A book of un-common sense, soon to be on the shelf at the cafe of un-common sense

So about more than a year ago, Gary Becker called to Cafe Salemba. He said he liked the cafe and had been very much inspired by it. "And, your tagline: a cafe of un-common sense, I love it!" he added.

Of course I'm lying. It's the other way around: we have been inspired by Becker and the likes: Stigler, Levitt, Friedman (Milton and David, not so much Tom), and of course Cafe Hayek.

I just couldn't help fantasizing the scene of Becker calling me, as I came across his new book with Posner: Uncommon Sense. Recommended.

HBS, Hilarious B-school

Do you know how the HBS students made the school pay for the BMW they rode to school? Or the difference between Sloan, Kellogg, Wharton, and HBS?

I did not until I read this book, Ahead of the Curve: Two Years at Harvard Business School.

To give you some idea, it's written by Philip D Broughton, an Englishman, former Paris correspondence for British The Daily Telegraph, holder of undergraduate degree in Classics from Oxford, who decided to give up journalism for MBA at HBS even without knowing how to run Excel on the first day of the School. In short, a page-turner hilarious account with strong hint of typical Englishmen wits and dark humor on life at one of world's most prestigious B-Schools.

Recommended for summer reading and for those who contemplate to take B-school or live business and corporate life.

Cultural Explanation Gone Nowhere

In 1977, Mochtar Lubis thought that Indonesians are hypocritical, unaccountable, feudalistic, superstitious, artistic (sic!), and some other bad traits.

In 2009, Rhenald Kasali thinks that Indonesians suffer from ten negative "economic culture" (whatever it may mean). He believes that Indonesians love to: bypass (regulations), engage in conflict, be suspicious to each other, insult each other, be photographed (sic!), mobilize mass violent acts, be shameless, be populist, set unnecessary (bureaucratic) procedures, and procrastinate.

My take: I am not convinced at all -if not to say that I don't buy it- for the following reasons.

First, so far I do not see neat working definition for each of those adjectives they used.

Second, I do not see systematic empirical efforts and findings to justify those assertions --let alone considering they take the nation's population as their unit of analysis.

Third, compared to what (nations at what period)?

Good Scot

My favorite Bagehot of The Economist asked which Scots are Good Scots; and gave three options: Andy Murray, Susan Boyle, or Gordon Brown.

That's easy. All of them. But still the best Scot so far is Bond, James Bond.

How to Read Interest Rate Paid by The Poor

You may often hear this as argument against informal moneylenders to the poor: they charge exorbitant annual interest rate. For example, IDR 2500 a week for IDR 100K loan means 261 percent annualized interest rate.

But that's not quite accurate.

One of the lessons from the diaries is that interest paid on very short-duration loans is more sensibly understood as a fee than as annualized interest. When researchers annualize all interest rates, they maybe following standard accounting practices, but distorting the real picture.

--Portfolios of the Poor by Collins, Morduch, Rutherford, Ruthven, p.22

What is the real picture? For instance, paying that interest, --no, fee--, will enable a poor to buy new cloth for his/her kid to celebrate Eid festival. A very rational motive. And perhaps, thinking at annual base is a luxury for the poor.

Kevin Murphy's Example

Here is an interview with one of my favorite economists, Kevin Murphy.

In my opinion, that interview gives you ideas on how economists, ideally, see and think about things. First, find interesting research questions and set it right. Second, stick to positive analysis.

See, for example, the discussion on smoking and drug addiction, and contrast it with the recent discussion amongst FEUI faculties on cigarette; you will find that Murphy never mentions normative statements on the issue --e.g whether smoking is morally a bad thing.

That is the economics as we in cafe salemba know it.

HT: Marginal Revolution

Presidential Summer Reading

If you were to recommend summer reading for Indonesian presidential candidates, what are two books you want them to read?

My recommendation:
#1. Capitalism and Freedom by Milton Friedman, to help them comprehend how market economy works, even if they eventually dislike it.
#2. Catcher in the Rye by JD Salinger, to remind them how being phony can be so sickening for others.

What's yours?

Stubborn General

Apparently our friend Sunaryo, the cafe's office boy, knows economics better than him.

And Sjamsu's headache remains.

Black-haired Capitalist

As expected, presidential election campaign produces some funny lingo. This one comes from the incumbent SBY who doesn't want the economy be dominated by global as well as black-haired capitalists.

What the hell does he mean by black-haired capitalist?

He would have been in better position if he said that he denounced the capitalists who asked for government protection to prevent market competition get into their way and punish their inefficiency. But calling these crooks black-haired capitalists doesn't help --if not puts him in, alas, the same league as his opponents in term of economic literacy.

The Pourers of Cold Water and The Clueless Cheerleaders

Sometime ago, Kate the manager asked me why economists are hated. She could not reconcile this fact with her own experience getting along with the baristas in this cafe, who, albeit, in her words, little bit chauvinists, are mostly harmless.

Today she told me that she finally got the answer from her summer reading of George Stigler's Memoirs of an Unregulated Economist. (Please note, with this pick of summer reading, Kate is now officially an econ geek)

Stigler wrote:

Why it has been fashionable to abuse economists (even granting the possibility that they may deserve it)? The main reason is easily named -economists have been the premier "pourers of cold water" on proposals for social improvement, to the despair of the reformers and philanthropist who support these proposals.

Thus, it is small wonder that in the midst of elections when promises of social improvements comes cheap as politicians exploit almost anything -from neoliberalism to, well, neoliberalism -; economists are more hated. Yet, the most depressing part is that many faux economists themselves are engaged in such futile promises, and call them economics. Instead of the pourers of cold water, they are bunch of clueless cheerleaders.

Bikin pusing..

Kadang bingung mendengarkan orang dengan keunggulan ilmu tertentu berkoar-koar di bidang ilmu lain, apalagi kalau dia mengusung poster/grafik.

Itu yang terjadi watu saya melihat interview LetJen Prabowo di TV-1 beberapa waktu lalu. Beliau klaim bahwa sistem perekonomian salah karena selama ini selisih antara penerimaan ekspor dan pengeluaran impor tidak tercermin dalam akumulasi kekayaan devisa kita.

Dengan benar, beliau bilang bahwa sejak dulu akumulasi cadangan devisa kita di Bank Indonesia tidak pernah naik dari US$50 milyar sekian.. Dengan bantuan latar belakang grafik besar, beliau juga tunjukkan angka surplus ekspor terhadap impor kita yang cukup besar. Bahkan, kalau saya hitung dari angka Neraca Pembayaran BI, surplus neraca perdagangan barang (balance of trade in goods) per-tahun dari 2004-2008 sebesar US$20 milyar, US$ 17 milyar, US$29.6 milyar, US$ 32.7 milyar, dan US$ 22 milyar.

Jadi, kalau mengikuti argumen Pak Prabowo, dari tahun 2004-2008 saja, seharusnya ada peningkatan cadangan devisa sebesar paling tidak US$120 milyar !! Sementara itu. .devisa yang dipegang Bank Indonesia, kok hanya US$50 milyar???

Lebih afdhol lagi, paparan tersebut dilengkapi dengan tudingan bahwa pemerintah (dan Bank Indonesia tentunya) tidak becus mengelola perekonomian.. Lebih runyam lagi pertanyaan seperti "dikemanakan uang rakyat", "bagaimana ini kekayaan kita dikuras", "sistem ekonomi apa ini" dsb.. ikut keluar.

Rasanya perlu diakui, pertanyaan Pak Prabowo amat sangat bagus. Tetapi perlu dijelaskan bahwa urusan cadangan devisa ini tidak segampang mengurangi dua angka ekspor minus impor dan kalau kurang dari itu berarti ada maling atau dicuri orang asing

Pertama, trade balance adalah bagian dari identitas pendapatan nasional (PDB) yang tidak dapat dibaca sepotong-sepotong. Trade balance bukan berapa yang seharusnya Indonesia dapat, melainkan bagaimana pendapatan Indonesia (PDB) dialokasikan ke dalam aktivitas berbeda (expenditure allocation). Jika ingin melihat berapa yang Indonesia dapat, maka perlu konstruksi PDB lewat pendekatan pendapatan (income approach) yang sampai sekarang kita belum punya (Indonesia punya 2 versi pendekatan PDB: expenditure dan value added)

Kedua, ya tidak segampang itu bilang kalau ada selisih besar antar surplus ekspor impor dengan cadangan devisa maka negara ini penuh maling atau diperkosa asing (diperkosa koruptor dalam negeri sih mungkin)

Devisa dari surplus trade balance masih harus ditambah atau akan dipergunakan oleh aktivitas-aktivitas lainnya.

Di Neraca Pembayaran, ada komponen Neraca Jasa (service balance) dan Neraca Modal yang mempengaruhi posisi akhir perubahan devisa kita. Neraca Jasa memperlihatkan surplus/defisit transaksi jasa seperti telekomunikasi, transportasi (naik Garuda atau SQ), cargo, bayar konsultan bule, dsb. Sepanjang yang saya tahu, Neraca Jasa Indonesia selalu defisit.

Kemudia ada Neraca Modal (capital account) yang memperlihatkan selisih modal masuk/keluar dalam bentuk penanaman modal tetap (Toyota buka pabrik, SingTel beli Telkom, orang Arab bikin hotel, Indofood buka pabrik di Afrika, Djarum buka pabrik di Brazil, dsb.) dan potfolio (surat berharga). Total dari trade balance, service balance dan capital account itu adalah secara teori adalah perubahan cadangan devisa (tentunya setelah penyesuaian karena kesalahan pencatatan dsb). Kalau pakai pendekatan ini, maka secara teoretis selama 2004-2008 Indonesia mengalami peningkatan cadangan devisa sekitar US$25 milyaran, bukan US$ 120 milyaran seperti klaim LetJen Prabowo

Belum tentu ada yang salah Jenderal, cuma itung-itungan Bapak belum tuntas saja

The Library As Big As The Ritz

I am truly glad that finally UI decides to seriously build the much needed library. I'd be even happier if it turns out to be bigger in size than the Rectorate building.

But, did the UI's deputy director of corporate communication say the largest library in the world? You kid me not.

How Neoliberal Confusing Are You?

Nicholas Kristof of The Times posed two nonpolitical questions to tell whether you are liberal or conservative.

#1. Would you be willing to slap your father in the face, with his permission, as part of a comedy skit?
#2. Does it disgust you to touch the faucet in a public restroom?

Conservatives would tend to say no and yes respectively, and liberals the otherwise. My answer is no and no. So what am I? Neoliberal?

But wait a sec, are we talking the same liberals here? Unlike in Indonesia, in the US, liberals turns out to be the ones on the left.

Boy, this is confusing. Give my summer break --and jalapeño ice cream-- back.

The Ghost of Neoliberalism

AP, at his best:

A specter is now haunting Indonesia: the specter of neoliberalism. I call it a specter, or ghost, because everyone is talking about it but few are really sure about what it is.

Neoliberalism is mainly referred to as a political economic system. However, for economists, it is not a common term to classify a set of ideas or policy orientation. One can find those claiming to be liberal, socialist, conservative, existentialist, Keynesian or neoclassical, who passionately defend the schools of thought they subscribe to, but I don't think there is anyone who considers her or himself a *neoliberal'. This is due to a feature of the so-called neoliberal philosophy: it is defined by its critics.

As the name suggest, neoliberalism is seen as the revival of Adam Smith's economic liberalism. The core philosophy of neoliberalism is that of liberalism: freedom for individual transactions, guided by market mechanisms where price is the signal to allocate resources based on demand and supply, minimum regulation and government intervention in the market, and the elimination of all barriers to exchange and trade.

So what is "neo" about neoliberalism? There is a spectrum of arguments raised by its critics. But they seem to converge on a couple of things.

more here

Et Tu, Jekus?

That was Kate's reply five minutes after I emailed her this JK's posting in his Kompasiana blog --with a snobbish show-off note saying "sent from Blackberry" at the bottom of her reply.

And she is right. JK's writing is a terrible example on how one misunderstands market economy, and coming from JK, the current VP and next presidential candidate, the inability to comprehend basic economics and the economy is even more depressing.

In his opening paragraph, JK argues that liberalization would put farmers into danger. But does he really think that most of Indonesians are rice farmers? For a presidential candidate, ideally he should be more knowledgeable on what most Indonesians are actually doing for life, so, if elected, will pick the policy benefiting the majority of people.

But is he up to expectation?

Your barista, Aco, coauthored a forthcoming paper on the political economy of rice and fuel pricing. There you'll find that 75 percent of total households in Indonesia do not grow rice and 82 percent are net rice consumers. Even in rural area, 63 percent of rural households are not rice growers and total around 72 percent of rural households are net consumers of rice

What does it have something to do with liberalization? If importing rice means lower rice price, at least 75 percent of national households and 63 percent rural households will benefit from that free market policy.

What to do with the rest? My take is two things: first, if import led them to fell down below poverty line, they deserve to get across the boards anti-poverty transfer, like direct cash transfer scheme --not because they are rice growers, but because they are now poor. Second, and more importantly, do not block their access to move into more dynamic sectors in the economy. And getting rid the obstacles they face means removing anti market competition policy like inflexible labor regulations, corruption, and lack of infrastructure.

In the second paragraph, JK thinks that in the international trade the developing countries are victimized as price takers, while the developed countries reap most benefits as price makers. Really?

Last year, as all of you know, there was a steep increase of the world's price of (primary) commodities produced by developing countries --like food and agriculture products. It would not have been the case if the developed countries, as the major consumers, could set or make the price as JK thinks.

But maybe JK is right, the current international trade of agriculture product is not fair because the developed countries as producers, and the competitors of developing countries, deliberately distort the market by applying high subsidy and trade barriers --in other words, violating free market principles. By that, here, what we want is, well, free trade so that we can sell our products and fairly compete in their markets too.

And on his remark that the price 1 kg of cocoa is far below the price of 1 kg of Silverqueen, what should I say? You just don't make one kg Silverqueen with one kg cocoa. You need to put some milk and mix it with other ingredients. Then you want to wrap them in in a nice package, advertise and distribute them to stores.

Still, you can not write your price tag as high as you want, if you still want somebody to buy your products. You need to consider the price of Ghirardeli, Toblerone, Lindt, Cap Jago, Haribo, Trebor, licorice, etc --all are your products' direct competitors -- as well as its indirect substitutes.

If you let market to work, your price reflects only normal profit, or some temporary supernormal profit that is always subject to natural creative destruction. It is not fair if you get government protection or commit in unlawful acts against your competitor. But you can not blame market mechanism for these faults, because what is unfair is the government discriminative anti-market protection.

Bottom line: it is rather unintelligent to support the argument for fairness by comparing cocoa's price to Silverqueen's and asserting an upside-down argument blaming market mechanism for the anti-market outcome.

Back to Basics

Greg Mankiw, himself the author of an excellent introductory economics textbook, offers several subtle changes in teaching Econ 101 amidst the recent crisis by giving more emphasize on the role of financial institutions, the effects of leverage, the limits of monetary policy, and the challenge of forecasting.

Sorry, rightly so, no neoliberalism on the menu.

Mankiw also noted that:

Despite the enormity of recent events, the principles of economics are largely unchanged. Students still need to learn about the gains from trade, supply and demand, the efficiency properties of market outcomes, and so on. These topics will remain the bread-and-butter of introductory courses.

Which brings me to wonder after reading some protectionist pundits' and faux economists' remarks on recent neolib hullabaloos: what did they learn from their introductory course --if they ever had taken it?

In defense of consumerism #137

I'm a big fan of Samuel Mulia. But less so this morning. No, I'm not talking about Samuel's column in Kompas -- it's still good as usual. I'm talking about O-Channel's "Pagi Jakarta" broadcast now. The topic is Style, Brand, and Status. Erwin Parengkuan and Jill van Diest are featuring Samuel Mulia.

The trio are lambasting consumerism quite excitedly. Samuel just talked about a new trend in Jakarta: exclusive bags for rent. He was concerned about Jakartans new way to show off by renting Hermes or Gucci by hour.

What's wrong with that? Samuel -- and Erwin and Jill -- think that way of life is artificial and not good for your health and pocket. I fail to understand it. On the contrary, I thing bag-for-hourly-rent is an excellent idea. When else do the not-so-rich can wear Hermes or Veneta? Kudos for the inventor of this idea. Because of you, the exclusive bags are not so exclusive anymore, give a room for others to fill.

Error by Omission or Maybe Something Else

Against free market, Kwik Kian Gie wrote:

Because anything goes without government regulation, she (the producer) starts to conduct competitive strategy that kills her competitors through dirty practice, supported by her wealth. For example, she sells her products at price below cost of production. She would suffer loss, but she can bear it, thanks to her already accumulated wealth. At such price, all competitors would lose and go bankrupt. Except she, who has the largest capital. After the competitors go bankrupt, with her monopoly power, she increases her product's price very steeply.

Let me restate my take on predatory pricing: as long as there is no government regulation discriminating other producers, I don't see it as a problem --or dirty practice. And letting the market work will set the price back at producer's normal profit level. But you can not see that in Kwik's story because it was not yet finished and the next part of the story was omitted either by error or incomprehension.

Why?

The supernormal profit from after-predatory pricing monopoly power will attract the old producers and new producers to enter the market, as long as there is no government restriction. This will keep the price down again.

Also, any monopolist is subject to the consumer's demand -if you look at demand function in a monopolistic market, it's downward sloping. Thus, first, charging higher price means lower quantity demanded. Second, consumers do not solely look at a single product, she will always take into account the substitutes. For instance, if the price of espresso goes crazy, even a coffee freak like me will switch to teh botol. As a result, the predator needs to consider a whole arrays of competitors.

Where do I get this idea from? Econ 101 textbook. And by the way, the textbook always states that what matters for economic agent's decision is the marginal cost and marginal revenue (or benefit), not accumulated wealth.

Your baristas talked about this misleading op-ed during the break, and perhaps Ap will join me to serve you his comment.

Dear Kate: Neoliberal

Dear Kate,

I observe a suddenly-famous term: "neo-lib". What is this "neo-lib" actually about? Why do people seem hate it? Is it some kind of virus?

Best,
Al @ Berge

Dear Al,

To tell you the truth, I don't know. But I got an impression from the media that all those protesters mean by 'neoliberal' is market-friendliness, trade with other countries, and everything American or western.

In other words, neoliberal is an Aunt Sally.

Take care,
Kate

On Faithless Neoliberals

Following the Boediono-Neolib controversy, I think the problem is not so much that some people dislike neoliberalism. It is perfectly OK if you disagree with something, but it'd be better if you have clear idea on what you disagree with is about.

In my old posting, quoting Stanley Fish, you can find the broad definition of neoliberalism (at least from the perspective of its critics) that I won't repeat here. Problem of definition aside, the real catch is that --also from Stanley Fish, quoting Boas and Gans-Morse of UC Berkeley in his subsequent Times' column --, its force is more rhetorical (Boediono, you accursed neoliberal) than analytic.

In the last debacle on neoliberal here in Indonesia, I think the problem is even more depressing: some people attach moral or religious value on neoliberalism. It is akin to say that because you are neoliberal, your faith is questionable.

In Boediono case, you can confirm this by reading the weird flip-flop statement from Tifatul Sembiring who said that Boediono is not a neoliberal because during his time as Coordinating Minister of the Economy, shariah economy was developed and he passed the Law on Shariah Economy.

While Homer Simpson would say "D'oh!", Econ 101 students would say: the opposite of neoliberalism is socialism.

I am fine if you are socialist. I will disagree with you, and sometime ridicule you, but I will never question your faith based on your socialist viewpoint - unless you kidnap, torture, and kill others.

Harold

My favorite summer reading: Harold and the Purple Crayon.

Harold is terribly funny. He mistook oatmeal bowl for a flying saucer.

A Friendly Reminder

When I wrote the previous posting on neoliberalism, I could not relate why one commenter asked about Boediono and his religious attitude.

Only after I read Faisal Basri's take on Boediono that I become aware of the Boediono-Neoliberalism controversy, that the commenter might think I was talking about, which I wasn't.

Kate apparently gets really annoyed with that controversy, and all baristas here know too well that hell has no fury like Kate scorned.

Just wait what she's gonna say. Stay tune.

Added: My take on the commenter's question remains the same, nevertheless.

The Impact of Neoliberalism on Religiosity

Another boring and tasteless title, you say?

No.

It's what I think after reading the Spiritual Economies: Islam and Neoliberalism in Contemporary Indonesia, by Daromir Rudnyckyj in Cultural Anthropology, Vol 24, Issue 1, Jan 2009, pp 104-141.

Check this interesting ethnography work on how, or why, Krakatau Steel, a state owned enterprise on the verge of privatization due to current market reform, decides to hire ESQ. And according to the editor of that Journal:

"In Indonesia, religion is not a "refuge" from or resistance to neoliberalism, nor is it a retreat into "magic and mystery" in response to global capitalism. Instead, religion and capitalism are brought together to address the challenges of globalization. By enabling Islamic virtues of self-discipline, accountability and entrepreneurial action, one becomes both a more pious Muslim and a more productive employee. Rudnyckyj argues that "managers, state technocrats, and religious reformers sought to enact a set of neoliberal practices by creating a new type of subject, a worshipping worker, for whom labor was a matter of religious duty."

My first reaction: Marxian false consciousness at play. But Sisil, the one with real anthropology training, differs and thinks it more as Weberian ethics with Islam twist.

Nevertheless, if neoliberalism indeed brings greater religiosity, what you say, MUI? Or anti neoliberal?

The Most Boring

paper's title I've ever heard: The Impacts of Monetary Policy Shocks on the Indonesian Economy.

Author: me.

Update: I change the title, but, alas, our friends in Kebon Sirih might not be happy with that.

Hi

Hi, long time no see. As you know, I've been busy with my thesis. My anonymous, external examiner is tough (I think he is Zuckerberg). Just got time for a little break now. An update, Aco just got back from Brighton, UK (and is getting ready for Salzburg); Ujang is taking a basket ball course (and writing a bit of economic paper) in Duke, NC; Ape' is back to school in Melbourne and recollecting his memory of the fall days of Soeharto; Rizal of course has been your constant barista from Virginia (the only one here who is FB-less); and Sjamsu is probably in Bali now trying to find a gig in between ADB events. Bye now.

Statesmanship as Fiction

With all of my due respect to Magnis-Suseno, Syafii Maarif, and Satjipto Rahardjo, please stop hoping and asking for politician to be statesman. The latter is just a fiction. Not because they do not exist (maybe there are few of them), but because it doesn't help in analyzing the politics and its social impact. We will too easily slip into pointing out any failure of politics in providing higher social benefit to the lack of statesman quality in politicians.

Banks Are No Charity

I fail to understand this news titled "banks put profit at the front-seat, or banks are more keen to seek profit" --or something like that.

First off, what is wrong with that? Banks are profit maximizer, for sure. But if you think borrowing from the bank is pricey, you are free to seek another (cheaper) source (if any) --your own retained earning, for example.

Second, on why the gap between deposit and lending rate widened lately, perhaps Bernanke and Gertler in their classic article Agency Costs, Net Worth, and Business Fluctuations (AER, Vol. 79, No. 1, Mar.1989, pp. 14-31) might help. From borrower's balance sheet approach, they demonstrate that lower net worth increases agency cost (hence higher lending rate) and business downturn decreases net worth.

I haven't look up the data on the borrowers' (households and firms) net worth, but certainly in the last quarter we have been, at least perceived, at business downturn, no?

On the other (good) side, people still go to bank to borrow despite high lending rate. So perhaps, the demand --some would say real sector-- is still strong, or at least not as weak as we may think.

I am neither monetary or finance specialist, but has anyone had better idea?

Meta-what?

Can anyone give me idea what exactly a meta-commodity means, so that I can understand the following sentence?

We should remember that food constitutes a meta-commodity that cannot be treated merely according to economic calculations.

Does it mean a sacred stuff, like amulet or keris --the Javanese dagger? But even we can calculate the economic value, the market price, of keris, no?

My Friend Highschoolers

To my friends in highschools who are attending national exam today, I sincerely hope all the best to you all. Many will make it, but some of you maybe not. And for you who do not make it, do not stop and give up. Retake it and play the game again. I am never be less proud of you -- for all what you need to do is work on it harder and longer.

And no finger-pointing and blame-game necessary, like some elders seem love to do.

I hope you learn a lot from today's exams, whatever the result might be. Rock on!

Advice # 876: Take A Longer Perspective

I look at a graph showing Indonesia per capita GDP level and annual growth from 1970 to 2007 and could not stop to marvel (if it is the right word) that the depth of our 1997 crisis actually makes the US zero growth this year look like a one lazy Sunday afternoon.

It takes a mere two years from around 15 percent GDP per capita contraction to regain positive growth, as Reinhart and Rogoff (in pdf) rightly point out; but around 7 years to get back to pre-crisis income per capita level. Even more daunting, after the crisis, the average annual growth has been substantially lower than before, despite its accelerated upward trend.

And today we have global recession. I just hope that we don't take a wrong lesson by taking short-sighted economic populist policy and dramatically departing from market-based reform that has been responsible for much of the longer-run pre crisis growth and post crisis recovery.

Getting off the track is too expensive. Although the temptation is high, especially if you want to run for President/House members/funny pundit.

Non-voting does not equal Golput!

I always get irritated when anyone refers to those who do not cast their vote as 'Golput.' Even in the media it is very often we see a passage like "Golput rate reached 30%." You may not like math, but the number cited is the non-voting turnout rate. Non-voting turnout is simply non-voting turnout, which is 100%-turnout rate. Become a Golput is one reason, among many reasons, for not voting. People may have other reasons not to vote; lazy (in academic jargon, the benefit to go to the ballot is smaller than the cost), no candidates matches one's preference, unregistered to vote, unable to be present, and so forth.

The Golput original term was brought to the vocabulary by this person. Back in the 1970s, Suharto 'simplified' the political system by allowing only 10 parties to compete in 1971, then reduced to three in 1977-99. Golput was an expression that no one, including the government, can take away one's political right. So Golput was a resistance movement against an undemocratic election. Even Prof. Budiman himself admit that the current election is already democratic, hence Golput is no longer relevant. Well, you may choose not to vote because you don't like the candidates for any reasons. But the fact is your not being stripped off your rights.

Of course, no one has the patent or copy rights to the term. So anyone can basically use the word, even if it has already been distorted from the original meaning. At your own risk (of embarassment), you may also claim that all non-voting voters have one interest, which you can represent, and think that all of them will vote for you. Wanna try?

An ugly system, but compared to what?

Many people, including some friends, tend to complain (or at least criticize) the current election system that makes individual candidates, rather than parties, are competing with each other. Well, the thing is election is the key element of democracy. The more direct the election (i.e. choosing individuals rather than parties), the better it should be. Of course, there are some caveats. Individual competition leads to distorted signals, increased searching costs, or 'supermarket effects' (where too many choices may lead to not choosing at all). But when we are to say one system is bad, we need also to ask, "compared to what?"

Here is my idea. Assuming that: 1) we still want democracy (not despotism or authoritarianism), 2) Arrow impossibility condition exists, 3) Plato's philosopher Republic is simply not attainable, then we may want to consider, I am proposing two possible alternatives:

1. Random assignment. A lottery is assign to (s)elect leaders or representatives. All eligible citizen will have equal probability to be leaders or representatives.
2. Take turns. Just like (1), but do a random assignment only once in the beginning. Then design a mechanism where each will take turn every a certain period. (Oh wait, who will have the authority to design the system?)

What do you think? For me, I still like the competitive election better.

To Our Lazy Journalist/Editor

Let me spell it slowly: S, T, I, G, L, I, T, Z and W, E, I, S, S

Got that?

If not, you'd better ask the the panelist you invited, or google it and in 1 second you'll get the said paper; than have this deeply embarrassing headline.

The Best of This Year's April's Fool

is this.

But only if you know some who's who in economics and economic policymaking in the US. And the fact that only economists could laugh out loud at it, while the rest most likely goes "huh?", is actually awkwardly funny by itself.

HT: Alex Tabarrok

The Bright Side of Possibly Lower Turnout

So you think that this year's election would see lower turnout. Is it a bad sign?

Imagine you find yourself on the election day, which also happens to be an official public holiday in Indonesia. You have option of either going to vote or doing something else, like spending time at the zoo, reading the Watchmen, listening to Efek Rumah Kaca, or even just a simple good lazy afternoon nap. What would you do?

The catch is here: That something-else becomes more precious as your wage rate goes up. If your wage rate is higher, you have to sacrifice more money for not working and just reading Anna Karenina.

So on April 9, when you are forced not to work and decide to have these something-else, instead of going to the voting booth like what you did five years ago; it may mean that your wage rate are actually higher than five years ago. (And political complainer literate like you, or pundits in the media, should be happy to know it)

Who would vote then? The ones who are less ignorant to politics and the ones with lower wage rate --who hope election to bring better wage. The former would devote more time and the latter have better incentive to learn relevant information on politicial party and politicians. As a result, a better election quality.

Articles as Important as Superman Comics

For those who want to learn what was going on in the early days of current financial turmoil, the latest Journal of Economic Perspective, Vol 23, No.1, Winter, 2009 has the symposium on it. All papers look interesting and important. Also, a paper by John Taylor (the economist, the Taylor's rule; not that guy of Duran-duran), A Black Swan in the Money Market is worth to look at.

The JEP articles are for subscribers only, but thanks to google scholar, you can get some un-gated version of them. Or, you can come to our cafe, it's on the shelf next to the Rolling Stone and Superman comics.

HT: Garett Jones

Weird Definition

Economist has a funny way to describe a sophisticated person: A person who does not suffer from time-inconsistency problem. The rest, me included, is a mere naive person.

Wanted: Positive Political Analysis

Can anyone tell me what national interest means? I have been trying to translate it into a kind of operative utility function to which politician might want to maximize as suggested by our numerous political pundits in their so-called analysis of Indonesian election campaign. And it goes nowhere.

The more workable proposition is to take that politicians are self interested or partisan, that is, trying to maximize social welfare function for disproportionate benefit of particular group in society (Persson and Tabellini, 2000). With that, your positive analysis for social calculus could fly better. Of course after you carefully set up the payoff, constraints, political market structure, as well as sufficiently address the problem of time consistency in your analysis.

Otherwise, you'd end up with empty boring statement like politician must put national before individual interest to make everyone happy; or politician running for this year's election must follow the example of (fill in the name of your favorite dead politicians from 1950s) who was a genuine defender of national interest. Yadda yadda yadda.

Jamal at the Pershing

After the Java Jazz hype, let us get back to the jazz as we know it. This time, Ahmad Jamal at the Pershing, 1958.

People, here we have Surrey with the Fringe on Top and Poinciana. The latter is considered as Jamal's classic, something like Brubeck's Take Five, and here is the youtube 2005 version with Idris Muhamad at drums.

By the way, how do you think an album called Slank at the Java Jazz, 2009?

What profits are for

A coffee stall at one corner of The University of Melbourne claims to have a 'new concept of business'. They let the customers decide how the profits from their cup(s) of coffee would be distributed: to the owner, or to one of their causes (social, environment or cultural). Every time they buy coffee or snack, customers would be given a card, which they will put into one of four pigeon holes representing each purposes. At the end of every month, profits will be distributed based on the distribution of cards in each pigeon holes.

Yesterday, for the first time I bought their coffee (it tastes and smells good, and costs less than other coffees in the university and its surroundings, by the way). Then I put my card into the first pigeon hole: the owner. Yes, I want the profit from my cup to be enjoyed by the owner. My philosophy is simple. It is a small business, and if the owner can't enjoy a substantial profit, they might go out of business. Somehow, most of their customers also think so. The highest percentage of cards so far went into the 'owner' hole.

My preference may be different had it been, say, Starbucks or Dunkin Donuts. Not that I want to 'punish' them for making big profits. But those companies may have earned enough profits to keep them in business. Up to some point, a reallocation the profits may leave them as well-off as before, but it increase my utility if they sponsor an exhibition, a movie project or a concert. Off course, needless to say, that would also depend on to where or what kind of activities they will share their profits.

When Wen Sneezes

Not so long ago, you may recall, when Alan Greenspan sneezes, the world catches cold.

Last Friday, when Wen Jiabao sneezes, I wonder, who catches cold?

Envious Revivalism

I come across an interesting job market paper (download the pdf in the relevant link) on a theory of the Islamic revival by Jean-Paul Carvalho of Oxford University. He wrote that the origins of Islamic revival since 1970s in developing countries are traced to a growth reversal that failed to deliver the promise for upward mobility; and increasing inequality that hit the lower middle class.

Perhaps you may not even need economics to come up with this conclusion.

But, what makes his paper interesting from economics perspective is the use of a behavioral economics model of religion based on psychological notions of envy and unfulfilled aspiration. Here, the agents have reference-dependent preferences, contrary to Becker-Stigler approach for independent and stable preference.

Math aside, the paper gives interesting survey on Islamic revivalism. Now, regardless your economics knowledge, do you think envy and unfulfilled aspiration motives explain what has been going on in Indonesia?

Fish on Neoliberalism in the University

Stanley Fish opines in the NYT on why neoliberalism is hated:

The objection (which I am reporting, not making) is that in the passage from a state in which actions are guided by an overarching notion of the public good to a state in which individual entrepreneurs “freely” pursue their private goods, values like morality, justice, fairness, empathy, nobility and love are either abandoned or redefined in market terms.

Short-term transactions-for-profit replace long-term planning designed to produce a more just and equitable society. Everyone is always running around doing and acquiring things, but the things done and acquired provide only momentary and empty pleasures (shopping, trophy houses, designer clothing and jewelry), which in the end amount to nothing. Neoliberalism, David Harvey explains, delivers a “world of pseudo-satisfactions that is superficially exciting but hollow at its core.” (”A Brief History of Neoliberalism.”)

This logic, according to the critics of neoliberalism, somehow is embedded into universities and narrows their function as merely instrumental, commercial, and practical. And because the universities are privatized (under neoliberalism agenda, they accuse), their faculty members becomes more and more in favor to professionalism over social responsibility and taking position in controversial issues.

Fish makes his own defense on its effect on academic freedom issue and you better read his excellent essay yourself.

My two cents is, in Indonesia, it's the other way around. The state universities are underfunded, partly because they can not freely adjust tuition fee to its actual cost. As a result, most faculty members, who are underpaid, could not develop their professionalism. Facing this problem, they end up taking too much social responsibility (in non academic-related jobs) and making up sloppy position in controversial issue (and funny commentaries) without, alas, adequate scientific professionalism.

I shall add that the university's social responsibility is to provide high quality higher education and academic research, which, in case you don't realize it, is quite costly. This higher education itself, if done properly and professionally, would have huge social impact.

OK, I know what's in your mind. Some of your baristas here are perhaps guilty as charged, too.

That we admit we blog too much.

Minister of Protectionism

Do you know what kind of vision that our Minister of Research and Technology has in mind? I'll give you one. It is called "M16 produces 16M". The former refers to a type of killing machine, the latter market for 16 million (of what? IDR, USD, people? I don't know).

And he wrote in today's Kompas op-ed:

With this fighting spirit, we will see more main weaponry system tools, electronic communication devices, tactical and war vehicles, speed patrol ships, war ships, surveillance airplanes, cargo planes, organic weapons for military and police, armored vehicles, defense and security infrastructure; than imported product."

I kid you not.

Mr. Minister, I'd rather to have inexpensive imported non military stuff any given day, than seeing more of our own made inefficient killing machines around. Does he ever think that import and globalization means you can get cheap product in global market (including even those weapons), in exchange to your competitive export?

That the Minister of Research and Technology turns out just a plain protectionist is disheartening. His job is to make our product technologically competitive in global market, not asking for protection. It's a lame excuse, Minister.

50 Years Monk at Town Hall

Cafe Salemba celebrates 50th anniversary of The Thelonius Monk Orchestra at Town Hall. That is why you hear some Monk pieces at our place while sipping your espresso and musing about the Dow Jones below 7K index.

Here for you: Little Rootie Tootie and Friday the 13th.

Coffee Article of the Day

As your barista, I have tried to provide some timely, popular, yet pretty sensible articles that may help you to get some ideas on what is going on in now troubling US financial market --so that you have some good starts at any cocktail conversation. As interesting as they may look, those are media report or blog's posting. For education purpose (hell, yeah), you need to consult peer-reviewed journal article, that usually takes more time to publish.

As the time goes, now some articles are there. I found one by Brunnermeier of Princeton, in JEP (forthcoming). Don't yawn. Contrary to what you usually get in an economic journal (those Greek alphabets, in case you are not familiar with econ journals), this one is highly readable.

(HT: Håring and Storbeck)

Keynes The Optimist

Keynes, I think before he said that in the long term we're all dead, in Economic Possibilities for our Grandchildren, a short paper presented before students of, according to Bob Solow, a less-snotty-than-Eton public school, Winchester, wrote:

We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth cen­tury is over; that the rapid improvement in the standard of life is now going to slow down ‑-at any rate in Great Britain; that a decline in prosperity is more likely than an improve­ment in the decade which lies ahead of us.

I believe that this is a wildly mistaken inter­pretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing‑pains of over‑rapid changes, from the painfulness of readjustment between one economic period and another

I think this is relevant to current world economic affair, as well as to Indonesia.

Dark Stuff That Makes You Statistically Smart

Ziliak and McCloskey, by way of Tim Harford, reveal that Student's t-test, a very important statistical test, refers to William Sealy Gosset. This man wanted to know how many experiment with hops, malt, and barley, needs to be done to produce a considerable confidence of the result in pursuit of good beer.

That beer is known as Guinness, the exquisite dark stuff that probably is the greatest Irish contribution to the world. Better than James Joyce or the U2.

Lift your pint and make a toast for Gosset, but I am not sure for which one: the Guinness or his t-test. Maybe both.

Animal Spirits Explained (Not Yet)

I still find the New Keynesian approach for short term output fluctuation is one of the finest theoretical explanation. You can find the summary of their research in chapter 6 of the standard Romer's Advanced Macroeconomics. Their models are so cool in explaining the seemingly irrational behavior that was not yet elaborated in the old Keynesian school.

But against the backdrop of current crisis, Akerlof and Shiller in their latest book Animal Spirits, want to move further. They argue that New Keynesian approach is good to explain the small fluctuations, but not a deep crisis. Instead they believe that animal spirits --Keynes' phrase for irrational behavior- is responsible for such exuberance, booms, and eventually bust.

They offer some working proposition by describing five aspects of animal spirits: confidence, fairness, money, illusion, corruption and anti social behavior, and stories (or narrative).

Alas, until the end of the book, I fail to grab a coherent theoretical construct, or even its prospect. They, less fruitfully, go back to old battle by bashing new classical approach and, this is rather disconcerting, relying too much on anecdotal evidence. Plus some I-told-you-so tone.

Akerlof's paper on the market of 'lemon' is one of my favorite model. And I certainly expect more with his credential, including winning the Nobel. But maybe winning Nobel is a bad signal nowadays (think of Stiglitz and Krugman).

I am still looking forward from them, though, that eventually, a neat theory of animal spirits in macroeconomics come up and stands up for academic test. And they can take their time to do this, without hurrying to publish a book just to catch up with daily conversation topic at the moment.

The US Stabilization Policy Proposal

As read in In An Uncertain World by Robert Rubin, in the Asia crisis chapter, Larry Summers was there to push stabilization policy. He even flew to Jakarta, talked to Soeharto, and, despite his credential, was left speechless against that old man.

Now, as the US economic crisis seems more and more resemble the Asia crisis ten years ago, I can't help to think why they are not confident to adopt similar policy for fiscal conservatism, more market based reform, and good governance. If it works for us, it likely would work for them, too.

And it did and does work for us.