Dangling drugs



Here’s an imaginary conversation between an “underground” economist (UE) and a wannabe journalist-blogger (WJ) recently on the drug problem and the economy.


WJ: Why do people do drugs, knowing it’s a crime?


UE: A crime is also subject to the laws of economics.


W: I don’t understand. Is there an economics of crime?


U: Economists are crazy people. They think that their thinking applies to anything. There’s even an economics of religion that explains how religious leaders can stop typhoons or earthquakes, and how the good book can predict the end of the world. But that’s another story.


W: I still don’t get it. Crime is a bad, not a good. My economics book says the economy produces goods and services, not bads.


U: No bads? Your teacher didn’t teach you right, or you learned wrong.


W: (Sobbing). How can you be so mean? I went to the (… mentions a top school of economics in the country).


U: There, there.. It’s not the end of the world. A good becomes a bad when you don’t want any more of it, and demand becomes supply.


W: You mean that the good is just the opposite of the bad?


U: (to himself) I give up. Maybe this explains why bloggers are wannabe journalists.


U: (continuing) Well, not exactly. You can sell a good you don’t want but you have to find someone who will want your bad (he thinks it’s a good).


W: Now I’m even more confused. Sellers sell bads and buyers buy goods?


U: Haha. Now you get it. Illegal drugs are sold by those who don’t want it. Now, if only I could sell our corrupt politicians, I’d be rich, but who would buy?


W: Yes, who will buy corrupt politicians?


U: You’d be surprised. They buy each other. Ask your pseudo-friendly PR practitioner; she’ll tell you who’s buying whom. They’re addicted to each other no end. They even party with each other, all the time looking old and decrepit, even when they’re young. It’s all very strange.


W: But we’ve strayed. So, again, why do drugs exist?


U: OK, back to square zero. Drugs aren’t inherently bad. Poison in small amounts is medicine. The problem is when you take in too much. How to prevent the “taking too much” is an economic problem.


W: (brightens up) Ok, now I get it. The trick is to educate ourselves to limit drugs and politicians! But nowadays, we pretend to kill drugs but glorify the politicians who like the idea of drugs to keep themselves in office. We need politicians who, like doctors, prescribe drugs as medicine so they won’t have any more jobs. I remember an economist who had a theory of “creative destruction.”


U: And you thought creative destruction explained only the business cycle and the stock markets. By the way, you’re on to something there when you got to thinking that drugs and corrupt politicians are similar. If there were only a few bad politicians, we could just string them up. But if they’re all over, we’re dead.


W: (already dead) ..


U: (also dead) ..


Narrator out of nowhere: The moral is simple. Economists, as bad as they are, say that you can’t just outlaw bads. Good night.




Politics, economics, rice

The paradox of advantage

The production, consumption, and importation of food (rice or grains) have posed contentious as well as analytically difficult issues even when economics was still in its infancy. In the early 1800s, David Ricardo came up with the idea of comparative advantage to explain why countries trade. On its face, it presented a paradox because comparative advantage suggested that a poor country (one endowed with limited technology) should export a good such as rice even if it didn’t have an absolute advantage in its production (it just needed to have a comparative advantage). Ricardo was also not one to advocate self-sufficiency as he was pretty much a proponent of free international trade. Today’s debate on the merits of rice tariffication presents conundrums and even unanswered questions, though the latter have perhaps more to do with politics than economics.

Bread and circuses

But even earlier, when economics was not yet a social science, kings and despots already knew that to survive insurrections, they made sure that the price of bread or grain (or any food staple) was affordable to the masses. The Roman poet (Juvenal) considered on or around 100 AD that political stability required whoever was in power to provide bread, as well as circuses! Forget the Romans. The Bible has its share of stories where kings had the burden of protecting their subjects from suffering in times of famine. Closer to home here in the Philippines, when the price of rice spiked in 2018 and became part of an inflation scare, there was a fair amount of wrangling on what to do.

Tariffs in international economics

The conventional wisdom today in economics, particularly in the textbooks on international economics, hasn’t changed much in the last two hundred years. Free trade, because it is voluntary and anchored on the concept of comparative advantage, was (and still is) a good thing. And yet, here we are in today’s age of wondrous innovations dubbed as the “fourth” industrial revolution, fulminating at the specter of rice prices remaining high for the consumer but falling to penury-inducing levels for rice farmers. What has gone wrong?

Lawmakers as villains

The twitter-verse has focused on a conspiracy theory based on an impending demise of domestic rice production. The story is that we have a heartless and gutless set of legislators who pushed what is known as Rice Tariffication, which has by now had the effect of making rice farming unprofitable (requiring all kinds of governmental intervention to support the poor rice farmers), thus also forcing the price of rice land to the levels of a song for real estate developers who know how to convert such idle lands into houses and lots. This state of events runs afoul of the Emersonian and romantic view of the idyll of (rice) farming in the hinterlands (so, planting is not a joke but it is both honorable and upright, especially if food self-sufficiency is a nationalistic priority). It is of course easy to blame the “rich capitalists” who dominate the real estate industry for the plight of the poor farmers.

The lessons of history

There is nonetheless more to the story. The historical record traces the timeline of rice farming as a battle towards high productivity and self-sufficiency that didn’t get anywhere. One study states that the Philippines imported rice from 1885. Although we had a brief heyday of self-sufficiency in the late 1960s and 1970s, the Philippines has since become the world’s second largest rice importer (next to China). The official line has been that we aimed for the three goals of self-sufficiency, high incomes for rice farmers, and affordable prices for consumers. What has been unsaid is that these goals are basically incompatible. Without a gigantic leap in domestic productivity, only the last of these goals could be attained, and only if the rice-exporting countries (such as Vietnam and Thailand) were to sell rice on the cheap.

And more. We had a commitment to the international community to abide by free trade rules (apparently, the nameless bureaucrats at the World Trade Organization believed that what was good for the world was good for us), but like a stubborn-headed child we dug in and said, no, we want to “protect” our domestic rice farmers. We opted also to engage in this protectionism by applying quantitative restrictions on rice imports (also known as quotas). The persistent WTO gave us this leeway while suggesting that an equivalent restriction through tariffs might be a better idea. So, with the apparent fiasco today, should we blame the WTO?

The Catch-22

Back to the drawing board of international economics. If outright free trade is best, what could be the second-best? Is it quotas? Or tariffs? Here, our economic managers have been caught in a Catch-22 bind. A Catch-22 is a unique situation. Applied to the tariff-quota controversy, it goes roughly as follows. Both tariffs and quotas can result in the same domestic price – higher than the world price; and the same level of domestic production (but higher than if we had free trade) and imports (at the same level as if we had simply applied quotas). But there are differences. A tariff generates government revenues, which can be collected and then misused. A quota results in “windfall” profits for those given import licenses, and is said to be a major source of corruption. In short, either way, tariffs or quotas, we face the same inevitable temptations for the abuse of public office for private gain.

But there’s a mystery that accompanies the Catch-22. Theoretically, the situation of the rice farmer is the same under either tariffs or quotas – he produces at a level higher than under free trade, and benefits from a domestic price that exceeds the world price (by the size of the tariff, which today is set at 35%). What has happened, and this has been documented by both the proponents and opponents of Rice Tariffication is that rice farmers earn less under tariffs. The unanswered questions are: Why? Is the 35% tariff too low to make its effect equivalent to that of the quota system? Is it because there is a local cartel that can dictate a lower farm-gate price under tariffs than under the old quota system? If there is such a cartel, is it engaged in a form of retaliation because they lost some lucrative opportunities under the quota system? Can such a cartel continue to operate? What if there were a political will to dismantle such a cartel?

No way out?

What seems not in dispute is that Rice Tariffication was aimed at achieving “parity” between farmers’ incomes under the quota system and under the tariff. We can perhaps argue that good intentions are not good enough. The hard question is what should be done?

My personal view is that tariffication (or quotas) was never the answer. (Neither was self-sufficiency.) It is, after all, a second-best form of protectionism that allows inefficient domestic producers to continue as they have done for almost fifty years, or even longer. We should now consider whether “creative destruction” (an idea from the economist Joseph Schumpeter) should be allowed. Let the rice farmers find other higher-value crops. Let the government support them in any way it can, especially in the provision of public goods in the form of extension services, better farm-to-market infrastructure, and a “clean” bureaucracy. But why create a P15 billion kitty (from the rice tariff) that would tempt politicians the way that pork makes them giddy with cholesterol?

As to the doomsday story that rice lands will end up becoming subdivisions, that is one for those thinking about land use policies and legislation. That is altogether another story.

Senior Citizens of Makati – Know Your Rights in Traffic

[Blast from the past: April 25, 2013 at 1:29am]

The traffic law has since been re-written (see below).  But a bit of this post is still relevant.

This is almost a tongue-in-cheek note.

On April 23, 2013, I was stopped by a traffic enforcer on Buendia in Makati. He claimed that my car was “smoke belching.” Quietly, I argued that I maintained my car in good shape and smoke belching is not an issue. He asked for my license and car registration, which I politely and promptly gave him to inspect.

He then talked about a “manual test” of my exhaust, and informed me that if the car failed the test he would confiscate my car’s license plate. I protested that as far as I knew there was no authority for him to confiscate my car’s license plate.

After a little bit of hemming and hawing by the enforcer, I gave him my senior citizen ID, and informed him that I am a resident of Makati. His response was to consult with another traffic enforcer. His tone of voice changed from one of threat to one of exasperation. Finally, he said he would let me go because, according to him, senior citizens were “exempted” from traffic violations.

In my mind I hadn’t heard of such a rule, but I simply thanked him for letting me go. I don’t know whether what the enforcer told me was true or correct.

Still, I have the following suspicions:

One, the smoke-belching story is just another ruse to extort money. It may work against public use buses and jeepneys, but an informed motorist should resist such an extortion attempt (politely, of course).

Two, the enforcer did not have any authority to apprehend a private car on smoke belching. (Subsequently, from the MMDA website, I learned that as a motorist, I have the right to ask for the enforcer’s mission order, and the scope of his authority in this regard.)

Three, the idea that senior citizens are exempt from traffic rules is ridiculous. But let it be. Perhaps this was just the enforcer’s way of saving face because by then he decided that I would not offer him a bribe.

Four, the traffic enforcer was abusing his position. A reading of official pronouncements from the MMDA suggests that the authority of an enforcer to issue a TVR while confiscating a driver’s license is limited to instances of a crime, accident, or certain administrative violations by the motorist, such as a tampered taxi meter in the case of a taxi. Outside these circumstances, the enforcer may not confiscate a driver’s license. The official rules also state that under certain conditions, the enforcer may detach the car’s license plate. One such condition is when the motorist refuses to surrender his driver’s license. (I am not sure what other conditions will allow a traffic enforcer to confiscate a car’s license plate.)


NB.  The new traffic law of 2014 has changed some of the rules of traffic enforcement.

New Rules for 2014

The new rules do not allow the confiscation of license plates, but allow the impoundment of vehicles if they operate with smoke belching (determined by observation), or have modified equipment (presumably, illegal modifications).  The penalties are the same for cars, trucks, and motorcycles, which means that those with motorcycles are vulnerable for impoundment for even very minor equipment violations, such as those pertaining to mirrors, mufflers, and lights. A motorcycle owner with three equipment violations faces a fine of P15,000 and impoundment on the spot.

(Whether this is an unreasonable deprivation of property without due process seems a proper constitutional challenge, as well as a violation of equal protection since the fine for a truck with faulty brakes or unsafe tires is P5,000, the same as for a motorcycle with ‘modified’ wheels or tires.  Also, the determination of what is street-legal for equipment seems to be vulnerable to abuse of discretion on the part of the enforcement officer.)

The old traffic violation receipt (TVR) is back, even for minor violations, but now called TOP (temporary operator’s permit).  The penalties are lesser for driving without carrying the driver’s license, relative to driving without any license at all.  This means that  the old TVR/TOP extortion schemes won’t work so well if you carry only a copy of the original license with you.  You may show the enforcing officer the copy of your driver’s license, so he can charge you with not carrying the ‘real’ license, but he can’t inconvenience you with having to go to LTO to retrieve your license.  You now have 30 days to pay the fine, after which the LTO can suspend the license, whereas the TOP (if the enforcement officer has ‘confiscated’ your license) is valid for only 3 days.

The LTO is in charge of collecting fines, and allows a motorist five days to file a written contest of the charges.  After that period, the motorist is deemed to have admitted the violations on the traffic ticket. The five-day period seems to be there to provide a kind of due process protection, and test cases of contests raised on appeal to a higher authority than the LTO can be raised by concerned citizens.


Why we’re poor – Gerry Sicat’s take and Boo Chanco’s observation

In a sense it’s the fault of the pakialameros who find a way to make kurakot.

Gerry Sicat also thinks ‘inclusive growth’ is just another fad.  The hard work of economic growth is a battle between the powerless and the powerful where the latter have found a way to rig the rules against the former. Here’s what he thinks led us astray:

“Controls, tariffs, administrative processes all combined to encourage “rent-seeking” activities. These occurred because most productive efforts required government permits to be undertaken.

Monopolies, oligopolies, and political controls often resulted in incentives for bureaucrats to add their own “demands” as approving authorities to the costs of the processes. Moreover, these also led to enormous artificial scarcities.”

Continue reading “Why we’re poor – Gerry Sicat’s take and Boo Chanco’s observation”

Poverty and corruption

The national conversation seems to focus on poverty and corruption as the twin evils. The conventional “educated” response is more laws – FOI, RH, CARPER, EPIRA, etc. But laws work only if obeyed and enforced, which requires that we not have poverty and corruption to begin with. So the answer must not be in legislation.

If the idea is that a modern economy doesn’t have poverty, then our poverty must be the result of a plutocracy. The rich have enough power in the system to ensure that the poor remain as is. And if the rich maintain that power through corruption, we also have a kleptocracy.

The trick then is to undo the plutocracy and kleptocracy. It’s not easy. We can’t just lop off the heads of the Marie Antoinettes. And we can’t just presume that all wealth is ill-gotten: there must be some who got rich through talent and/or honest effort, or even plantain banana luck.

Something to think about.

Why the Philippines is poor – the empathy solution

Here’s another answer to the question.  It says we’re poor because we are “bad”:  we have no discipline, we tolerate bad leaders, etc. etc.  Therefore, to get rich we should change ourselves.

Unfortunately, it’s not quite the right answer.  We can be good, in that sense that will make Santa Claus bring us Christmas, but still we will remain poor.

Why is that?

Continue reading “Why the Philippines is poor – the empathy solution”

The economics of buying votes

Here are some questions in applied economics for my current and former students.

For current students, a good answer merits extra credit for the final grade.  For former students, the same gets him/her dinner for two at the restaurant of his/her choice in Dumaguete.  No kidding. This contest ends on May 10, 2010.

  1. When will buying votes become more prevalent? What about selling votes?
  2. How does a vote buyer ensure that he gets the vote he “paid for”?
  3. Why does the price of “bought” votes range from P50 to P1,500?
  4. Can buying votes be set up as a profitable “business”?  If so, how?

Answers may be sent through comments on this blog, or to me by e-mail.