TraffIc Woes: The enemy is us


By Orlando Roncesvalles

Almost gridlock

Just about everyone complains these days about traffic in Dumaguete that I often wonder whether we’re fast approaching the gridlock of Los Angeles, Washington (DC), or even Manhattan. The common culprits are easily all over the place. The local economy has grown, and car dealers sell cars like pancakes on easy financing terms. This has added to the more traditional problem of big trucks and buses competing with motorcycles and tricycles. The owners of new Wigos, Eons, and Picantos are left to scratch their heads at their mix of newly acquired mobility amidst near gridlock conditions around 8am and 5pm.

What to do then? Though not immediately obvious, it’s not simply a case of too many cars and trucks using the limited roads. That much we ought to know from the infamous Law of TraffIc formulated by one Anthony Downs. He said that when we widen the road, we just get more vehicles and only a little improvement. It would be better to look at traffic problems from other angles. (For the curious, I sketch a proof of Downs’ Law at the end of this column.)

The status quo

The city officials cannot be faulted for lack of trying. Today, we have a complicated one-way system for the central business district; this seems to work well enough even as car owners complain that they have to drive more. The advent of private parking garages is reportedly at hand, which should reduce the “parking-space hunter” problem downtown. The cap on the number of public motorized tricycles has also limited the well-known traffic-generating disparity between these vehicles’ slowness (maximum 30kph) and the speed of private cars. So far so good? Not quite. We are still some way from traffic sanity.

More than a decade ago, a halfway solution emerged from recognizing that certain places generated unnecessary traffic in their midst. This is particularly true of schools, hospitals, and churches. The full solution was to enact laws ensuring that such institutions wouldn’t be the source of traffic problems. The analogy with environmental pollution is apt. The trick is to require a Traffic Compliance certificate, of the same nature as the Environmental Compliance certificate now required to protect the environment. But it seems that these institutions are so politically powerful that city officials were reduced to “begging” them to convert real estate into service roads. The Silliman Grade School actually responded positively. Others appear to just ignore the problem they’ve created. Why?

A good long-term solution includes the bypass road concept. Cut-through traffic from outside the city needs to be shunted away from downtown. The coastal road and Rizal Boulevard are now unable to function well as bypass routes because of the new restaurants and tourism growth. I once asked city officials about the by-pass, and it seems that the answer is something out of eminent-domain hell. The city has to acquire the roadway, but landowners play the cat-and-mouse game of guessing where this road might be, thereby almost interminably delaying the solution.

Self-help

For the meantime, the literature on traffic problems gives some nuggets of folk and science-based wisdom. The following is a limited list:

One is obvious. Walk or bicycle. Here, city officials have to get better at giving pedestrians and cyclists a fairer shake at the benefits of city-hood. These folks pay taxes too; they deserve sidewalks and bicycle lanes. I once asked my students to study the idea of making half of Perdices Street downtown as a pedestrian zone (combined with availability of parking spaces at both ends). That idea should be kept alive and kicking.

Two, legislate and enforce no-parking rules. Some streets are not so bad if only “lawless” parking were controlled.

Three, traffic enforcers and stop lights are band-aid solutions for problem intersections. For example, near schools, it is probably more productive to get the schools to give solutions that get students to school without adding to traffic problems. Relocating the school may be a better alternative. As to stop lights, they work in the first world but probably not in Dumaguete. We thrive on the idea of traffic in scooter-crazy Rome, where almost anything goes!

Four, drive smart. Waze helps the car driver avoid peak-hour congestion. A few minutes earlier or later can reduce trip times albeit by not much. Another form of smart driving is to take the straight route or to avoid left turns. At times, even three right turns can beat waiting for a left.

Five, for the spoiled rotten, get a driver. Parking is hard work, time is scarce, and good drivers can give you the latest gossip, or tune the radio to sad and funny radio-seryes.

Finally, consider Stoicism. Maybe staying home is best. Living well is a form of revenge. That’s how Netflix makes its money. Now, if only we could speed up that internet!

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Note on Downs’ Law: The basic model is one of getting from one place to another using two roads, the main road and a next-best alternative. Typically, the main road is already congested (it’s not the main road for nothing). The city decides to widen the main road. What happens? Traffic that used to use the next-best road then shifts to the widened main road. The traffic problem then remains unsolved. The shifting traffic is called induced demand, and this explains why the widening of the road doesn’t solve the problem. 

Recognizing Downs’ Law means that city officials should concentrate their limited resources on next-best routes, not on the main roads. It means the opening or speeding up of such parallel routes.

Comments at oroncesval4@gmail.com

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The Perfect Bet

What are financial markets?  Financial markets at first apprehension are simply places where borrowers meet lenders, or where risk-takers meet investors. But these markets do more than channel what economists call “savings” into claims on the (profitable) outcome of “investments.” Savers shift their consumption from the present to the future; borrowers often do the opposite when they shift future consumption to the present. Investors and lenders absorb the “foregone consumption” of savers into “capital accumulation,” which, if deployed intelligently, would yield future interest or profits. This process feeds the engine of economic growth, while giving meaning to the idea that market participants should be able to shift their consumption patterns over time according to their individual preferences. There is thus also embedded in this process that concept made popular by Adam Smith, the idea of the Invisible Hand.

The process is not always perfect. The plans of mice and men often go awry. The markets then adjust to these changes in fortunes. Debt papers get discounted to reflect the lessened ability of a borrower to repay, and stock prices drop on expectations of a cut in future profits.

Underlying the adjustments, or even the initial transactions, are acts that constitute betting. The lenders bet that the borrowers will repay, while the (stock market) investors bet on the actual or eventual profitability of the business of the corporations that issue stocks. At times the betting does not even relate to these economic “fundamentals.” There are also those who bet on the basis that there would be, at some point in the future, a “greater fool.” For such bettors, the wait can take forever, although successful practitioners are usually “gurus” who can inspire the “greater fool” following, and who get out soon enough. The gurus win at the expense of their followers. It seems unfair, but there is rough justice meted to the greater fools in this story. The motto should be “know your guru!”

Is there a perfect bet?  In such an imperfect world, can there be a perfect bet? This is like saying we’ve experienced hell or purgatory, and then asking if we will get to heaven. A religious bettor would bet his soul on it, but can expect the payoff only in the afterlife.

Despair not. Philosophers, mathematicians, and diehard gamblers have at various times achieved success. To do this, they’ve had to set the bar a bit low. A “perfect bet” is definable as one that beats any other in the circumstances. Often this ranking of bets is simply based on an arbitrarily chosen aiming for the highest return for a given level of risk, or for the smallest risk for a target rate of return. And typically, the perfect bet is revealed after the fact, but not before!

If risk avoidance is valued highly, insurance can be a perfect bet. Indeed it is one that can go on forever because insurer and insured do not play a zero-sum game. Both parties to the insurance contract “win.” The insured avoids an unbearable catastrophe, while the insurer, who pools the risks from individual contracts, gets a more or less steady income. This means that stock in good insurance companies, those who employ honest actuaries and whose managements are kind enough not to engage in Ponzi schemes, are great long-term (though somewhat risky) investments.

Religion is akin to insurance. The high priests play the role of insurer; the faithful are the insured. No one is being taken for a ride, except perhaps for those cult religions where the believers give up too much on Ponzi-like fraudulent claims of their leaders. By and large, mainstream churches are institutions that promote social good and order on earth. Whether religions should escape taxes is, however, another story. My own view is that if insurance companies, doctors, dentists, and fortune tellers like Warren Buffett pay taxes, then so should churches.
Are lotteries perfect bets? No, because innumerable studies of winners tend to conclude that the winners get a brief high from a temporary surge in income or wealth; but they soon go back to their pre-winning miseries. Humans are decidedly social beings who prove time and again that misery loves company, and company soothes misery. But lotteries are perfect bets for those who benefit from the house edge, typically governments and charities.
When the game is a simple one in the mind of an individual investor, it is pretty much a zero-sum game. Cash or short-term government paper becomes the perfect bet when the likely foreseeable event is a rise in interest rates or a fall in stock prices. The problem is that interest rates and stock prices are inherently unpredictable. If they could be predicted, the acts of capable individual investors acting on their “predictions” would cause interest rates and stock prices to move in directions that would eliminate the profitable trades that might be envisioned from such predictions. The next time somebody comes to you to tout his (past) great stock market performance, just ask if he thinks he can replicate that performance forever. His honest answer has to be in the negative. He could do better because of luck; or worse, if the future is one of “reversion to the mean.” The mean in this context is also not a fixed thing; it depends on how long a time frame you take to calculate the mean.

What about the risk of ruin? Or the risk of missing the “next great move”?Can an individual nonetheless learn to avoid the most egregious errors when investing his hard-earned savings? This is a difficult question requiring a definition of what an egregious error is. The answer to this question will be for another column.

Steak Intelligence

Orlando Roncesvalles

In a celebrated movie (When Harry Met Sally), we are treated to a reverential dig at the leisure habits of the first world. Restaurants in the ‘80s were, according to Nora Ephron’s writer-philosopher character, what the theater was in the ‘60s. That, after all the angst suffered by English departments in the ’60’s, was an inevitable consequence of the oft-repeated idea that the theater had died. If you believe pop music, even that (music) died when Buddy Holly took that damned plane. Why is life so tough? We don’t really know, but from today’s gadget-driven internet of things, we realize that whining is part of the human condition, amplified by social media but dulled by the haptic syndrome of touch screens, or even (by now anyway) accepted, without a nasty retort by the likes of Siri and Alexa. Machines can substitute for psychotherapists if you know how to tweak settings.

Tough is however that thing we do not accept in certain things. The night has to be tender. Terms of endearment also must be. Criticism directed at our significant others must be delivered sotto voce. And, of course, steak must with a capital T be Tender. Thus, Anthony Bourdain expressed his disdain for the despicable heathens who order their steak well done. Chefs welcome such arrogant ignorance because they can get rid of mis-delivered meat without offending a free-spending type (usually on a business account, if not using plundered funds as though that never went out of style).

What does it take to get steak tender? According to Guenther Sanin of Casablanca Boulevard fame, it must be aged and just so. Our tourism honchos don’t understand this. They ought to be bringing in technology so we would do our aging locally, but they seem fixated on media contracts and duty-free shopping. That’s what we get when we have the best and brightest officials. Tough steak. But who cares? Our lucky officials travel to exotic places, outside the country, to get their beef. Lucky them. But I exaggerate.

A steak ought to sing for itself without a backup band of exotic sauces. A-1 will hate me for saying this, but they sell something to hide the fact that we couldn’t afford the best cut, and have to do with a little ‘taste enhancement.’ A-1 is good at what it does, so give it credit. Still, I remember that a good steak-frite combo could be had in the ‘80s in a now-gone place called Le Steak in Georgetown (that place by the Potomac River), and it came de rigeur with Béarnaise. So I asked Guenther why Béarnaise sauce appears almost incognito hereabouts. The answer was that it was too special a sauce to make, and it would eat up too much expertise and good butter to be just right, though you can try some from a cheap substitute fix served up by Amazon. Basically, for authentic Béarnaise, you need expert whisking.

How often can one indulge in a steak? The answer is ‘not too often,’ because, as the cardio experts say, it can clog up those arteries. There are remedies. I had a German mission chief who lined up his statins soon after he ordered the best steak in the best restaurant in Tripoli, Libya. Then there’s also red wine. Why white wine pales is a mystery I have not explored; I look for a good Cabernet and keep my counsel. But if any white wine guys can point me to a cholesterol-cutting moscato, I’d gladly take their tips under advisement.

The end matters too. What dessert goes with steak? Le Steak had something called La Surprise de Monique (an ice cream confection with candied chestnuts in the unseen bottom, hence the surprise). In another dining room in Washington, DC, it was called Coupe aux Marrons. It may still be there; just go to 700 19th St., NW. If all else fails, there’s creme brûlée (leche flan). Deciding the best creme brûlée in Dumaguete is still on my bucket list.

Shooting Stars and Falling Peso

History

I remember a time in 2012 when many big-bank economists predicted that the Philippine peso would remain a shooting star at around P42/$ by year-end. The peso then was a ‘darling’ currency, having nicely recovered from a low of about P49/$ in the wake of the Financial Crisis of 2008. Little did the bank economists know that there would soon be a literal u-turn; the peso shortly began its doldrums to where it is today at P53/$. It hasn’t been a pretty sight for the responsible authorities at the central bank.

Historically, the peso was initially pegged at P2/$, but it would go through a series of devaluations in the 1960s through the 1980s. It strengthened in the post-martial rule era to an uncomfortably overvalued level of P26/$ under the Ramos administration before being hit by the 1997 Asian financial crisis. According to the noted economist Cielito Habito, the peso has since 1998 been subject to market forces, especially the movements in and out by foreign funds in our local capital markets. The peso can be said to have been ‘unwanted’ in 1999-2004 when it fell from P40/$ to $56/$. The peso was again a strengthening currency through most of 2005-2012, punctuated only by a relatively brief downturn in 2008. In a sense, the ‘bad news’ we see today and looking back to 2012-13 is a re-run of the earlier turn-of-the-century episode.

Is it TRAIN only?

A fair amount of blame is laid by some commentators on the recent tax legislation (TRAIN, or Tax Reform for Acceleration and Inclusion act.). That can’t be the whole story, given that we can date the peso’s weakness from 2013. Moreover, it’s not easy to see a link between politics and the fortunes of the peso. Under the Estrada and Arroyo watch, the peso fell and then rose; but under the Aquino administration, it rose and then fell. It is possible that under the Duterte administration, the peso would fall and then rise. Still, it’s also fair to say that the new excise taxes and the run-up of oil prices in the world market have triggered an ‘After you, Alphonse’ effect in the pricing strategies of local oligopolies. That wages do not seem to have kept up with consumer prices is a nascent problem.

There are, to be wary, many stories about currency valuations. Gustav Cassel inspired the theory that a currency will tend to move to equalize the prices of traded goods. This Purchasing Power Parity Theory underlies the Economist magazine’s famous Macdonalds burger indices. It also helps to explain today’s peso fall as attributable to the fact that local inflation is 4.6 percent per annum, while the US inflation rate sits at 2.8 percent.

The balance of payments is a nice accounting way of conjuring up the tea leaves of supply and demand (for currency) to get to the underlying story. Our economic managers do this when they say that the peso is weak because we’re importing more for public infrastructure, we have to pay for more expensive oil, and we see hot money outflows that follow interest-rate differentials or shifting sentiment regarding the export earnings of the local economy.

BSP moves

But the exchange rate is still and also the price of an asset, and the value of a currency today reflects the markets’ best guesses of its future value. The supply of currency is nonetheless under the control of its issuer, the central bank. The issuer knows, more or less, what it wants to do, but is constrained by a need to be fair to the money-holding public. Accordingly, central banks gain credibility when their currencies are stable in the exchange markets, and when domestic inflation is low. The latter consideration has given rise to inflation targeting as good practice, something that the Bangko Sentral has adopted. We can safely guess that today’s BSP will keep a close watch on the money supply to achieve its inflation target of 4 percent (as against the latest data of 4.6 percent).

As to the stability of the peso rate, it also seems safe to believe that the BSP will not intervene to move the peso exchange in any direction, other than to counter unusually ‘wrong’ market sentiment. In other words, the BSP may ‘lean against the wind,’ but only against weak winds. I would guess that in the two months of March and April this year, the BSP did a bit of leaning against the wind.

What to expect

Will the peso then continue to weaken? Yes, if foreign investors keep fleeing, if inflation were to become uncontrolled, or if export trends deteriorate. These are three big ‘Ifs.’ Caveat emptor.