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.




Philippines vs China


It seems that we can boil down the legal conclusion of the arbitral ruling as based on only two key questions.

One, what is an island? A rock is not an island. So there. Even if China builds up a rock, it still cannot become an island. It may be a feeler island, but still that’s not an island in the legal contemplation of international law. UNCLOS says that artificial islands are not properly islands. (Otherwise, any oil rig can claim to be an island!)

And there’s the economics of islands. Under UNCLOS (Art. 121(3)), only natural formations that can sustain economic life on its own, can have maritime zones, such as an Exclusive Economic Zone (EEZ).

Two, what is an archipelagic state? It is one composed of many islands. PH is archipelagic. China is not. It appears that China conceded its status as a coastal (non-archipelagic) state when it signed the UNCLOS because the UNCLOS classifies countries in only two ways — archipelagic or coastal. The Tribunal ruling, in para. 573, categorically restates that China is a coastal state.

The answers to these two questions determine the EEZ, which is 200 miles from the coastline of a non-archipelagic state; and 200 miles from the archipelagic baseline of an archipelagic state. The baseline is a point-to-point boundary that encompasses or includes the islands of an archipelagic state.

An outlying island in the South China Sea, even if it could be claimed as territory of China, cannot result in an expanded EEZ based on archipelagic baselines because China is not an archipelagic state. (Consider the following related question: Can the US consider the waters between Hawaii and Los Angeles as “internal waters” using the archipelagic baseline approach? The answer is in the negative because, like China, the US is not an archipelago.)

The EEZ of an outlying island is 200 miles around that island because such an island is treated like any other land territory (Art. 121(2)). The EEZ cannot extend beyond the 200 miles (beyond this, there would be continental shelf (something else) or open international waters (high seas)). And an EEZ could be delimited if competing EEZ’s from other nearby states exist.

The ruling states that the disputed territories are not at all islands, and therefore cannot provide China an EEZ. Practically all the major disputed territories are inside the EEZ of the Philippines because it is an archipelagic state. Therefore, even ‘rocks’ can be useful to the Philippines, if they are located within the EEZ based on the archipelagic baselines of the Philippines. These useful rocks include Scarborough Shoal, Second Thomas Shoal, Johnson Reef, McKennan Reef, Hughes Reef, and Mischief Reef. Some of the disputed rocks are outsize the EEZ of the Philippines.

An important caveat is that territory and sovereignty are matters of international law not subject to the UNCLOS. Nonetheless, disputes relating to the EEZ are pointedly the subject of the UNCLOS.


EEZ means maritime zones (not necessarily territory in the usual ‘conquest’ or ‘historic’ sense) that we can, under international law and UNCLOS, consider as usable only by us. We can, by negotiation, lease or allow others to use the EEZ, but the extent to which the Philippine Executive can do this is governed by the 1987 Constitution.

NB: The map of PH EEZ is from Wikipedia.

PH EEZ Screen Shot 2016-07-14 at 2.07.29 PM


How long will a FIT be valid?

Under Sec. 7 of the RE Act of 2008, the ERC may set a period, not less than 12 years, during which an approved FIT applies. Thus, if a new solar producer is granted a FIT of P18/kwh in 2012, and the set period is 20 years, that producer can sell power to the grid at that FIT price for that long period.

The law allows the ERC to set a different period for different FITs subsequently approved, and to approve new and reduced FITs in later years. For example, under the rule on degression, the ERC may set a lower FIT for solar of, say, P12/kwh in 2014 if at that time the cost of solar production has fallen because of technology advances. (Degression is the rule that FITs approved later on for later installations are expected to be lower because of cost-reducing innovation.)

How will the FIT rates be determined?

A government agency, the National Renewable Energy Board (NREB) is charged with the duty of calculating and submitting FITs for approval by the Energy Regulatory Commission (ERC). It may be noted that since a FIT is a regulated price, the Constitutional due process clause requires notice and public hearing before the ERC can approve the proposed FITs. 

At the inception of the FIT scheme, the NREB “may base its calculations on a reference cost study for each technology based on a real candidate project or a hypothetical one depending on the available information. The project to be chosen shall be representative of the average conditions of the renewable energy resource and the pricing study shall consider also all non-price incentives in R.A. No. 9513.”

As already mentioned, the initially proposed FITs will be differentiated by technology, but not by plant size. The question may be raised as to whether the renewables law (RA 9513) requires a single-sized FIT per technology. Although Sec. 7 of RA 9513 refers to the determination of “the fixed tariff to be paid to electricity produced from each type of emerging renewable energy,” the same section states that the formulation and promulgation of FIT rules by the ERC would not be “limited to the following …”, which refers to the one-size FIT and suggests that the ERC has discretion to set FITs also based on plant size, as is the practice in other countries, particularly if such differentiation is needed to promote competition or ensure consumer choice. Indeed, by law, the role of the ERC is to “promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the restructured electricity industry” (RA 9163, Sec. 43). 

Thereafter, the NREB will calculate new FITs in line with a methodology based on “optimal penetration” of RE-based electricity. The methodology appears to ignore the fact that there are economies of scale in electricity production.  It is not easy to comprehend. 

That (in)famous tourism slogan – the questions to ask

“Pilipinas – kay ganda!” It was to replace “Wow Philippines,” which didn’t do much since the Philippine share of the tourism market remains miniscule.  We wanted to have our very own to compete with “Uniquely Singapore,” “Incredible India,” “Malaysia Truly Asia,” or “Amazing Thailand.”

The new Pearl of the Orient

But the government officials have taken it back because of public criticism.  There is no need to rehash the supposed “plagiarism” involved or the admitted problem with links to porn.

Continue reading “That (in)famous tourism slogan – the questions to ask”

Paul Krugman redux

The level of debate post-2008 crisis has come down, low down, to challenges to a bar room brawl.

If only Krugman did some reading of even a quarter of Austrian economics, he couldn’t dare be a macho guy again.

It seems that the Europeans are right to reign in fiscal deficits because they have been spending on the wrong things.  And Obama is equally right to continue to support consumer confidence because that makes sense to  both Keynesians and non-Keynesians.

And the Philippine economy survived because it had no way to go but up.  And more of the same is in store, and could be much better if the new folks around P-Noy think straight.

Can economic statistics lie? And what about poll surveys?

Here’s a view from Prof. Habito.

I believe statistics are just numbers with properties that give headaches to students of applied math.  Numbers have no personality or will to concoct a falsehood.

For example, I’ve wondered how statisticians can confidently say that their sample surveys have a 3% error rate?  How did they get so confident?  A prize awaits any of my current and former students who can enlighten me on this one.