier time. Maybe men refusing to marry up has rational reason (beside pride) after all since the outside option would greater as well for the woman.

LIF concludes on page 95 that,

'In the long run, the rational response is not for the couple to marry early and marry often; it is to divorce less and marry less… romantic couples are moving from boom and bust of marriage and divorce to a more stable arrangement where marriages are delayed… We know there exist something called an optimal divorce rate, and we’re 100 percent sure it isn’t zero”

I think Carrie Bradshaw would agree with that.

To Attend or Not to Attend Class

2008-03-21T16:22:00.004+01:00

A student of mine post a fascinating post on his excellent joint blog which scattered with deep insights and youthful spirit, hence the name (for Youthful Insight click here).

He questioned the need for mandatory attendance in FEUI (click here for the post), the faculty even goes so far as to organize an online attendance list. (Disclosure: as student activist during undergrad, I took (much) more than my fair share of skipping class).

Let’s review the matter here. The goals are to impart knowledge and develop critical mind set among/the student. Lecture is one of the ways to reach those goals. As many studies in learning/cognitive psychology showed, sitting down listening passively to lecture has one of the lowest retention level.

I’d propose a drastic measure. Let’s do away with all lectures and classes.

Let’s distribute all the weekly topic, reading lists and lecture notes in the beginning of semester but replace lectures/classes with a weekly test (yes, every week).

If the students are able to muster self discipline and sufficiently understand the material, as the score would have shown, then the goal is reached without the need for any lecturer-student meeting. It should take less than one hour and lecturer assistances could handle the test taking/grading.

What if some students need feedback & further clarification? The lecturer could arrange for office hour (say, two hours every two weeks) where those students could come voluntarily, not for a lecture but with specific questions on material they don’t quite understand.

This is not as radical as it seems. Samuel Bowles, one of my professors in Siena that get his PhD from and used to be associate professor in Harvard, has done it halfway. We were given set of (quite difficult) questions that each one of us must be ready to answer in each of his class.

He specifically asked us not to attend if we have not prepared (and threaten to throw us out if we could not answered properly) since we will not get the most of the time spent in class and not contributing to knowledge/welfare of others. After the first hour of questioning he will go on with the lecture in the second hour, always a fascinating one.

But why not go for the full treat?

Know Thy Purchase

2008-03-15T14:57:00.002+01:00

The Oracle at Delphi that the Greek revered once famously exhorted seekers of wisdom: "Know thyself.

It has many profound implications since knowing oneself fully will enable us to understand other human more, people have much more in common than in contrast. Thus enable us to getting a closer glimpse on our place in the universe and, if you subscribe to the notion, thy maker.

Compare to that, the title of this post is disappointingly simple. If you know what you buy, then… . you know the value of what you buy and whether you are paying too much or too little. Is that it?

But that’s it!

But surprisingly smart people at hot shot company seem not to get it. Bear Stern, one of the largest financial companies on Wall Street, has followed (read article here) Citigroup and Merrill Lynch into financial debacle due to subprime mortgage over exposure.

Why? The so-called innovation in financial instrument has sliced and diced numerous kinds of asset back securities including house/apartment mortgage with non-negligible risk of default, thus the name sub prime (more detailed explanation here), with other more credit worthy assets.

But it becoming so complex with low disclosure requirement that the buyer don’t really know what’s behind their peace of paper that they bought.

Add the concept of self serving bias and herd behavior in behavioral economics. If other smart and rich people are buying the exotic (read: I don’t really understand it but other smart and rich people are doing it) financial instrument. Which one is more psychologically comforting? To check carefully whether smart adn rich peoples made a mistake and risk ridicules or proclaimed that “we get it” and get acceptance to the fancy club?

Sadly, the second options were in the majority.

And now the trusts are shaken and the lies exposed. It takes more than word of US Finance Minister (read his statement yesterday here) to calm the market. As any couple would know, it takes a lot to solved long ignored problem (click here). It takes sincere apology, full disclosure and strict rule not repeat it again. It means tight regulation and information availability. More promises unkept could only lead to more disaster ahead.

So much trouble for such a simple thing not done. Know thy purchase.

P.S.

If you are in blue over the subprime. Watch subprime mortgage blues at Greg Mankie’s blog here

Barack Obama and Behavioural Economics

2008-02-29T16:51:00.005+01:00

This blog is not in the business of endorsing US presidential candidates. Nor we harbor illusion that our position can move votes there.

Nevertheless, as economist wanna-be I could not help but excited over an article (click here) that point how Richard Thaler, one of the early economist that point out behaviour anomalies could not be explain by standard model, is in close contact with the candidates. Behavioral Economics is currently getting stronger hearing in the mainstream after recognition from Nobel Prize committe in 2002 & 2005.

One of Obama policy attributed to his influence cited in the article is:

“For example, one key behavioral finding is that people often fail to set aside money for retirement even when their employers offer generous 401(k) plans. If, on the other hand, you automatically enroll workers in 401(k)s but allow them to opt out, most stick with it. Obama's savings plan exploits this so-called status quo bias .”

Good to know that Obama that despite his soaring rhetoric (watch here and here), base his policy on solid and strong economic ideas. They say that economics has turned cynical and can do nothing but become empty shell of materialism. They say that economics can not bring insight about real human behavior into useful policy recommendation. To those charges, let us answer in three words. Yes, we can!

Addendum (01/03/08) from an article in The Economist:

"His chief economic adviser, a respected young academic called Austan Goolsbee of the University of Chicago, is sensible and pragmatic. His plan to save millions of people from struggling to fill out their tax returns is a gem. Anyone who earns only a salary and bank interest, both of which are automatically reported to the taxman, will be sent a tax return that has already been filled in, which they can accept or reject. At a stroke, countless headaches would be averted."

New pop-econ: Parentonomics

2008-02-27T03:50:00.003+01:00

The popularity of Freakonomics and other pop-econ books (i.e. Undercover Economist, More Sex is Safer Sex, The Economic Naturalist, Common Sense Economics, Naked Economics, and so on) has lead to even more broader application of economic tools in our daily life. I've just recently read that there will be a new book published under this pop-econ genre. The book is Parentonomics.

Parentonomics is a book that use game-theory tools to understand and solve problems of taking care of children or being a 'good' parents. That's what I've surf so far in the blog of the author Joshua Gans - Game Theorist. The book is going to be publish soon. Are you ready to order it?

Some one whispering me, "I believe you need to do census first, to identify how many kaFE's member being married and having kids so the book will be applicable for them". Oh, I guess we can still read this book just to apply it with our nephew though. Doesn't need to have kids first to understand about parenting - especially using economic. Right?

Modelling Art

2008-02-23T15:40:00.002+01:00

An Attempt to Crack The Real-World Mechanism [1]

by: Dhaniel Ilyas

Enough about my humble attempts on econometric philosophy and ethics issues that I had written in my previous two writings, I will now try in lettering some words on some semi-technical econometrics topics with simple explanations. My previous writings were in Indonesian language. Since I know we have a noteworthy amount of interested blog-reader, I will now give a shot in making articles in English.

Most econometric models contain unknown parameters. An estimate of these parameters (in a model) is crucial in knowing the behavior of the variables relating to it. To compute the parameter estimates we need two things: A model describing interaction among variables with certain set of parameters and a sample made up of real observed data. Thus, if the model is correctly specified, it will describe the real-world mechanism which generated the data in our sample.

This process does not come without problems. First, nobody knows, even the smartest econometricians alive, the ‘true’ real world mechanism which generated the sample data.[2] Second, often the reliability of the data mining process from surveys is questionable. I have never tried to find any research concerning Indonesia’s Central Bureau of Statistics (BPS) data quality (may be someone can point me out to certain studies). Actually, there have been some techniques in econometrics for minimizing the bias that comes from ‘real’ data error measurement. But if the bias is severe, there is nothing much we can do.

Population is the base from which a sample is drawn. A model is made for explaining what is going on in the population, using the sample data, in order to make inferences and forecasting. Once upon a time, when statistics was biostatistics, their object of studies was the human population from a specific town, villages or country from which random samples were drawn. The average weight of all members in the population would then be estimated by the sample mean of individual’s weight. The sample mean was an estimate of the population mean. The idea was to represent the population by using the sample that could also save time and money. In contrast, the use of the term population in econometrics is simply a metaphor.

A better way to explain the last statement is by introducing the concept of data-generating process (DGP). By this term, any real-world mechanism that is at work in actual economic activity process, it is precisely the mechanism that our econometric model is supposed to describe. Thus, a DGP is the analog of the population in biostatistics as sample could be drawn from a DGP just as they may be drawn from a population. This seems too technical to be digested. Let just say that if I were the know-all-superman, and I have a magic-super-complex mathematical equation that can explain perfectly about all things that happened in the world describe in the form of parameters, variables and some well-defined stochastic element, I can explain the past, present, and future with remarkable accuracy. It is exactly what we after in building a model: cracking the real ‘true’ world mechanism (with our naïve and limited[3] mathematical and computation ability) as close as we can be.

A model is build to understand the existing phenomena. A class of models may have a general (mathematical) form within which the members of the class are distinguished by values of the parameters. In a model that are not mathematically tractable, computationally intensive methods involving simulations, resamplings, etc may be used to make the desired inferences. The process of model building required continous refinements. The evolution of the models proceeds from vague, tentative models to more complex ones, along with our understanding of the process being modeled. It is not possible to measure bias or variance of a model selection (from any arbritary set of models), except in the relatively simple case of selection from some well-defined and simple set of possible models.

Now, let me explain a bit into the practice of modelling. With our limitation to process all the data in the world, we need to create a reasonable strategy in our modelling process. First, we need to form a solid theory about the phenomena we want to observe. This is critically needed because basically we can throw any variables into our (simplified) model. Do you think a falling leaves in autumn will have an effect to certain stock price? Although some ambitious modeller could believe that this seemingly uncorrelated varibles can actually relate, I doubt that an economist will pursue such modelling strategy. And even if I have a good model that explain elegantly the change in one or some variables in terms of other variables, it does not imply true causation. Let me quote what Gujarati said in his book,”…a statistical relationship per se cannot logically imply causation…”[4]. From this apriori or theoritical considerations we go forward into the ‘jungle of empirical study’. Many of us experience surprising result that mounted into a variety of problems, but as life itself, we have to put up with it and struggle all the way. Thus we have come into what people say of a knowledge that is described more as an ‘art’.

Everyday, we look into the debate of outstanding economists, econometricians, physicists[5] statisticians, and mathematicians with their own economic model that they believe were superior, but at the end of the day the winner is hardly found in the mist of our limitation in comprehending the world perfectly. But we have to acknowledge also the positive result and insight from each of their models that shapes our economic advancement until today. Never forget that the ‘real’ judge is not a bunch of towering scientist that has a privilege to say a model is good or bad. It is the effect of the positive spirit in the model, acknowledge by the real advancement of human beings in all the related aspects, which will make a model superior. Thus as a modeller myself, I will say,”one effective and efficient model for one problem at hand.”

[1] For interested (highly) advanced reader, I recommend Russel Davidson and James G. MacKinnon book,”Econometric Theory and Methods”. I quote heavily from the book in the fourth and fifth paragraph.

[2] My Econometric Professor during a class session made this kind of statement. It was one of my most enjoying lecture.

[3] If our mathematical and computation ability were fully perfect, there will be no forecasting error. This statement create a philosophical trait: Is it all things in this world were just merely mathematics?

[4] See Damodar N. Gujarati book,”Basic Econometrics”.

[5] An of research come to be known as physical economics has been going on for some time until today.

Why Plastic (Bag) Should Be Expensive?

2008-02-18T16:13:00.003+01:00

After I take the photo above, I realize why in many western country plastic bag should be expensive.

If plastic bags is free (like in all supermarket at Jakarta), then there is no need for people to think further about environment. Of course, it should be not as simple as that. But, if people cares with sewage flow, they should be care with garbage and waste that they thrown away into the river or brooklet or sewer. But, people obviously ignorant. If you take a closer look at the river or brooklet or sewer, you will easily find that all them are fully covered with waste and garbage especially plastic. When you are willing to spent a bit of time to count how many plastic bag and plastic wrap (e.g. for package food products) - among any other kind of waste, then you will realize that plastic waste are more than half of total waste. The implications for this neglected situation are water flow jammed, some sort of vegetation will grown in the banks, some sort of animal (snakes, lizards, rats, etc.) also build their nest there, in the long run you will see the water level rise, water born disease exposed the population and ‘Aha!’ flood is everywhere.

Ok, enough with the fortune teller stuff. (What?! It’s not prediction, it’s already occur now!). That is where the economics incentive/disincentive works. If you agree with me that the root of problem here is plastic waste, then the simple solution is reduce the plastic waste. To reduce the plastic waste then we have to reduce plastic usage. To reduce plastic usage, it must be “expensive” enough so people will reduce their use of plastic. Low usage of plastic will lead to lower plastic waste. Lower plastic waste will make our job a lot more easier to clean up river or brooklet or sewer everywhere, especially in our neighborhood. The long run impact of such achievement will be better environment that create cleaner, healthier, and economically efficient society. I will leave you all with such a “good-to-be-true” dream.

One moment, I am hearing someone ask me a question: "how we should bring our shopping goodies?" Well, I may answer: Why don’t we start bring our own bag, and you can decide the size depending on your own need. Or, why don’t you ask for paper box? See, there are lots of option actually...

See No bag, thanks! campaign for more photos prove on plastic ‘disease’ on earth

Message on Economic Welfare...

2008-02-07T07:12:00.000+01:00

From the conclusion of Debnath Guharoy's article in The Jakarta Post titled This is a good time for business to remember Robin Hood,

If cub bike demand is flat, can motorcycle manufacturers look at assembling big bikes for the top end of the local market? Can cosmetics companies examine the demand for an upmarket chain of salons? Can fast-food chains open more outlets in more metro areas? Can the telcos license more resellers to push broadband for them? Can everybody who can afford it please subscribe to cable TV, newspapers and magazines? I could go on and on but the message is simple: Sell more high-end goods to the fortunate minority because they can afford it, and create new jobs for the poor because they need it.

I am wondering the Guharoy's main message as bolded above. How economic policy could support such "normative" idea? It sounds like ask the economy to give charity...

Sustainability in project financing: equatorial principle

2008-02-06T01:07:00.002+01:00

Ide-ide mengenai pembangunan yang berkelanjutan sebenarnya tidak terbatas pada bidang fisik terkait dengan lingkungan hidup. Kita juga bisa mendorong hal tersebut melalui sektor-sektor yang tidak berhubungan sama sekali, misalnya sektor pembiayaan. Justru disini pintu masuknya karena pihak pemberi pinjaman bisa memilih apakah akan membiayai /tidak proyek-proyek yang mempunyai dampak terhadap lingkungan dan melanggar HAM.

Equatorial principles adalah prinsip-prinsip yang dianut oleh sektor keuangan dalam menyalurkan pembiayaan dengan mempertimbangkan bagaimana pinjaman tersebut digunakan oleh peminjam apakah telah sesuai dengan pengelolaan lingkungan yang baik dan pelaksanaan tanggung jawab sosial perusahaan. Berdasarkan prinsip-prinsip tersebut, pembiayaan suatu proyek harus menjamin bahwa proyek tersebut tidak merusak lingkungan dan mempunyai dampak sosial yang positif bagi masyarakat disekitarnya. Dengan menerapkan prinsip-prinsip tersebut diharapkan memberikan manfaat kepada sektor pembiayaan, peminjam/ pelaksana proyek dan stakeholder lokal yang berkepentingan. Prinsip-prinsip tersebut juga menegaskan komitmen sektor pembiayaan terhadap keberlanjutan (sustainability) dan mendorong pembangunan yang bertanggung jawab secara sosial dalam praktek bisnis keuangan.

Dalam prakteknya, lembaga pembiayaan (bank) dapat tidak menyetujui pinjaman kreditur jika kreditur tidak dapat memenuhi ketentuan perbankan mengenai kebijakan lingkungan dan pengelolaan sosial. Equatorial Principles pada dasarnya merupakan panduan umum sementara bank yang mengadopsi akan mengembangkan secara tersendiri kebijakan institusi dan pelaksanaannya dengan mengacu kepada prinsip-prinsip tersebut. Terdapat beberapa kategori proyek yang digolongkan berdasarkan potensi dampak sosial dan lingkungannya. Diatas kertas, bank seharusnya menolak proyek-proyek dengan kategori A.

Kategori A: proyek-proyek yang secara signifikan berpotensi menimbulkan dampak negatif terhadap lingkungan yang luar biasa dan tidak dapat dikembalikan ke kondisi semula.
Kategori B: proyek-proyek yang berpotensi menimbulkan dampak lingkungan secara terbatas, bersifat lokal (site specific), dan dampak tersebut dapat dikelola dengan melakukan serangkaian kegiatan mitigasi yang sesuai.
Kategori C: adalah proyek-proyek yang berdampak minimal atau tidak mempunyai dampak secara sosial maupun lingkungan.

10 prinsip dalam equatorial principle bisa dilihat disini

Secara singkat, institusi keuangan harus melakukan studi kelayakan sosial dan lingkungan disamping studi kelayakan finansial biasa. Setelah proyek-proyek dikelompokkan, pihak kreditur harus melakukan penilaian sosial dan lingkungan yang mencakup dampak sosial dan lingkungan yang relevan, potensi resiko akibat proyek tersebut, dan rencana penanggulangan dampak yang sesuai dengan skala proyek termasuk mekanisme monitoringnya. Diluar itu semua, proses penilaian dan pembentukan rencana aksi tidak dapat dipisahkan dengan konsultasi dan partisipasi stakeholder yang berkepentingan terutama yang berpotensi terkena dampak. Transparansi sangat diperlukan dalam tahapan ini.

beberapa lembaga keuangan yang telah mengadopsi equator principle ada disini

Equatorial Principles: belum menjamin!

Adanya prinsip-prinsip untuk melakukan bisnis keuangan yang bertanggung jawab secara lingkungan merupakan inisiatif untuk mendorong langkah-langkah ke arah praktek bisnis yang berkelanjutan. Tujuan yang ingin dicapai dan bayangan indah sustainability sejenak bisa tergambar oleh kita ketika membaca Equatorial Principles tersebut. Namun sebagai prinsip-prinsip yang mengikat secara moral dan tidak ada konsekuensi hukum yang mengikat, prinsip-prinsip ini terlihat lemah. Tidak ada jaminan bahwa institusi keuangan yang mengadopsi Equatorial Principles akan menciptakan keberlanjutan di segala operasinya. Jaminan itu ada tetapi kita masih layak mempertanyakan sejauh mana pelaksanaan dari komitmen institusi tersebut (baca juga ini).

Contoh terbaru dengan bencana Lumpur Lapindo, FoE International mengungkapkan beberapa bank internasional besar merupakan penyandang dana dominan dari konsorsium Lapindo (Energi Mega Persada, Medco E&P Brantas dan Santos Australia) sebagai pelaksana eksplorasi minyak di Sidoarjo. Bank-bank internasional tersebut adalah Credit Suisse, Barclays, Fortis Group, Merrill Lynch & Co. and Natixis. Menariknya, institusi keuangan diatas adalah para peng-adopsi Equatorial Principles.

Dalam kasus ini kesalahan operasional berada di tangan kreditur yaitu konsorsium Lapindo, namun dalam kerangka Equatorial Principles, institusi keuangan yang menjadi sponsor terbukti gagal dalam melakukan proses kajian kelayakan proyek sejak awal hingga persetujuan kredit. Dampaknya sangat jelas, terjadi kerusakan lingkungan yang luar biasa yang tidak mungkin terjadi seandainya konsorsium Lapindo tidak dibiayai. Ditambah lagi menurut laporan FOEI, bulan Mei 2006 ketika bencana lumpur Lapindo baru saja terjadi, Credit Suisse kembali mengucurkan pinjaman US$ 126 juta kepada Energi Mega Persada tanpa mensyaratkan bahwa Lapindo akan membayar kerusakan lingkungan. Dengan berbagai tuntutan masyarakat yang berkembang setelah bencana lumpur tidak dapat diatasi, bank-bank tersebut terbukti gagal memastikan berjalannya sistem manajemen sosial dan lingkungan yang dilakukan oleh peminjam dana seperti tercantum dalam prinsip ke-6.

The Upcoming Financial Crisis... in US?

2008-01-24T14:44:00.000+01:00

Germany's market was down 7.4 percent, Japan's 3.9 percent and Britain's 5.5 percent. Hong Kong's Hang Seng index nosedive 8.6%, Tokyo's Nikkei 5.7% and Mumbai's Sensex 12.9%.

Time Magazine call it a worldwide mini-meltdown. George Soros declare it as the the worst market crisis in 60 years

In his book entitled The Return of Depression Economics, Paul Krugman wrote on how bad things could happened to good economy largely due irrational expectation and market psychology.

But can good thing happened (for a while) to a badly managed economy? Let me quote rather lengthily from Krugman’s recent article on New York Times:

“Mexico. Brazil. Argentina. Mexico, again. Thailand. Indonesia. Argentina, again.

And now, the United States.

The story has played itself out time and time again over the past 30 years. Global investors, disappointed with the returns they’re getting, search for alternatives. They think they’ve found what they’re looking for in some country or other, and money rushes in.

But eventually it becomes clear that the investment opportunity wasn’t all it seemed to be, and the money rushes out again, with nasty consequences for the former financial favorite. That’s the story of multiple financial crises in Latin America and Asia. And it’s also the story of the U.S. combined housing and credit bubble. These days, we’re playing the role usually assigned to third-world economies.”

America, you are next!

P.S.

Stiglitz propose a series o policy to stop the downturn here

Teach me international-trade!

2008-01-22T06:29:00.000+01:00

(An inquiry on exports versus import)

Honestly, I am really not proficient on international-trade economics. All I grasp about international-trade are that it happens as consequences of open economy-system, gap between domestic supply-demand and international supply-demand, and absolute-competitive advantages. Yet it is really hard for me to answer a grandma test on what is competitive advantage? Thus, my most understanding on this area conceptually only with two related activities: Exports and Imports. However, please let me jot down a bit my international-trade economics homework through this blog.

When analyzing the international trade structures, we simply observed two trends:

1) Growth on export per GDP vis-à-vis import per GDP; and

2) Composition within exports and imports structures themselves.

I have been taught that when analyzing former trends, as for developing countries, there is a strong believes that encouraging export is much better than import. The underlying argument is because imports in developing countries also high. Why? We can argue by looking at types of goods being imported and phases of imports strategies. There are three types of imported goods:

1) Consumptions goods

2) Raw materials and auxiliary goods

3) Capital goods

Firstly, countries will import consumptions goods since they are unable to produce enough consumption goods demanded by domestic markets. In this first phase, countries will apply import substitution policies only if they able to produce the consumption goods. At the second phase, the countries still need to import raw materials and auxiliary goods since it is highly needed by the manufactured industries which producing consumption goods related with the first phase. Finally, at the third phase as the countries need to increase their production capacity and enhanced their production technology, they need to import capital goods to be able to enhance their output and increasing their economies of scale. Obviously, by giving intimate attention at the second and third phase, developing countries’ import growth will be faster than GDP. Thus, to finance the accelerating imports, exports should be growing faster. In a more ‘for-grandma’ words, exports are good while imports are bad. Do you buy this argument or not?

Until last week, I put up with the above arguments. Then, I read Aaron Schiff’s blog titled Down with exports!. Schiff posted about one of Steven Landsburg arguments in Landsburg’s book The Armchair Economist that exports are actually bad while imports are obviously good. How is it so? Using simple illustration, Schiff explained as following:

First imagine you are living on a deserted island and you have to provide everything for yourself (this is like a country with no trade). You can only eat fish that you catch. You’re doing ok by yourself, when one day a helicopter flies overhead and drops you a fish, and then flies off again. This is imports, and it makes you happy. You got a free fish that you didn’t have to catch yourself, so you can either spend the same amount of time catching fish as you usually do and have an extra fish to eat, or you can spend less time fishing and have the same amount of fish as usual. Either way, you’re better off. Then the next day a bunch of pirates show up in a boat and demand some of the fish that you caught, but give you nothing in return. This is exports and it makes you unhappy because you spent time catching those fish and now you can’t eat them yourself, so you either have to go hungry, or spend more time fishing. Either way, you’re worse off.

The same idea applies to countries as a whole. The only good thing about exporting is that it allows us to pay for imports. There’s nothing good about exports per se, as exports without imports would be just like the pirates above. As every first-year econ student knows, every country has some quantity of scarce resources (land, labor, capital, etc). Exports involve sending these scarce resources on ships and airplanes to other countries. Why the heck do you want to do that?! These are the precious resources that your country has to produce things for itself! It’s only good to send these scarce resources elsewhere if it allows you to get some other country’s resources in return as imports. Then the theory of comparative advantage tells us that countries can specialize in producing what they are relatively more efficient at, and both sides can gain.

As Landsburg alludes to, the common belief that exports are good and imports are bad comes from focusing on output-based measures of economic activity and success, such as GDP. In GDP calculations, exports are added and imports are subtracted, so more exports and/or less imports makes GDP go up, which some people think is a good thing. However, return to the deserted island example. Suppose you like to eat three fish per day and it takes you three hours to catch them. Your GDP is three fish per day. Now suppose the pirates come every day and demand two fish. Since you don’t want to starve, you spend five hours per day fishing and catch five fish, so you can still keep eating three fish per day, and “export” the other two. Your GDP went up to five fish per day, but you’re less happy than before — you’re eating the same amount of fish but working harder. So an economy can “grow” by increasing exports while keeping imports unchanged, but this isn’t going to make anyone happier.

Since I am not a proficient international-trade economist, Schiff's illustration somehow takes away my agreement on previous argument that exports are good while imports are bad. If any of you feels that Schiff’s arguments are not make sense, could you teach me again about international-trade economics?

KaFE Depok is on Top Ten Blogger Indonesia 2007

2008-01-16T08:15:00.000+01:00

After long year end holiday and a series of harpitnas (hari kejepit nasional), it feel so hard to grind the mind and pressed the keyboard again for a witty post on this blog.

After all, we are have been educated in Western Europe that even though has high productivity but used to shorter working days (click here for comparison) than the Anglo-Saxon and East Asia counterparts.

There is no wake up call like an undue honor and recognition.

Fatih Syuhud, one of the most senior and respected Indonesian blogger, has listed KaFE Depok as Top Ten Blogger Indonesia 2007. He put us on number seven and wrote that we, "even in a blog posting … writes seriously with many citations, making blog-articles worth an academic paper”

As we wrote on the profile, KaFE Depok is a place for "ser-san" discussion. We see simplicity, but with hard theories and data behind, as a worthy aim since many economic issue seem to be made more complex than what it is. Democracy and good policy required good understanding of economics.... And of course we tried to have fun while doing it.

Rizal Siddik, our senior in FEUI and blogosphere, put it best in his Jakarta Post article (click here),“Almost every opinion widely held by the public and spoken fluently by most newsmakers has not been carefully made and is often against what elementary economics teaches…. We need more public education in economics to fight economic illiteracy.”

Looking back to our blogger of the week honor last April, let me quote Fatih Syuhud’s note on us, "I feel even happier to see that Kafe Depok understands very well the "art" of blogging. The art of interactivity and show of humility. Academicians used to be dubbed as the "ivory tower" who used to expect accolade and standing ovation from the bottom without any need to reach out to them”

May we continue to learn the art of blogging.

Simple assessment of new emissions tests

2008-01-08T09:17:00.000+01:00

My concern with this issue started after I read a news titled "Motorists to pay for emissions tests". At the end of the article, one university student raise his opinion as

"I agree that emissions tests are important, but I don't want to pay 100 percent of the fees if I have to just clean up my exhaust because my carbon emission's too high. It would be too much"

That statement is clear shown that the Governor have not yet realize what is the "costs" of emissions tests. In this case, I mean the following costs after emissions tests. I believe, Mr. Governor only concern that emissions tests will force people to be more cautious with their vehicle's emissions and or the tests could generate revenue. Actually, Mr. Governor must concern several aspects not only "enforcement" and "revenue" factors.

There are three aspects that he might be consider before applying - supposed to be - environmental policy: 1) cost efficiency, 2) administrative and practical feasibility, and 3) fairness in the distribution of costs and benefits. Lets assess Mr. Governor policy with the three aspects mentioned.

Cost efficiency: The emissions test pay policy may be cost-efficient policy in terms of the basic idea of the test it self. By conducting the single-uniform test for all kind of vehicle, we could recognize how many vehicle contribute pollution and then we can set an exact target of how much pollution need to be reduce and in which way. Theoretically, the tests itself could be used to calculate marginal abatement cost from each polluter (vehicle users). However, in terms of calculating abatement costs, the fact that there are more than 9 million people living in Jakarta, plus 3 million additional people around the peripheral area, it will be very difficult to identify the marginal cost of abatement from each vehicle. In short, the test might be an efficient way just to know the total pollution produced by registered or voluntarily vehicle tested, but not so efficient for reducing pollutions. Moreover, the fee for emissions tests itself is possibly quite affordable for most of vehicle users. But, if the owner have to service and conduct special maintenance for their vehicle to reduce the emissions due to the emissions tests results it will not efficient at all for the owner. This argument will be related with distribution of fairness that will be discuss later.

Administrative and practical feasibility: This policy is obviously feasible to conduct. However, the lack of proper and efficient system in administration may be results to low monitoring, low enforcement, and potential corruption. Administering "lots of" vehicle is the critical issues here. When the administration transfer the decision of whether a vehicle is required to be overhauled or not due to high emissions to a particular repair shop, it requires high degree of monitoring and enforcement. Maintaining the credibility and capability of selected repair shops is another critical issue of monitoring and enforcement on selected testing agent. With a huge number of vehicles in Jakarta, this policy is administratively becoming very sensitive to conduct. It will need intensive monitoring system, sophisticated enforcement (especially for private owners), and special bureau to supervise the selected testing agents.

Fairness in the distribution of costs and benefits: There are three groups of economic agents that involved in the selected policy, the vehicle owner, the testing agents, and local administration. For the local administration the policy seems very inexpensive at all. For the vehicle owner, the testing only is not that so expensive - should be. But, potential additional cost for engine maintenance to meet the requirements must be very significantly unfair. How can we identify by how far our cars need to be repair to meet the requirements? In this case, the testing agents is the first economic agents that possibly gain benefit from this policy. While the local administration gain benefits in terms of targeted lower pollution (we can debate on this later), and testing agents benefited from testing fee and additional services costs that might be occurs; the vehicle owners is the only entity that face the uncertainty and should be cover the costs. It is obvious that small firms and company in transportation sectors will be suffering most from this policy because they have to face huge overhauled engine of their vehicle fleets to meet the emissions standards.

kaFE depok on top 100 Indonesia's english blog

2007-12-17T05:39:00.000+01:00

Some blogwalking lead admin to Indonesia Matters that came up with top 100 blog composite index from various indicators.

Surprise came when kaFE depok is listed today at rank 30 on the top 100 Indonesia's english blog. After all we are still so young, dealing with specific subject (albeit with all the quasi extensions) and could be more active. There are certainly a lot more worthy blog to rank higher than us.

The honor surely motivate us to climb higher (in term of quality and quantity) and dig deeper into more queries on the multi facet of the economic life. Thanks for all the readers, your visits and comments are always appreciated.

The Ballad of John and Joko

2007-12-09T00:43:00.000+01:00

John and Joko live far away from each other, so they use postal services to communicate with each other.

Joko have another friend name Jamal that live closer to him but also communicate by letter. Lately there have been instances where Joko’s package could not deliver to Jamal due to oversize packaging.

John is worry whether the next package to him would be oversize too, so he asks Joko to stop sending him momentarily until there is a checking system (ex: always measures the size before delivery) that ensure size compliance.

Instead of asking another person known and trusted by both John and Joko to verified whether a good checking and compliance system is in place, Joko is furious and threaten to no longer accept package from John until he can send one.

Joko could end up sending none and receiving none.

Fictitious? Silly? Just change Joko to Indonesia, John to EU, package to international flight and size to safety. And you get this story (click here).

In March I already wrote on what to be done (click here). Apparently some people go back and forth without delivering much (click here)

Some questions and answers on collusion

2007-11-29T15:39:00.000+01:00

Q : Do cross-ownership always trigger collusive behavior ?

A : ~~No.~~. Not Always. Some articles shows that cross ownership indeed could trigger collusion especially in static setting (Reynold and Snapp (1986) , Farrel and Shapiro (1990)). Yet in dynamics setting, Malueg (2002) found that cross ownership could lead into non-collusive behavior due to the inability of the firms to punish any defection behavior of the firms. (Malueg, 2002).
While that, Gilo, Moshe and Spiegel (2006), using also dynamics setting, found that the collusive outcome could be found in cross ownership under certain parameter vector.

It means that theoritically, there is no conclusive results on relationship between cross ownership and collusive behavior.

Q: If we can not use theory, what are the proofs of collusive behavior in cross ownership?

A : There are two possible forms of collusion. The first one is explicit collusion and another one is the implicit collusion. The main difference between these two collusive forms is the communication strategy and side payment. In explicit collusion, there is usually any forms of communication between the cartel members. Furthermore, they also have side payment as a forms of punishment from collusive agreement. While that, in implicit collusion, they do not have any of these two main forms on interaction.
Forms of collusive behavior determine the ability of Antitrust Authority (AA) to detect collusion. Most of the revealed collusion are the explicit collusion (vitamin collusion,lysine, etc). AA used any proofs of communication such as : meeting notes etc , as the evidence of the collusion. However, in implicit collusion, these can not be used since there is no proof of communication .

Q : Thus, in implicit collusion, is there powerful tools that can be used as signal of collusion, may be price cost margin, variation of price, comovement in prices, etc ?

A : We could discuss each of possible variables :
1. Price cost margin.
Traditionally, this variable is used as the signal of collusion. Yet it is also has a major set back. Collusion certainly means high price cost margin (PCM). But not all high PCM can be get from collusion. PCM is just an evidence of maket power (not more nor less). High PCM could also be the results of eficiency in cost structure. Konings,Cayseele,Wayzynski (2005) empirically found that high price cost margin in eastern europe after privatisation could be lead by cost efficieny ( due to competitive pressure).

2. variation in price.
Traditionally, we assume that low variation in price could be a signal of collusion. Yet, this view is refuted using the found of green and porter. Green and Porter (1984), and research on Joint Executive Commitee (198?), the variation in price could also be higher in collusion.

The intuition of these result is quite clear. If we used a trigger startegy ala Friedman (1972) or stick-and-carrot ala Abreu (1985-1986), price variation is low in collusive phase. But the price variation will high during punishment phase ( it is proven in price fluctuation at Joint Executives Committe). If we combine these two phase (collusion + punishment), the price variation could be higher rather than that of in competitive era.

Moreover, Rotemberg and Saloner (1986) also found that price ( thus its variation) is also depends on the demand fluctuation. If demand is low, the variation price could be low, yet if demand is high , thus there will be a price war, the variation of price can be high. If we combine these two condition, again we get that variation prices could also be higher in collusion. Hence, it means, using low variation of price could not be just used as the signal of collusion.

These two examples tells us that there is no a general variables that can be used as the clear signal of collusive agreement

Q : If that is the case, do we have a consistent method to detect collusive act?

A : As far I am concern, there is no a general method (which is at least consistent) that can be used to detect all implicit collusion. Bajari and Ye ( 2003), Porter and Zona (1993), Banerji and Meenakshi ( 2004), Bos and Schinkel (2007) have developed some methods to theoritically and empirically detect implicit collusion. However, each method has its own set back (may be good to detect certain form of collusion but not that good to detect another forms of collusion, or the availability of data)

N.B : Congratulation for KPPU. Thank you for the effort.Despite all controversies, this decision on Tamasek , could be a bad signal to all the cartel in Indonesia. Now, they should know that we have a good AA.

Why Jakarta Keep on Flooding at Rainy Season?

2007-11-24T17:50:00.000+01:00

It has not been raining for a while, but when it does rain for a couple of hour in Jakarta you can be sure that the street will to flood in many places.

Why can’t the government of Jakarta clean the sewer from garbage and mud before the rainy season, which comes rather predictably, so the water can flow smoothly?

Water on the street weakened the asphalt and after a repeated exposure demands a rehabilitation and outpouring of new layer of asphalt and rocks. Thus, more money from public budget need to be allocated to fix it.

Spending smaller amount of money on prevention of flood seems to be the logical action, right?

The Politics of Budgeting by Prof Rubin is a book that tries to shed light into the budgeting process in America. One insight that he offer is how the budget is a process.

If the item is a carry over from last year with approximately the same amount, then it is likely to get through easily since questioning it meaning questioning the virtue of last year appropriation and few people (especially politician) want to second guess themselves.

If one department does not finish the allocated budget and leave significant sum at the end of the year, then most likely that for the next budgeting year the department will receive less since the legislative will assume that the department can work properly with the smaller budget.

Having a larger budget meaning the head of the department have larger power and discretion (I will not discuss about corruption). The turf war is a never ending fight.

This could explain why there are many program are allocated at the end of the year (I will not discuss the probable interest gain by deferring disbursement).

Does the similar thing happen in Jakarta?

Having broken roads could mean particular department(s) in Pemda DKI will need budget allocation to fix it. Cleaning the sewer before the rainy season mean there will be less broken road. Thus, leave significant sum in the end of budget year which could resulted in less budget next year. What is good for the people of Jakarta may not be what’s best for some people.

But Napoleon once said, "Never ascribe to malice that which is adequately explained by incompetence."

Two Quotes from Wise Economists

2007-11-22T02:53:00.000+01:00

“Economist do not know very much about the economy, other people, including the politicians who make economic policy, know even less.”

(Herbert Stein – Professor at U of Virginia and Chair of US Council of Economic Advisors to President 1969-74)

“Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.”

(Alan Blinder – Professor at Princeton and Vice Chairman of the Fed 1994-1996)

The first teach us humility, the second warn us on the danger in the lack of it.

Economics of Wedding Reception

2007-11-10T18:32:00.000+01:00

After Iedul Fitri come piles of wedding in Jakarta. The next one just more extravagant than the others. Why do we spend so much on the one night celebration?

Is it a signaling gesture? It could be a way to tell the guests that the newlywed has good breed (parents able to finance the lavish wedding) and good connection (politician and business mogul as guest) thus credibly sending signal to current boss and potential employee to open the career path for them.

Is it a sunk cost tactic? The higher the cost of the wedding then the more reluctant the couple (and the family) to end up in divorce since all the cost involved (and photos and other memorabilia) will loose most of its value. Is there a correlation between wedding cost and duration of marriage? I admit this approach must take into account the relative value of wedding cost to (parental) wealth instead of absolute value of wedding cost.

Or is it an investment move? The more extravagant the marriage (the venue is usually a good indicator) it the more it invite the guests to put additional money in the envelope.

What do you think?

A Tribute to David F. Hendry

2007-11-07T03:25:00.000+01:00

One of The Great Econometricians

by Dhaniel Ilyas

Sudah cukup lama, saya absen menulis di blog ini karena kesibukan dan ‘mood’ yang tidak kunjung datang. Ini adalah tulisan kedua saya pada blog Kafe Depok ini. Mungkin saja tulisan berikutnya akan berjeda selama tulisan pertama dan kedua ini (enam bulan lebih) ^_^ Mudah-mudahan tulisan yang sederhana ini dapat berkenan di hati para pembacanya. Seperti biasa topik tulisan saya terkait dengan ekonometrika. Kali ini saya ingin mengangkat tulisan mengenai David F. Hendry. Seorang Ahli Ekonometri terkenal yang mempunyai sumbangsih besar dalam perkembangan Ilmu Ekonometri.

Tulisan ini saya mulai dengan kutipan akan kata-kata Joseph A. Schumpeter, seorang ekonom besar sejaman Keynes yang ’kalah pamor’, namun tidak diragukan lagi memiliki kontribusi yang luar biasa.

”The only way to a position in which our science might give positive advice on a large scale to politicians and business men, leads through quantitative work. For as long as we are unable to put our arguments into figures, the voice of our sciences, although occasionally it may help to dispel gross errors, will never be heard by practical men. They are, by instinct, econometricians all of them, in their distrust of anything amenable to exact proof.” (Joseph A. Schumpeter, ‘The Common Sense of Econometrics’, Econometrica, 1 (1933), p.12.)

Disini terlihat salah satu cita-cita awal dari pengembangan ilmu ekonometri. Tapi pada perkembangan selanjutnya terdapat ‘kesulitan-kesulitan’ untuk membentuk ‘exact proof’ ini. Para ahli ekonometri terus menerus mencari teknik-teknik ataupun metode-metode yang dapat semakin menyempurnakan ilmu yang mereka geluti.

Pada ‘Introduction’ dalam bukunya yang berjudul “Dynamic Economics”. Hendry (1987) menawarkan empat ‘golden prescriptions’ dalam ilmu ekonometri sebagai usahanya untuk memberikan ‘arahan’ kepada para praktisi-praktisi yang menggunakan ekonometri dalam menghadapi permasalahan-permasalahan dalam pencarian model yang ‘baik’ tersebut:

Think Brilliantly: if you think of the right answer before modeling, then the empirical results will be optimal and, of course, confirm your brilliance. Many conventional textbooks simply assume that the model is correct – we will not do so…, although the methods proposed deliver the right results if this case happens to apply.
Be infinitely creative: if you do not think of the correct model before commencing, the next best is to think of it as you proceed. While no valid constructive method can be proposed, data evidence can help guide model development in a systematic manner.
Be outstanding lucky: if you do not think of the ‘true model’ before starting nor discover it en route, then luckily stumbling over it before completing the study is the final sufficient condition. This may be the most practical of these suggestions. Failing this last prescription:
Stick to doing theory!

(Catatan: Preskripsi ini tidak diterjemahkan ke dalam Bahasa Indonesia untuk memperoleh pemahaman yang lebih optimal dari pemikirannya)

Kurang lebih Hendry mengatakan kepada para ekonom-ekonom yang menggunakan ekonometri untuk berusaha brilian dan kreatif. Ini adalah hal yang saya rasa diperlukan untuk membentuk apapun agar menjadi ‘baik’ dan ‘optimal’. Namun preskripsi yang ketiga cukup mengejutkan saya: Anda harus termasuk orang-orang yang mempunyai peruntungan yang tinggi! Lalu, jika semuanya tidak berhasil, jangan keluar dari teori! Jika teori (ekonometri) yang ada pun tak mampu menghasilkan model yang memuaskan, bagaimana?

Apakah seorang ekonometrisian yang handal harus memiliki peruntungan yang tinggi? Bagaimana jika kita adalah seseorang yang lebih mendekati kepada peruntungannya ‘Donald Bebek dibanding rivalnya si ‘Untung’? ^_^

Ternyata Hendry tidak berhenti sampai disitu… Kurang lebih hampir satu dekade setelah itu dia mengatakan:

“These sufficient conditions are tantamount to the assumption of omniscience of the modeler and we cannot rely on their sustaining a viable methodology. Fortunately, these prescriptions are not necessary… That no realistic sufficient conditions can be established which ensure the discovery of a ‘good’ empirical model, nor are any required for empirical econometrics to progress. However, there are a number of necessary conditions which can rule out many poor models, allowing us to focus on the best remaining candidates.” (Dynamic Econometrics, 1995)

Kita perlu hati-hati dalam menginterpretasikan dan membahasakan ‘exact proof’ yang dicita-citakan Schumpeter di awal perkembangan ilmu ekonometri. Kita memerlukan para ekonom yang mempunyai ‘seni tinggi’ dalam mempresentasikan ‘pendapat-pendapat’-nya yang didasarkan oleh ‘bukti-bukti empiris’ sebagai ‘the best remaining candidates’ yang ada.

Tulisan yang luar biasa menurut saya dari seorang ahli ekonometri besar. Saya amat menghormati ilmuwan-ilmuwan yang terus menjaga ‘kegelisahan’-nya akan ‘pencarian kebenaran’, bukan alih-alih terus mempertahankan ‘kepercayaan-kepercayaannya’. Salah satu contoh klasik adalah Gunnar Myrdal, yang meragukan pemikiran-pemikiran awalnya di masa-masa akhir kehidupannya. Juga Alfred Marshall dalam surat-suratnya. (Hubungi saya jika tertarik mengetahui hal ini.) Seringkali para ekonom hanya membetik satu pemikiran pada satu fase kehidupan para pemikir besar ini untuk mendukung pendapat mereka tanpa berusaha memahami kompleksitas dari proses pemikiran mereka. Saya selalu berusaha memahami para pemikir-pemikir tersebut terkait dengan konteks kerumitannya sesuai dengan ‘proses’ yang mereka jalani dan berusaha menggunakan semua ‘cahaya-cahaya pemikiran’ mereka untuk menyelesaikan ‘permasalahan riil’ yang ada, bukan menjadi pengikut-pengikut salah satu dari mereka dengan ‘buta’.

Mereka adalah orang-orang yang rendah hati akan ‘cahaya kebenaran’

Catatan: Tulisan sederhana ini dibuat penulis akan penghormatannya kepada David F. Henry. Seorang ahli ekonometri besar yang terus menjaga ’kegelisahan’-nya. Sang ekonometrisian yang terus ’mencari’ tanpa henti dalam mengarungi lautan ilmu ekonometri. Sebagian besar isi tulisan ini didasarkan akan bukunya yang berjudul ”Dynamic Econometrics”.

Why Buses in Jakarta Are So Unreliable?

2007-10-29T20:37:00.000+01:00

Any of you even sat on a public bus (excluding Busway) in Jakarta would be familiar with the story.

The buses would stop and go slow when we want them to go quicker. They would put too much passenger in side. There is no telling when they will come even though, when you go to the bus terminal at the end of line there are a lot of them (ngetem). Some of the air con are not working properly.

Why can we have a decent and working bus like in our neighboring countries such as Malaysia and Singapore (Manila’s Jeepney is almost as bad as Jakarta) ?

The public and paying customer, supposedly, want comfortable and safe ride to destination. The bus drivers want money. There is nothing wrong with economic motive but where is the invisible hand?

But in Jakarta (I don’t know enough about other city in Indonesia) each bus driver collect money directly from passenger. So their objective function (to use economic jargon) is to maximize revenue with gasoline and (possible) police punishment as constraint.

They would not stop in the middle of the main street for 1 hour, except engine trouble, since doing so would attract costly fine from the police. But if waiting additional 10 minutes on the street side can enhance their passenger/revenue then wait they will.

But police and punishment can only go so far against economic incentive. What we need to do is change the incentive.

Let all bus become Busway. Not that all need special lane, but to pay a bus driver by a fix reasonable wages regardless of the number of passenger they carry. Don’t let passenger pay to drivers (put extra payment compare to buy ticket beforehand should reduce the practice sharply), they need to buy the ticket before get on the bus.

Thus, there is no incentive for the drivers to pack so many people inside the bus and to move incessantly slow. Incentive work at the margin

It doesn’t have to be have to be state owned company, just as long as the bus company care about their reputation and know holding it up will increase their revenue. We need to open the license for new bus company and we also need to get rid of part-time-and-occasional driver (supir tembak) since they care little about reputation (is a series of one shot game for them).

Then we can fix schedule and give bonus to drivers if the bus on time and penalty for being late (at least for departure time at endpoint). Let Jakarta have a decent public busses that we deserved and has been waiting for so long.

It doesn’t have to be like this forever.

So You Don’t Want To Regain the Lost Weight

2007-10-22T15:01:00.000+02:00

So you lost some weight during the Ramadhan month and you afraid that the multiple Eid feasts on family and friend’s houses will (or already) bring back some added inches on your waist (and other places)

And there will be some halal bihalal meeting with family, friends and business partners. Such horrors.

What can you do about it? And what a marketing professor from Cornell can tell you?

Brian Wansink focuses his academic life to study how we decide and – and how much – to eat. Its not as silly as it first sound, food and beverages is a multi billion dollar business worldwide. Any cues that can make consumers eat more, and spend more money, mean some additional fat in the company's bottom line (pun intended).

In his book entitled Mindless Eating , some of his wisdoms at the table are to use small spoon, small plate, and don’t let other people clean the remains or refill your plate/glass while you are still at the table.

Those things should not make a different. After all it is the amount of food we put into our mouth that matter. And we as rational human with will power and self control should be able to know when enough is enough. Right?

Apparently not.

In his experimental studies, Wansink found that average subjects eat 15 % more using big spoon and 25 % with big plate. Having the bones of chicken wings cleaned up by waiters while watching a sport match at a bar on average resulted in you eating 28 % more.

The classical rationality argument that using small spoon and small plate resulted in more energy thus making you want to eat more seems not to be working here. It seem that human mind affect by relative as well as the absolute. The more we see empty space (a.k.a plate) the more we want to fill it up, with little regard on actual quantity, while taking every spoon as equal. This mispredictions are robustly repeated an not a one time aberration.

While you are at it. Loose the flower on the table and put food on the table with fewer colors since Wansink found doing the opposite strongly correlate with higher food intake. Apparently having color and smell around at meal time distract human mind and trick us to eat more.

People said we are what we eat. Maybe it’s better to say that we are what we decide to eat with.

Old Challenges for New IMF Chief

2007-10-06T08:27:00.000+02:00

by Berly

One of the old challenges Mr Strauss-Kahn should immediately addresses, ironically, is the mechanism how he received his post. An unwritten rule establishes that the IMF's managing director must be European and that the president of the World Bank must be from the United States. The practice is increasingly questioned since IMF policy affect developing countries significantly more. A developed country in financial crisis can afford not to take IMF advice and loan since their access to financial market are not drying up. IMF usually become the main, sometime the only, source of fund for developing country in crisis and exerted enormous influence.

The voting weight of each IMF members are determined by the amount of money a country provides to the fund relative to the size of its role in the international trading system, but the relative size reflected each economic prowess more for the time IMF was founded than today. Europe is over represented and US practically held a veto with its 17 % vote since major decision require 85 % support. In 2001, China was prevented from increasing its quota to reflect rising share of its economy ensuring it remained at the level of the smallest G7 economy. Under leadership of Rodrigo de Rato, China contribution has been allowed to be increased slightly further.

The second old challenge is the role of IMF. The Great Depression were characterized by bank run caused by panic investors and IMF was supposed to act as lender of the last resort to prevent systemic meltdown at international level. Recent studies (Banerjee, 1992; Lux, 1995) in behavioral finance has shown that herd behavior to sell investment at the first hint of trouble is a self fulfilling prophecy that precipice the crisis it fear.

Each member country entitled to withdraw a percentage of its quota immediately in case of payment problems meaning developing country has quick access to less fund just where the need is greatest. When a member country in need of financial infusion, IMF should act like a central bank in similar situation. Lend freely with penalty, slightly higher interest rate than usual, for a temporary period.

IMF tends to overestimate the ability of high interest rate to attract investment after crisis despite the empirical evidence otherwise (Sach, 2005). The structural adjustment program and fiscal austerity to repay the loan, normally in full value despite principle of share responsibility, typically disproportionably affect the poor population and caused political instability which heighten and prolonged the crisis IMF supposed to ease in the first place.

Evading the policy strait jacket of IMF lead developing countries to accumulate huge amount of reserve, mainly in form of US Treasury bill, to defend their currency in the face of speculative attract. Southeast Asian nations have been developing a regional cooperative to share foreign exchange reserves in the event of a crisis. But developing countries received low return from T-Bill and the opportunity costs are calculated to be 300 billion dollar per year (Stiglitz, 2006). The amount is more than four times the total foreign assistance in the world and could have been used to reduce poverty and increase education/ health expenditure if IMF properly conducts the job it’s designed to do.

As finance minister in Socialist government from 1997 to 1999, Mr Strauss-Kahn challenged his party orthodoxy and cut the public deficit to qualify France for the euro. Let’s hope that he still got the backbone to challenge Washington Consensus orthodoxy as IMF Managing Director. The world certainly need, and deserve, a better IMF.

Fasting and Intertemporal Choice.

2007-09-26T15:23:00.000+02:00

by Berly

During Ramadhan, the Moslem all over the world withheld from food, drink and sex from sunrise to sunset. There are many research that point out the health and social benefit of this practice, but what drive most people to do it is the quest for the Almighty’s grace and benevolence.

Economists study the choice people made. While some still insist on model of fully self interest agent, some try explain why people behave the way they do. After all, isn't the great Gary S. Becker from University of Chichage that said De Gustibus Non Est Disbutandum (preference/choice is not to be questioned).

If people refrain from consuming certain goods, which bring positive utility in normal times, at certain then it must be because not doing so bring higher utility directly or indirectly (you can bring peer pressure and historical construct if you like) during Ramadhan.

Numerous researches has proven that most people care more about now and present than later. Even if the utility from consuming now is lower than the cost that likely to follow later. This has been one of the strongest explanations of self destructing behavior such as drug addiction, criminal, outside-marriage-pregnancy, etc. Many people are poor calculator of their own well being.

Thus, their utility function (sorry my apology for economists infatuation of making graphical representation out of almost everything, don’t get me start on mathematics) is shape like a hyperbola where the impact of present action get higher weight over the later period. The short hand is hyperbolic discounting.

If fasting work as intended (and robust through time) then the gravity of choice would shift from now to later and from this world to afterworld. People would care not about what good now for themselves but more to what good in the eye of Almighty. Daniel Goleman in his best seller "Emotional Intellegence" pointed out those with willingness and self control to wait for better things are more succesfull in life

When Robert E. Lucas Jr. in his Nobel Prize winning model of rational expectation model proved what ever government do would not matter (policy irrelevant) for a rational and fully informed economic agent, is it possible to extend the model so that for some people the utility function will be strongly anti hyperbolic (help me on this, what is the correct term) so that the present mortal and corporeal world do not matter? In the utmost case only the Almighty does, all else is irrelevant.

(tak) merdeka dari kelangkaan

2007-08-19T05:40:00.000+02:00

Gelegar kemerdekaan baru saja kita nikmati. Perayaan dimana-mana sungguh menyiratkan sebuah bangsa dan sedang bergembira dan berbahagia menikmati arti kemerdekaan. Pun kemerdekaan juga mempunyai arti yang berbeda bagi setiap orang. Sungguh sayang, ternyata kemerdekaan tidak berarti merdeka dari kelangkaan barang kebutuhan pokok seperti minyak tanah dan minyak goreng akhir-akhir ini.

Sudah 2 hari ini minyak tanah menghilang dari pasaran, termasuk dari lingkungan tempat saya tinggal. Alhasil dari segelintir kios yang masih menyediakan minyak tanah, harganya sudah melambung Rp 5 ribu dari harga normal hanya Rp 2.600,- (harga naik 100%!!). Dalam banyak pemberitaan, kelangkaan ini terkait dengan program konversi BBM ke gas.

Saya tidak berpretensi mengatakan konversi minyak tanah ke gas itu buruk. Akan tetapi jika menganggap kesuksesan program ini hanya diukur dengan jumlah tabung gas yang diserap oleh pasar, itu adalah satu kesalahan. Dalam ekonomi, barang subsititusi adalah barang yang saling menggantikan karena utilitas yang diperoleh kurang lebih sama, seperti halnya minyak tanah dan gas. Yang terjadi ketika minyak tanah langka adalah orang mencari sumber energi alternatif seperti kayu bakar, tenaga matahari, briket batubara, gas LPG. Kayu bakar untuk konteks Jakarta sudah sulit diketemukan; apalagi tenaga matahari membutuhkan transfer teknologi tinggi; briket ketersediaannya masih dipertanyakan; termasuk pula gas LPG yang dalam program konversi ini disediakan dalam ukuran yang lebih kecil yaitu 3kg.

Selain persoalan distribusi dan ketersediaan infrastruktur pendukung program konversi gas, daya beli masyarakat khususnya menengah ke bawah harus menjadi perhatian. Salah satu alasan menggunakan minyak tanah adalah bisa membeli sampai eceran terkecil walaupun dari sisi harga ditanggung lebih tinggi. Saat ini gas yang tersedia hanya tabung 15kg dan baru-baru ini saja ada tabung ukuran 3kg, apa mungkin kita membeli gas 1kg saja? Ini problem lain dari sisi produksi dan biaya investasinya.

Pada masyarakat yang berada pada level transisi, pemilihan minyak tanah atau gas mereka cenderung indiferen. Artinya jika mereka saat ini masih setia dengan minyak tanah setiap saat mereka bisa melakukan konversi ke gas, dan masalah biaya konversi bukan lagi soal. Dalam program konversi sesungguhnya merekalah yang layak jadi target karena pada kelas masyarakat ini subsidi minyak sudah jelas salah sasaran.

Untuk konversi gas, saya melihat masih ada cara lain seperti pipanisasi gas ke lingkungan perumahan (Yang saya tahu sudah ada di lokasi tertentu di Bogor dan Surabaya). Secara finansial, konsumsi gas akhirnya memang jauh lebih murah dan untuk investor, target konsumen yang cukup besar akan menurunkan biaya produksi per unitnya. Dari sisi feasibility, langkah ini lebih baik dan mencakup area yang lebih luas serta cocok juga untuk masyarakat menengah ke bawah. Bandingkan dengan pemakaian tabung gas yang (1) mahal; (2) tersedia ukuran tertentu saja; (3) tentu saja hanya menguntungkan pabrik pembuat tabung.

baca juga beberapa alasan kenapa saya (belum) memakai gas.

tak TKI berkalang Tanah

2007-06-27T04:47:00.000+02:00

Derita TKI Ceriyati yang lari dari majikannya di Malaysia patut menjadi renungan (disini). Pertanyaan kenapa seseorang mau mengadu nasib menjadi tenaga kerja migran, saya kira masih relevan. Pertanyaan ini sebagian terjawab dengan melihat kaitan antara penguasaan lahan pertanian yang terkonsentrasi akibat proses industrialisasi khususnya di wilayah pedesaan. Dalam hal ini menarik jika melihat analisis Lenin tentang struktur agraria di Rusia ketika itu (disini). Perubahan lanskap sosial terkait dengan penguasaan lahan pertanian menyebabkan polarisasi kelas antara borjuis desa (gabungan antara petani kaya dan menengah) dan kelas pekerja pertanian yang berasal dari petani miskin. Petani miskin yang tidak punya tanah akhirnya hanya punya sedikit pilihan, bekerja pada petani kaya atau migrasi. Pilihan migrasi ini pada jaman Lenin sepertinya kurang dikenal. Namun, film Far and Away yang menceritakan keadaan imigran Irlandia di Dunia Baru Amerika menunjukkan kondisi yang mirip (sebab dan tujuan migrasi) antara imigran Irlandia dan para TKI kita di luar negeri.
Tidak ada yang bisa melarang seseorang memperbaiki kehidupannya bahkan pergi ke luar negeri. Disisi lain negara berkewajiban mengamankan rakyatnya dari penderitaan dan kesengsaraan. Untuk itu persoalan penguasaan lahan yang semakin sempit misalnya di Jawa Tengah penurunan pengusaan lahan pertanian 0.15% pertahun harus ditangani secara baik jika tidak dapat berpotensi mengganggu pasokan pangan yang dapat menjalar ke krisis lainnya. Solusi untuk saya saat ini adalah redistribusi lahan, bahwa kepemilikan lahan perlu pembatasan yang menjamin akses petani miskin (terutama perempuan) kepada tanah. Harapannya akses tanah yang cukup bisa mengurangi keinginan menjadi TKI. Satu lagi prasyaratnya pemerintah mengembalikan perhatian kepada sektor pertanian.

Whither The Third Way?

2007-06-04T14:28:00.000+02:00

I just come across one article among of so many eulogy to parting UK Prime Minister, Tony Blair. I found it interesting since it discussed the so called third way after him (instead of the usual Iraw problem).

In Blair words,” A false opposition was set up between rights and responsibilities, between compassion and ambition, between the public and private sectors, between an enterprise economy and the attack on poverty and exclusion."

The ninety witness social democrat like Bill Clinton in US, Schoeder in Germany and Blair in UK rised to pinnacle of executive power with the third way as their mantra. As Dionne from Washington Post put it, “beyond" -- a big word at the time -- both the "old left" and the "new right." Surprisingly, London and Washington were replacing Stockholm and Paris as epicenters of the democratic left. The word "socialism" was out, but "community" was in. "Collectivism" was replaced by the smoother word, "solidarity."

So what is the Third Way? Anthony Gidden defined it as:

“...a centrist philosophy of governance that embraces a mix of market and interventionist philosophies. The Third Way rejects both top-down redistribution and laissez-faire approaches to economic governance, but chiefly stresses technological development, education, and competitive mechanisms to pursue economic progress and governmental objectives.”

There are many arguments that national government is loosing policy power due to globalisation (ie: the famous trilemma in monetary economics). But what could stop government to put higher proportion of budget to education, health, R&D and infrastructure (instead subsidizing a national champion company/industry) while maintaining rule of law where market could function (when it can)?

The role of government is more effective on the factor market and institutional referee instead of an active player. Of course the billion dollar question is what is the exact proper mix between market and interventionist policy? What is the yardstick?

Maybe it will be clearer on The Fourth Way…

Just an Added Thought on Institutions

2007-05-16T18:38:00.000+02:00

Firstly, I owed Berly for this brief essay, because while trying to answer his question, I end up with this too-long-comment-reply, of which was a good-productive thing though. And so here we are.

A complete institutional structure consists of three parts: Formal rules, Informal rules and Characteristics of rule enforcement. In my humble opinion, the main problem now is within the first one (Although I also believe there are several significant problems with the two other parts, but let me just emphasize in the first in this case) .

The general function of the formal rules is to enhance transactions on political and economic markets. In democracy (such as Indonesia right now), the exchange on political markets determine the economic rules. So then inefficiency in political markets will bring inefficiency in property rights, and inefficiency in the latter will eventually lead to socially inefficient organizations, increasing costs in transactions and then reducing the probability of mutually beneficial exchange through specialization within the economic markets. I think this is the updated problem in a newly-democratized Indonesia.

There is a very high transaction costs on political markets, because of little transparency of the political processes, little competitions among them, and the last important thing, is that we do not have the constitutions that brings the self-interested politicians in line with the creation of this efficient formal-economic institutions. A quite similar conditions also hold for Thailand and the Philippines, where military-feudal-based political interventions are still used up till now.

Let's then have an example for the latter point:
Right now the Assembly is busy drafting a bill on political parties, which includes one of the controversial articles regarding the possibility of Party Owned Enterprises. (What is this crap???!!)* Personally (again) I think this is an outrage.

Politicians are also always being self-interested and utility-maximizing agents. If constitutions do not align with the people sovereignty, politicians will not promote their economic interest in the course of pursuing their private goals. So it’s a necessity to restrict politicians constitutionally (Hayek). And that's what we’re lacking off. And as a now-democratic-state, it's remarkable that up till this point there are no efforts to propose such draft of constitutions. Well, this emphasized one of my points before of why institutions in Indonesia are still very weak, and hopefully this also can answer the question from Berly’s comment. Or maybe I shall make some essays discussing more about these institutional-constitutional frameworks later on. Happy Christi Himmelfahrt** holiday, and let me finish this essay with a quotation from Boediono, of which I quoted from one of Prof. Hal Hill paper: “‘Beware of possible disharmony between politics and economics.. Never take economic stability for granted... Institutions and governance should receive the highest priority in the overall strategy” (Boediono, 2005, p. 323, on lessons learnt)

* Please kindly ignore this author’s self-comment
** The ascension day of Jesus Christ in German words

A Brief Institutional Analysis of The Cabinet Reshuffle

2007-05-15T15:59:00.000+02:00

„....creation of new rules does not in itself immediately produce new stable forms of behaviour… while rules can change overnight; individual responses will be much more complex and slow to adapt.”

These quotations from Douglas C. North, a profound institutional economist, were the first thing that came out of my mind when I heard that the President finally announced his cabinet reshuffle. So what’s exactly this quotation mean? And what are the relations with the Cabinet reshuffle? Well, we shall proceed then, and I hope I can briefly explain my intentions.

So here it comes. I believe that institutions in Indonesia are still weak. And so what is institution anyway? In this sense, let me once more, quoted from North. He clearly point out that institution is the rules of the game. Institutions are humanly devised constraints that structure human interaction, or moves of the game. It’s the circumstances that make self-interested-homo-oeconomicus constrained with bounded rationality chooses their optimum pay-offs. In this part, let me generalize and simplified institutions as regulations, so that I meant that regulations in Indonesia are still very weak. In developed countries, each regulation is a prime and clear signal to the market or individuals, more than the person who is (politically) in charge, endorsed or made the regulations. But in Indonesia, it’s vice versa, as people seem more interested in who’s in charge. And I’m not going to blame them, because that’s how it works. New minister, new regulations, and that’s all what they believe for the truth. And if it’s true, so what’s the fuss about reshuffling? New regulations will bring new complex frameworks of social interactions associated with more uncertainties. And in the sense of institutional economics, this will eventually lead to higher transaction costs in the expense of economic performance and growth. And this is what the quotation is all about (and for the sake of the readers I shall not write it again).

In Indonesia, new ministers could (eventually) mean new regulations, and if they are not in the footsteps of the old ones, they are a step back. We can obviously saw the disputes about regulations among the ministers not so long ago. And replacing the ministers is not the answer. I’m sure that we will see more to come. And this is what will happen if reshuffling is only a case of political adjustments. Reshuffling is OK, but regulations, if they were agreed for common sake, let’s say of those which normatively maximize social welfare, should be kept intact.

And so let’s go back to the general analysis of institutions. In the case of newly-democratized Indonesia, it is important to recognize that economic development alone will never adequate and should always be paired with institutional development and awareness. In general, modernization is defined as process of improving the capability of a nation’s institutions to meet increasing and different demands. And thus a modern nation is one in which the institutions are able to meet or adequately handle the increasing and different demands made on them. Growth in economic development is change, and change is inherently “destabilizing”, especially in the era of globalization where domestic issues and international challenges can no more be separated. Altogether, there is one important future challenge for Indonesia; on how can it adopt changes due to socio-political pressures needed for a successful economic development, and thus learn that institutions do matter.

Can Money Buy Happiness?

2007-05-07T18:44:00.000+02:00

Ah, one of the oldest philosophical problems and many fine movies have made this topic so alive (The Little Poor Rich Girl by Shirley Temple come immediately)

If money buys happiness then it worth to go through all the hard work to get money. If not, then why so many people continue to spend most of their time to get money which has little effect on happiness.

There has been numerous studies (click here for wide array of it) on happiness and income. Easterlin is one of the earliest economist to go through happiness data (from self declare dataset) and found paradox of happiness. People with same amount of money tend to be happier in poor country, but happiness don’t increase over time with economic growth. Is it possible that it is relative income having more impact to happiness instead of absolute income?

A global study of Sexual Attitudes and Behaviours by Pfizer in 2002 seems to be an odd way to study the relation but please bear with me for a while. It has more than 27 000 respondents from 28 countries with fascinating questions. (yup, sometime I have too much available time)

Three of them will be used in this mini study (How happy have you been with your life in the past year? How physically pleasurable did you find your relationship with your partner to be in the past year? How would you rate your overall health?) The numbers are in percentage of population stating they in moderate/good/very good (answer 3-5 in a scale of 5). Quite interesting to know that Indonesian has the highest number (98%) for question number two with Japan as the lowest (57 %).

I pair the data set with average income per capita of each country for that year, adjusted for cost of living or as purchasing power parity (PPP) in economic jargon so it is comparable across countries. Then I set up a log liner regression model with happiness as dependant variable and income, health and physical relationship as independent variable.

Before going to the result, some caveats need to be address (especially for economists and econometricians out there). There are some issue on subjective data, not that subjects intentionally being untruthful but they may have recalled problem. Some studies found that when asked about the past subjects tend to put emphasis on the extreme than average. Furthermore, I only got the average percentage of each question not the complete panel so the result is not as robust as when I can get the income of all participants. But as Donald Rumsfeld would say, you do regression with the data you have and not the data you want (hey, this is not my PhD dissertation).

I found that income has no effect what so ever on happiness (P value = 0.4472). On the other hand, health is has significant effect. (P value = 0.0140) and one percent increase of population that satisfied with their health correspond to 21,4 % increase in happiness. What about the last variable? The significant level jump to the roof (P value = 0.0001) and one percent increase in population satisfied with their physical relationship correspond to 39.58 % in happiness.

Hmm.. More study certainly is needed. If government want to increase people’s welfare, should it put more emphasis on *ahem* quality of life aspects than the usual investment/productivity/industrialization? So if you have been feeling unhappy lately despite all the material achievement, relax a bit and listen to the old tune by Rolling Stones:

I can't get no satisfaction

'Cause I try and I try and I try and I try

I can't get no, I can't get no

Air pollution: an agenda for cleaner energy

2007-04-24T09:43:00.000+02:00

Commemorating the earth day on 22nd of April, Minister of Environment announced a ban new cars production (here) to reduce air pollution in the big cities. It sounds sensible with the fact that population of car has been increasing over 12% per year. As a result, cars in the roads has exceeding the current carrying capacity of existing roads. Regarding to the target, this minister' proposal would be ineffective. Why?

Any minister even president can't do much in terms of stopping car production besides Indonesia is not car producer instead we assemble imported car domestically, some of them are completely build up (CBU). Let imagine that minister can persuade the companies not to sell cars to Indonesia, as soon as the companies will flee to other neighbouring countries just to find softer businesss environment' regulations. Unemployment would rise adding up to current 12,7 million jobless population (here)

Now, if you can't find any new car in the market, where do you go? 2nd hand market or maybe black market. Although the 2nd hand market gives you better price, it will be slightly higher than before. You may find good car but you have to be aware that only few of them has good quality in terms of latest technology to reduce emission. In situation where less choice available, you would end up with affordable car wether or not it has proper technology for emission reduction. Emission technology would not be your first priority to buy car. So, moratorium of car production is not really as green as it looks.

Clean energy is a global agenda, and it would not be solved only with reducing car production. Instead it should be integrated with other agenda such as providing more conservation area in the cities. It has to be put as part of spatial plan which regulate and enforce the application of emission stadard. Lastly, economic incentive such as tax reduction or tax burden would encourage or discourage people to comply.

Cartel vs DC

2007-04-19T13:59:00.000+02:00

2007 maybe the good year for the all the supporter of free competition. Up till now (April 2007), the Directorate of Competition (DC) at EU already fined two major cartel :

1. Elevator and Escalator Industry for price fixing in the Netherlands, Luxemburg, Belgium and Germany.

The convicted firms are amongs the leading firms in the world : Kone, Schindler,ThyssenKrupp, Kone, Mitsubishi. The total fined collected from these convicted firms are the largest fined in EU history. These five firms owns aroung 76 % of the total sales in elevator and escalator worlwide

Based on the previous experience in the vitamin and lysine cartel, no wonder that these firm will be also investigated by the Anti Trust authority in other countries. Rumors said that there is a current on-going investigation in Hongkong also for this industry.

This is a long time investigation for european case. I think the DC already investigated this cartel for more than two years. Luckily there is a leniency program in the EU. As EU start the investigation on 2004-2005, one firms directly use the the Leniency Program.
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2. Brewery in Netherlands. The convicted firms are Heineken, Grolsch and Bavaria. Again the same story happens here. After seven years of investigation, there is another cartel member InBev who give more evidence on the existence of the cartel. InBev use the leniency program after he get caught of the same brewey cartel in belgium (belgium brewery cartel).

Just a couple of weeks ago, DC also annouced that they will start the investigation on the possibility of price fixing cartel in the industry that produced bathroom and toilet utilities. I am quite sure that within this years, there will be at least one firm that will report to the DC about this cartel and thus get the leniency.

So what can we learn from this??

1. There is a tendency that the the number of cartel exposed and convicted increases after the leniency program

2. The Leniency program is effective after the Antitrust Authority announce that there will be an investigation on the specific cartel (this sample also supported by the theoretical work by Motta 1999, 2003 on Leniency Program)

3. The announcement effect in fact not only happen in the monetary field. It also happen in the collusive behavior.

4. Full cartel is very rare. Most of the cartel is partial.

The moral of this story :
" Make The Law of Leniency Program in Indonesia"

Signaling

2007-04-12T04:05:00.000+02:00

Modifying this story, what kind of signal do you think a person wearing below shirt would send?1. I am rubbish. I was rejected by UI, ITB, UGM and IPB
2. ...
3. ...

Anyone?