HW for EC 11 – Macroeconomics and Unemployment

For readings, please refer to my lecture notes on macroeconomics, and to Mankiw’s chapter on the natural rate of unemployment. For extra-credit questions, you may have to do further research or readings.

Please answer the following questions, and submit your answers by email by March 2, 2016.

  1. What is the most important difference between microeconomics and macroeconomics?
  2. Explain Say’s Law. Why is it important for an understanding of macroeconomics?
  3. How does Mankiw define the natural rate of unemployment?
  4. According to Mankiw, what are the four reasons why the natural rate of unemployment is not zero? Are these reasons important in the context of the Philippine economy?
  5. It is said that macroeconomics is essentially the economics of unemployment and inflation. Why, in your opinion (based on your readings or research), do policy-makers not aim for zero unemployment and zero inflation?
  6. Extra credit: What is the Okun Index of Misery? Can it be improved by including a poverty index?
  7. Even more extra credit: Construct an Okun Misery Index for the Philippine economy. How far back in time could you go? (Hint: data may be available in the websites of BSP and IMF.) Is it affected by the prevailing economic policies of various Presidents? (Anyone – even a group of up to three – answering this question well will be exempted from taking a final exam.)
  8. Extra credit: Explain in your own words the Neoclassical Synthesis (this is from previous studies in EC 12, History of Economic Thought).

Which RE producers will be eligible for the FIT? How much new RE capacity is envisaged under the RE Act? Will there be bidding?

Based on the FIT system rules, a renewable-energy producer will be eligible for the FIT if it enters into commercial operation after the effectivity of the appropriate FIT. Eligibility is also to be conferred on new capacity above an established generation baseline in the case of an existing RE producer. An important exception is that geothermal energy, although considered renewable, is not eligible for FIT by express omission in Sec. 7 of RA 9513. 

Under the guidelines issued by the DOE, RE producers will have to negotiate an RE contract with the government. The guidelines provide for “blocking” areas within the Philippines for exclusive application of these contracts. 

In practice, the ERC (in consultation with NREB) will determine how much electricity will be covered by the FIT scheme. At present, it is envisaged that the FIT scheme for the first few years will apply to a targeted aggregate installation of new capacity of 760 MW per year.  It is thus envisaged that dependable capacity will increase by about 5.5 % per year because of the operation of the FIT scheme for RE. 

Recently, the DOE Secretary proposed that FIT contracts for large producers be put up for bidding. (UPDATE: Subsequently, the Secretary considered that the RE Act does not authorize bidding.)

Is the FIT scheme in the Philippines the same as in other countries?

Not necessarily. The similarities are in the differentiation of FITs by technology: for example, the FITs for solar and wind energy are generally higher than that for hydro producers.

However, the Philippine FITs do not differentiate by plant size, and are therefore more favorable to large producers who can benefit from economies of scale. By contrast, the FIT schemes in most other countries, such as Germany and Malaysia, particularly favor small end-users because their FITs are higher than for large producers. This differentiation would tend to encourage small producers. A leading environmental lobby, the Audobon Society, believes that local ownership of small plants is more conducive to grid stability even as it precludes large corporations from receiving excessive profits.

For example, in Malaysia, with respect to solar power, the 2011 FIT for small plants is equivalent to about P16/Kwh, but only P12/Kwh for large plants.  In Taiwan, the 2011 FIT for small solar plants is approximately P14/Kwh, also higher than the equivalent of P10/Kwh for large plants. 

The solar feed-in tariffs for Malaysia and Taiwan are generally lower than the P17.95/kwhr recently proposed by the National Renewable Energy Board (NREB)

A Philippine government official has admitted that a justification for the proposed higher single-value FITs is that of ensuring a favorable return on investment of 16% per annum for new RE installations. This approach is opposed by consumer groups as an unfair concession to big investors. 

What is FIT in the Philippines?

The FIT is a key element in the Renewable Energy Act of 2008 (RA 9513).  The Act grants incentives for the installation of new generation plants with an officially declared target of 4,000 MW over the medium term. Aside from the FIT scheme, the RE Act also grants incentives to eligible RE producers that include a seven-year income tax holiday, with a 10% corporate income tax after the holiday; duty-free importation of inputs; and tax credits on locally-produced equipment. In short, new RE producers will get tax breaks to entice them to install new capacity.

Here in the Philippines, the FIT price is to be paid for by monies collected from consumers (the power distributor collects these monies when it bills the end-user, and passes them on to the operator of the transmission grid, who in turn pays the new power producer). The FIT is therefore a subsidy scheme expressly paid for by consumers. The consumers will see their contribution to the financing of the FIT scheme through an item in their bill called the FIT-Allowance (FIT-All). 

Because each FIT producer is guaranteed that it can sell what it wants to the grid, the FIT scheme has effectively a “take-and-pay” provision somewhat similar to the “take-or-pay” provisions in independent power producer (IPP) contracts of producers who installed new capacity in the 1990s. The take-or-pay contracts result in an item in the retail consumer’s electricity bill called the purchased-power adjustment (PPA).

These provisions guarantee a certain rate of return on investment for the power producers. The guarantee is backed by imposing an obligation on the retail consumer to pay for something he did not consume – in the case of FIT, for the subsidy to RE producers, and in the case of IPPs with take-or-pay, for installed capacity whether electricity was produced or not. 

Star wars log – how to foil lanzadera

Even with automation, this nefarious vote-manipulation practice may take place.

How to foil it is the question.

A possible answer is this:  Poll inspectors should make sure that voters may not bring in anything that looks like a ballot that is NOT folded at least 4 times.  Sample ballots are ok so the voter knows his wants, but they should not look like real ballots, and folding them makes sure no one from the outside has given him a renegade pre-shaded real ballot.

For more assurance, poll inspectors should also make sure that voters leave the precinct with only folded sample ballots.  That way, if they intend to “give away” a real ballot, it will have to be folded and (it is hoped) will not be useful for the lanzadera chain.

There you are.  If you are an honest candidate, brief your poll watchers.  If they are allowed cameras, let them take pictures of lanzadera suspects.  Have them send the pics to the citizen volunteer arms.  Tell them to complain to the poll inspectors.  The school teachers will be the honest heroes of this election.

Star wars log – ghost-busting

Even if all is well with the random manual audit, a ghost precinct mode of cheating can still escape detection.

There is a remedy.

Each independent watchdog agency (PPCRV, KBP, ABS-CBN) is reportedly prepared to do a precinct-by-precinct re-coded input of the election returns of each and every PCOS machine.

Any discrepancy between an existing PCOS machine’s result at the Comelec site and at the watchdog site will be obvious.  So, it is hoped, no one will try to cheat there.

But what happens if a ghost precinct can transmit a result to the Comelec server.  Obviously, this requires an “inside job,” or if not, a hacker route.

All is not lost.  There are only some 76, 300 real precinct machines.  Each will have  unique election return data attached to it.  Line by line (or row by row) watchdogs should be able to ensure integrity as between the Comelec server and the watchdog counts.

If still there is a discrepancy, the doctrine of res ipsa loquitur arises.  Such a discrepancy is amazingly unusual, and the burden of explaining will have to fall on Comelec.  If it cannot or will not explain, then the discrepancy proves a failure of elections (this is fraud and is an analogous reason, as reasoned by the constitutionalist Fr. Bernas).  The failure may be partial, as there are good reasons to theorize that partial dagdag-only is tempting to some cheating party-list and other candidates where the expectations are for a close race.

The twist here is that the honest-but-losing candidate thinks his vote was counted correctly, but the cheating-but-winning candidate winks his way to happiness because of the ghost transmission.

One obvious remedy is to ask for a precinct-by-precinct breakdown for “winning” candidates that losers can examine for precincts that do not exist.  Of course, if Comelec/Smartmatic-TIM insiders are aware that this discrepancy can be discovered in this manner, they may tell the would-be cheat that the conspiracy is a “no go.”  Prevention is better than cure, so each candidate in a tight race should insist on an audit if the data base of Comelec contains data from more than the official number of precincts. (Although this is not in the minutiae of the automation law, it is certainly in the Omnibus Election Code which somewhere defines a failure of election as due to fraud and “other analogous reasons.”  A Comelec server with rows of data for more than the official number of precincts is an obvious give-away.)

Happy elections folks!

The Ireland of the East

This is how Charles Russell, writing in 1922, described the Philippines (on p. 5).

He also says that we are “fond of fighting, and addicted to liberty.”   As my son would say, “Cool, Dude..”  Maybe there’s a point to all this:  we prefer poverty to riches if it means we can fight and be free.

But I don’t know enough history (of Ireland) to see how we became “The Ireland of the East.”

By the way, Russell’s book also has a chapter on “The Farmer and the Vulture” (Ch. X), which talks about nefarious lending practices involving pacto de retro.