As oil prices poise to breach a hundred per barrel, energy secretary Angelo Reyes does the right thing: Nothing.

Reyes is doing right by not announcing any populist moves. After all, at least as far as I'm concerned, the oil deregulation regime has been doing just fine. If we were in the late '80's or mid-90's, the scandal-ridden administration would already have been ousted by a coup by right-wing adventurists, who, in those times, timed their moves based on the movements of prices in the world oil market.

It is now close to a decade since we finally smashed the old illusion that oil price subsidies were pro-poor, perpetuated for a long time by the middle and upper class leaders of so-called 'people's organizations.' Note that at that time nominal prices were below 20 dollars per barrel. Now the high is about five times. But we don't hear of any outrageous manifestos that the increase is caused by the local ruling class in conspiracy with foreign capitalists, do we?

I have a list of measures the energy secretary might consider, but none of these will lower gasoline prices for the middle class. In the meantime, he should just stand his ground.

Here's a list of easy energy saving tips promoted by Iran's revered president.

The CSI on Glorietta 2; RDX, C4, etc; and the economics of speculation and terror risk mitigation

As of midnight last night, government blast forensics experts still could not conclude whether the explosion in Glorietta 2 which killed 10 and injured more than 100 others Friday was that of a bomb. Although traces of RDX (Research Department X), which constitutes 90% of the plastic explosive C4 were detected from the debris, it was pointed out that this has pharmacological uses (among them as a rat poison). Thus the speculation continues unabated as to the perpetrators, their motives, and the final effects.

The admonition against speculation came a bit late, because by then many had formed their own conclusions. Also, the right to speculate is an inalienable human right, the exercise of which is a matter of survival in a situation where the supply curve for truth and information, especially from official sources, hardlly ever satisfies public demand. In any case, speculation has not yet been declared an exclusive privilege of the executive. “Don’t speculate too soon,” the Venable national security adviser was advising. (So when is speculation timely?) Not so soon after, the security adviser was peddling his speculative take that ‘terrorists’ were on a fund-raising enterprise and that the blast was a simple demonstration of potential for the benefit of benefactors.

Having read and heard the reports, speculative and otherwise, in the past 36 hours, I was beginning to fear I would have nothing left to speculate on, as the ‘facts’ came in trickles. On second thought, I concluded, that would never happen, because I bet, even after the official reports are issued, classified, disseminated, and regurgitated, many of us would still be speculating on which facts were suppressed, how and which observations were ‘doctored’, and how the final and official versions of the truth were spun. In fact, even before the Glorietta incident, many of us were in the midst of speculating on the NBN and the Malacanang and House bribes.

(A broad aside: I suspect the speculation industry is one of the large emerging contributors to the national economic output. But being mostly in the informal sector, the value therefrom might not be reflected in official estimates. Maybe if these did, we might be growing at more than 10% annually. Or, conversely and more plausibly, our unrecognized and underpaid statisticians might have included such output but forgot to warn us, which explains our disbelief).

The output of the speculation industry is siginificant because of the abovementioned market conditions. On the supply (sellers) side, there’s a large pool of unemployed and underpaid/employed and self-proclaimed analysts/pundits who think they are bright, or at least brighter than those offering official truths. Thus, the supply curve is almost flat and also hardly distinguishable from the X-axis. This explains why, notwithstanding the large demand, the marginal price is close to zero in equilibrium. If you can think graphically, you’ll agree that the price-quantity product would still be a significant part of GDP.

(Another broad aside: some of the buyers are also self-generators, meaning they supply their own demand. If they are full of themselves they offer their excess supply to the informal and formal markets; otherwise they find time to appreciate the speculation and insights of others in the market. Most buyers, I suspect, are of the passive/voyeuristic kind (the gotum), experiencing gratification without ever thinking how to use the information to introduce changes in their lives and society at large. In the market I describe, the sellers are called speculators, the incident speculated on is called speculatum, and the elements or parts of the speculatum are speculatees, whose motives, means, opportunities and ideologies are the subject of the speculation or speculating; and the master of the speculatees is called the sputum).

The market conditions I describe are real and I am led to conclude that this type of speculation never creates a bubble that will burst or explode in our faces. In sharp contrast to speculation in commodity markets, where speculators have been known to lose their shirts and underwear, the players in our kind of speculation have nothing to lose: one is always better off speculating than having to swallow the shit our government excretes.

The economics of terror risk mitigation

What if the incident was indeed Islamic or rightwing or leftwing terrorism? I assert that the latter two are more reasonable and more predictable without rigorous discussion and proof. Let me tackle the first. These guys and girls are not so bright and we can probably treat the events they perpetrate as random acts impervious to benefit-cost analysis on their part, especially when some of them don’t value their own lives. Suicide bombers, unfortunately, are part of the equation and the amorphous inequalities we have to confront. So what then? I contend that the reasonable thing to do is to take the risk as part of life and mitigate the risk rationally. There is a large bodega of economics literature which shows that people don’t really behave reasonably, much less rationally. This is why, in the face of a large set of risks, our prioritization in terms of costs and benefits, leaves much to be desired. We always confront a large set of dangers to our well-being and we need to think of priorities soberly. Yes, terrorism is a real threat. But there are other graver threats the mitigation of which costs less. Think about poverty and environmental problems. We should allocate resources and attention guided by the facts, I hope.

Let me also point out that the risks from terrorism are inequitably distributed. On the side of victims, these are mostly urban and upper class, while the costs of mitigation, I suspect, are borne by taxpayers at large. You think that’s fair? To the extent that mall operators enhance security, well and good, as that cost will inevitably be passed on to shoppers.

The CSI on G2, RDX, C4 etcetera

I can only hope that the forensics experts are professionals, especially after observing that NCR police office director Geary Barias has maintained an open mind after premature disclosures. He has refused to jump to conclusions, though he is privately entitled to his own speculations. I have yet to see or hear of any systematic data gathering insofar as eyewitness accounts (a good collection is provided in Manolo Quezon’s blog) is concerned. Also, in a competent CSI, investigators are supposed to re-enact the incident. Including a time/space account of where the fatalities and other casualties were.

Were the dead properly autopsied? Have all the injured been interviewed? Have all the footages been examined?

Barias has said that he still could not rule out an accidental gaseous explosion as the blast has been determined as coming from the basement. What did the basement house? He said there was sewage ‘grease’. He could have meant waste oil and solid waste sludge. Have his investigators interviewed people in charge of the solid waste management system in the mall? I have not closed my mind to a methane-based explosion, more consistent with the footage I’ve seen. Likely I will be proven wrong. But I reserve and assert my right to speculate.

GMA and JDV: Liars, paradoxes, dilemmas

How will the standoff between JDV and GMA finally be resolved? In the past decade, at least three groups of economists have been awarded the Nobel prize for economics for expanding theory and application of game theory, which applies when each actor’s move/s depends on her/his expectation of the opponent’s move.

The classic example, unfortunately, is the prisoners’ dilemma, which was originally meant to illustrate how two actors, mistrusting each other in a one-shot game, would, acting in their own narrow-minded interests, forego the best outcome. This is because the two prisoners find it in their own best interest to betray rather than cooperate with each other. The sub-optimal equilibrium applies when there is no allowance for learning or repeated interactions between the players.

In the case of JDV and GMA however, it is in our best interest that once they’ve decided on their strategies, the outcome should be final and they both finally rest on their laurels and in their graves. This means that we need to design a game where there are no further interactions. How? Life without parole for both of them, and they self-destruct.

The Liar’s Paradox

A related problem in logic and philosophy is the Liar’s paradox. GMA says in a televised interview that she has asked for an investigation of the bribery scandal. Clearly, she is saying “I’m a liar.” Anyone who takes that statement at face value would face an unsolvable problem. How can she be telling the truth as she says she is lying. The argument is circular and the only solution is by appreciating a context outside the original statement. This is why Rene Saguisag’s demand for an independent inquiry acquires relevance.

Goodbye to long-winded arguments

In the early 1990's I had never-ending arguments with environmentalists about why the National Power Corporation did not include wind energy in its power portfolio. I would always answer that the costs were too high. I said I would agree if there were a democratic process where power consumers would be made aware that the wind option would significantly increase their bills.

Now here is a PCIJ feature by Jaileen Jimeno which finally proves the point, self -serving it might be for me. Since 2005, the power facility Jimeno discusses in the article has been operating.
I must point out , however, that she missed one important point, the economics of wind energy. Since the early 90's , costs have fallen by 80% while costs for the alternatives, especially for fossil fuels, mostly oil and coal, have been steadily increasing. Thus, it is no surprise that wind is now competitive and will become more so henceforth.

NBN: The devil hides the detail

The devil, it is said, is in the detail. Unfortunately for us, our senators and journalists have not shown much resolve in examining details, maybe out of plain incompetence or laziness. In this case, too, it is the devil herself hiding the detail.

When I first learned that the NEDA had refused the Senate’s request for the NBN documents, I couldn’t believe it. After the initial denial, I wanted to puke. I was so mad that for the first time this year, I honked my horn on the way to Greenbelt to watch a film in the Spanish movie festival. And I was doing 80 instead of my usual wimpy 60 kph.

You may not know it but the documents requested, at least some of them anyway, had already been made available to the media and posted in at least one website. I’m referring to (1) the minutes of the joint NEDA-ICC cabinet committee and the ICC technical board held March 26, 2007, and (2) the evaluation report of the NEDA infrastructure committee dated March 29. .

In a previous post, I pointed out that even these two documents in themselves constitute the smoking gun in the allegations of scandal in which the president was a willing conspirator, at worst, and as an accessory at best. Let me now explain in greater detail.

During that joint meeting, the ICC secretariat presented to the members a status report on the the NBN project . In the form and substance it had been presented to the last meeting, the minutes said, the NBN, covering the needs of national government agencies and city and municipal branches, and 23,549 elementary and high schools in the country’s first and second class municipalities, the whole project would have an economic internal rate of return (EIRR) of only13.01% Because the hurdle rate of NEDA is 15%, the NPV was a negative (-) P1.58B ), clearly a no go. Also, the Chinese government had indicated that it would not fund the connectivity to the schools, and the alternative to be explored was to replace the connectivity to 23,549 barangays (no mention in which cities and municipalities) and the NPV would be P652.13M and the EIRR would be a marginally improved 15.8%.

Recall that during the Senate blue ribbon hearings, Neri had asserted that the project, regardless of modality and financing sources, had an NPV more of than P10B and an EIRR of close to 30%.

IN any case, the presentation of the secretariat’s ended with the following recommendation:

In line with the government’s thrust of promoting digital infrastructure development for provision of ICT services across the country to address the digital divide, the Secretariat favorably recommends the project subject to the resolution of the above issues, especially on the replacement of school beneficiaries with barangay offices.

Three days later (!), the infrastructure committee of the NEDA-ICC issued its report. With the figures cited by Neri in the Senate hearings. But first, let me discuss what transpired after the presentation of the secretariat.

“Neri noted that the terms and conditions for the proposed loan for the project are not as concessionary as those for other Chinese-assisted projects such as the Northrail and the CEP projects. With an annual interest rate of 4% and repayment period of 10 years, inclsuive of 3 years grace period, Secretary Neri added that the terms are actually almost commercial.”

On project costs

Secretary Neri noted that among the alternatives being presented by the Secretariat were one in which the schools not covered by the CEP were considered, and one which excluded said schools. He inquired on whether school site engineering cost amounting to almost P1.4 M will be dropped in the event that the schools will be dropped from the project. He also sought clarification if the expense would be the same if the barangay offices, instead of the schools, are considered the project beneficiaries. The Secretariat confirmed that the site engineering cost will be dropped if the schools are excluded and that the cost would be the same if the barangay offices, instead of the schools, are considered as project beneficiaries. (Note that the locations of the schools and the barangays are not in the same geographical area.

On economic benefits

Secretary Neri inquired on how savings will be generated as a result of the retirement of old equipment. The Secretariat clarified that savings will be generated as the proponent will no longer have to buy expensive and non-readily available spare parts for the old analog system, as well as eliminate the cost for regular site inspection/network trouble-shooting and the required manpower due to the computerized /automatic network management feature, thereby resulting in savings in terms of operations and maintenance costs. The Secretariat added that the old eqipment will not be sold and in fact some of them will still be used .

Secetary Nery sought clarification on how VoIP savings translate into benefits for the government. The Secretariat replied that with the project, the government will reduce its fixed line subscription by as much as 50% and its fax and mobile phone costs by about 80%.

With regard to Secretary Nery’s inquiry on how the benefits resulting from having a centralized IDC are quantified, the Secretariat explained that the IDC can host all government applications software and databases. Thus, eliminating individual data centers and corresponding O&M costs.

In the March 26 meeting, there were a number of issues left hanging as indicated by the following:

1. The terms of the projected loan from the Chinese government as pointed out byh Neri;
2. Skepticism over how the savings were calculated. In the project evaluation report by the Infrastructure staff, the savings were in fact referred to as assumptions and not as best estimates or calculations. How can these be included in an economic valuation?
3. Finance Secretary Gary Teves asserted that the project as represented had to be clarified with the president because, in his own understanding, the president had a different concept.
4. DOF Undersecretary Paul had doubts about the projects consistency with existing policy.

Yet, in the Infrastructure staff report of March 29, the EIRR had shot up to 30% from the 15.8% initially presented in the March 26 meeting. This is clearly a case of underestimating costs and bloating the benefits to maximize the attractiveness of the project. Let me just focus on the projected benefits in the NEDA infrastructure staff’s spreadsheet calculations:

1. The savings from foregone operation and maintenance costs of the old DOTC equipment were included throughout the project life, at more than P500M per year for 15 years. As I asserted in a previous post, only the mentally retarded would count unnecessary MOE as savings when the system would have been useless in the near future anyway. If you have a car which will have to be discarded in a year or two, you just decide to stop using it period, and this decision is not related to your buying a new car later.
2. The savings from VOIP/landline/mobile subscriptions and internet connections are dubious, to be kind. As I’ve said, the NEDA infrastructure staff, taking DOTC figures at face value, referred to these as assumptions and not as rigorous estimates.
3. As for the internet connection savings, I noticed that these were assumed to decrease by 5% annually to reflect both greater competition and technological progress. Five percent? Just this year alone, I saved more than 50% by switching from Pacific to Sky DSL. In his Senate testimony, Neri lamented the fact that commercial broadband costs in the country were as much as a multiple of a hundred to costs abroad. If he had properly studied the calculations of his own staff, he himself would have concluded that the broadband service savings are ghost benefits, especially if Neri believed that the system can be improved with better regulation and freer entry.
4. In the meeting of March 26, Neri was uncomfortable with the 4% interest indicated by the Chinese government. Yet, in the NEDA infra staff evaluation, the loan interest was assumed to be at a maximum of 3%, a 25% reduction.

In short, the real and final question is, what happened between March 26 and March 29, when so many basic and controversial questions were resolved by the infra staff ?(hint: the Senate should ask Ruben Reinoso to testify; there might even be no further need to hear from Neri).

During the Senate hearings, Neri was asked if there was anything irregular in the time lapse between the economic evaluation report and the final NEDA board approval on April 20. He replied that this was not unusual. Except that April 20 was the eve of the signing of the contract in China, witnessed by the president herself.

NBN: The NEDA's benefits and costs and where they hid the 'smoking gun'

In the wee small hours of morning one Sunday (September 30) I chanced upon DOTC secretary Leandro Mendoza on DZMM’s teleradyo, close to faking an O (whether an Oh or an Ouch depends on your particular perversity) over his defense of the NBN deal, as if it was his first chance to do so. I don’t know how many other insomniacs caught his convoluted arguments, but the few who did were probably moved to swearing off on some nocturnal pleasures.

The friendly anchor asked him why he didn’t explain the benefits during the Senate hearings. He replied that Asec. Lorenzo Formoso was more technically competent to explain those. I’ve read Formoso’s tables and these didn’t explain how he extrapolated the baseline specs and costs of ZTE to come out with comparable figures for AHI and Arescom, nor identify the strange alchemy he resorted to make lemons into apples.

I have since then been able to look at the NEDA evaluation report (March 29, 2009) and the ICC-NEDA cabinet committtee minutes (March 26,2007). In the meeting Romulo Neri and even the finance department representatives raised relevant points which should have taken the ICC secretariat and the NEDA’s infrastructure staff months to address. But note that the final ICC approval was issued April 20. If these do not a constitute a ‘smoking gun’ to you, I can only surmise that you’ve never fired one.

In the ICC cabinet committee meeting, Neri asked the secretariat to clarify how savings could be reckoned from the abandonment of old and unserviceable equipment maintained by the DOTC. A very valid point which I examined in the infrastructure staff’s report.

If you had an old car on the brink of being unserviceable, junking it, even before you decide to buy a new one, is the rational thing to do. Yet, in the report of the infrastructure staff, ‘savings’ from deciding to stop maintaining that car were counted as part of the benefits of the NBN. As Mar Roxas would probably say, Stunning! Indeed.

In the meeting, Neri was also skeptical about the savings from the national and local government’s telecommunication expenses, and Senator Roxas was correct to raise doubts about these during the hearings. In fact, it is difficult to explain how his staff could have explained these to Neri in such a short time. It is obvious that they were just forced to accept the unverified figures from the DOTC.

I of course know that the sudden and long gap in the hearings have led to so many conspiracy theories, victimizing the bible-quoting chair of the blue-ribbon committee and the real estate agent who happens to be president of the smaller chamber. Also, Neri’s invocation of executive privilege has led to Jarius Bondoc’s invocation of his right to invoke moral choice as a citizen.

But Bondoc’s revelations may not really have that much force. As Yawyaw, my three-year-old neighbor would say, that’s all Hershey, and while delicious, not admissible in court. What should be admissible in all courts, legal and popular, are the documents and what these imply.

Last Friday, the UP School of Economics organized a forum featuring past NEDA directors general. I wasn't there so I was not able to say my piece. I would have pointed out that even during the time of FVR, the NEDA's evaluations were trumped by Malacanang's judgements, especially in regard to some power projects.

Who will set limits on Sky?

I recently read a news item that the dominant CATV company in the Philippines, Skycable, will replace the content of six channels starting next year. In an news report, the cable company's spokesman exhuded confidence that consumers would not switch to other providers because of the company's decision. What is the source of his confidence? Simple. As the dominant player in the field, the company just doesn't care. As far as I know, cable rates are not regulated and quality of service is not in their vocabulary. In the United States CATV rates are regulated in areas where there is no sufficient competition. But who is minding the store in regard to CATV? The simple answer: No one!

Earlier today, I visited the website of the National Telecommunications Commission and the only information that was returned in response to my queries were on potential regulations in regard to 'chatrooms' on cable channels.

In retrospect, I remember why I decided to subscribe to cable back in October or November of 2000, and that was because of Erap's impeachment trial. The coverage by the free networks were simply unsatisfactory. Also, that was also the time of the mesmerizing saga of the US elections, Gore vs. Bush and the related court battles. But at the time, Sky rates were nowhere near the clouds. Now, almost eight years later, there is not enough competition in CATV services, and we have to contend with the bad taste of the country's leading network.

One of the channels which will be axed starting next year is Jack tv, which carries The Daily Show with Jon Stewart, one of the best comedy shows providing incomparable international political commentary. One of the guests last week was Bolivia's Evo Morales, who showed Stewart the extent of his dumbness.

NBN: Recurring themes in our nation's life

I am surely not the only observer of the country's life who noticed that in the testimony of Romulo Neri before the Senate last week, he railed and ranted against the dominant role of the oligarchy in directing the life of the Filipino nation.
On the eve of his appearance before the Senate, I saw him on TV elaborating on a popular theme. Even if there was going to be another Edsa, nothing much would change. Another faction of the oligarchy would just defeat another and the poor among us would be where we were.
Neri's is a well-founded skepticism and I wish we had a dialogue with people like him more often. It might be unfortunate that his arguments sound eerily like those of Ferdinand Marcos in 1972. When Neri gave his testimony before the Senate, it was five days after the 35th commemoration of the declaration of martial rule in 1972. And in some conversations with friends, he had expressed his reservations about telling the truth, because his truth could be used by one faction of the oligarchy against another.
This is where the truth gets muddled. If you believe there is a truth out there which is independent of the oligarchy which funds research projects, you are welcome to elaborate your views. What do you think of the funding you get? And which part of the oligarchs in other countries might they come from?

Whistleblowing in the wind

I have nothing more to say, said Romulo Neri over the weekend. The former NEDA director general and economic planning secretary is an outspoken fellow and it is his outspokenness which led him to disclose his discomfort on the NBN deal to his friends and acquaintances. His friends believed he would disclose all he knew given the right forum and if pressed hard enough.

Their belief was unfounded. For very often, in our day-to-day dealings with government officials, we hear complaints and stories of scandals and wrongdoing, and when we finally ask them whether they are ready to attest to such claims officially, they say no. I, for one, in the course of work in the energy and environment sectors, have heard many tall tales about the highest officials of the land. Unfortunately, my friends and acquaintances in government are willing whistleblowers only when they are whistleblowing in the wind.When the time comes for them to prove they have a backbone, they invariably ask, rhetorically, “You are willing to take care of my family?” Of course, what can I possibly say? And there are also more difficult questions, such as, “when I’m no longer around, who will give you the lowdown on what’s happening?” This last is a question I heard very recently in regard to procurement of fuel supplies. If you or I were in their place, what would we really do"? Could we be as sanctimonious?

Let me first get this out of the way. I am totally disgusted with some commentators who have taunted Romulo Neri about his personal life and preferences because of their disappointment over his behavior. While I can understand their frustration, that is no excuse for lack of decency in the struggle to get at the truth, or the closest approximation to it.

I understand the disappointment of Solita Monsod over Neri’s resort to ‘executive privilege’ over questions beyond his conversation with Comelec chair Benjamin Abalos. But she is most probably wrong in her assertion that he did his boss a disservice, especially if feeding us only the convenient truths was on her orders. After all, we all know that leaders can be myopic, and what we really don’t know is how myopic they can be.

Professors Emmanuel de Dios and Raul Fabella were more circumspect in their analysis, prefacing their paper with the perception of the president’s wish to leave a legacy and contrasting this with the reality of the obvious flaws of the NBN project. Their ciriticisms were also very constructive and could lead to genuine reforms through legislation.

Perhaps it was because of Fabella’s priestly airs and the appearance of de Dios as his willing acolyte that on Thursday last week, there was a palpable sense of a serious discussion going on between the Senate and the country’s respected academics. The senators seemed afraid to be exposed as ignorant boors before the guests. In the previous hearing, they had acted as boorish ignoramuses before hapless guests from the executive, even if that was because the executive did send its representatives to be slaughtered to save the boar, and maybe the bitch.

NBN: Negotiated Truths?

They must find it difficult...

Those who have taken authority as the truth,

Rather than truth as the authority.

I find the quote above, attributed to Egyptologist G. Massey in Zeitgeist, appropriate as we ponder the difficulty confronting those seeking the truth on the National Broadband Network (NBN) scandal. I am often in heated debates with ‘post-modernist’ friends whose definition of truth is too relativistic for comfort. But even they, I hope, would agree that the truth we refer to here are more akin to facts and not some philosophically debated ‘scientific truths.’

In today’s Senate hearing, the resource persons will offer what to me is the most reasoned and sober appraisal on the need for the project itself. When the study of Emmanuel de Dios and Raul Fabella, dean and immediate past dean of the U.P. School of Economics respectively, first came out in the press, one of the immediate reactions from the spokesmen and other motley defenders of the project was, ‘how could they make any valid conclusions when they haven’t even read the contract?” And whose fault was that ? The thieves taunted the scholars: “how can you say we’ve stolen anything when you’ve never seen what we’ve stolen?” (Right after the publication, it was reported that the contracts had evaporated, but could be reconstituted, and perhaps even homogenized, lending credence to suspicions the project was really meant to be a milking cow). Elementary, there is/was something missing in the place it should be: plain and simple reason.

Executive secretary Eduardo Ermita insulted the scholars further as ‘never impartial.” He thus spoke as the authority with an unearned patent on the truth. Yesterday he was at pains explaining ‘executive privilege’ on how the truth could justifiably be withheld from us. who he must look down on as pious subjects, and just take his word for it. I can’t do that sir. Never.

Is the truth subject to negotiation?

In this case I hope not. The House Speaker and his son, and their president have been implicated, as are Comelec’s Abalos, DOTC’s Leandro Mendoza, and the gentle man. But from each their ability for candor and to each according to the degree of mitigation that candor justifies, to borrow loosely from my favorite philosopher.

How might the Speaker and his son twist the truth so as to explicate away the purported actions of the gentle man and his spouse? Simply, but in an incredible way. They can and might lead some to believe the portrait of the gentle man as the model of decency and propriety as painted by the gentle man’s lawyer. After all, JdVIII can always assert that he never attributed any motive to the FG’s words, so he has some room for maneuver there. He can as us to back off and many may unfortunately heed his admonition.

To the extent that their expectations of Romulo Neri were high in yesterday’s hearing, so did the frustrations of those who saw the controversy as just another chance to gain power have a potential to fall. Don’t misundertand me, I share the same passion for radiclal changes, but not the easy way.

They expected Neri to implicate the president and the gentle man unequivocably. As far as I’m concerned , if we activists for a better society had done our homework, that would have been enough to trigger large-scale demonstrations. Instead, the politically voyeuristic public has been and continues to be non-committal. Whose fault is that?

To be more blunt, I have observed that friends and acquaintances in the Left who are supposed to be guided by a more realistic theory of social change have been caught in a time warp of sorts, way back to the middle ages. They are prone to pin their hopes on heroes and have for the past decades, even portrayed social problems as a battle between good and evil. Where have they been these past few years?

If these friends find the time to dilligently read the paper by de Dios and Fabella, they would find that they could not pick the observations and conclusions just to support their own biases. The two scholars did provide the executive branch, leeway for a change of course and gave the president the benefit of the doubt. Granting that the facts will eventually support accusations of corruption? What then? That was the question posed by Neri on the eve of his Senate testimony.

I’ve met Neri only once, and that was last year, in a meeting of stakeholders in the power sector and in the presence of some foreign funders. (As I left the premises of a business organization based in Makati, the ambassador of a superpower came in). At the time I ‘challenged’ the view of Neri in regard to effecting immediate reforms in the power sector. While I agreed with his views on market power and more effective regulation, his ideas seemed to me to be hatched on another planet. Some other friends agree with me about his good intentions but question his technical competence, something he himself admits. Unfortunately for me, he saw me in that meeting as a minion instead of as an independent guest and resource person, and that is why I walked out and left with the impression of him as well-intentioned but not really competent.

We’re on Earth, aren’t we?

So what can and what should we reasonably expect from the Senate hearings?

From reading his columns and blogs and watching his TV program, I had the impression of Manolo Quezon as impartial and sober. But he was so incensed because of yesterday’s hearing, which, according to my scorecard, only one in four questions were relevant and helpful. Keep your cool Manolo, you’re doing us all a great service. But be cool.

At the very least, we expect the Senate to finally help resolve the question of executive privilege. If they can’t even resolve that question, they might as well just abandon the hearings for good.

JdVIII on taking the high road

If there is anything which has so far diminished the credibility of the father's son, it must be his claim that 'experimenting with marijuana and beer' was a mistake, especially while doing that in Boston, where some geniuses are self-reliant and reportedly grow the best weed in the world in their own dorms.

I have heard a lot of anecdotes about the humility and simplicity of the first and only daughter of her mother, but her stupid insinuation that JdVIII's recklessness might be due to Jane takes and beats the brownie. Have the accusations come too close to home that she has to strike below the belt? Is her unaffected demeanor denial of the lowest kind? My unsolicited proposal is: try it, and she may yet giggle and finally see what scum she came from.

As for JdVIII, all I can say is that he may not have inhaled deep enough. Experiment some more man!

NBN: Back-off-the-envelop estimates?

If this DOTC presentation at the Senate hearing on the NBN-ZTE-BA-FG deal was meant to explain to and convince taxpayers that it is beneficial and aboveboard, it failed miserably. What we have here is a table which purports to compare simply specifications and costs of three proposals/proponents. Because the specifications are different, what DOTC assistant secretary Formoso did was to 'extrapolate' unit costs to estimate the equivalent total costs for both Amsterdam Holdings and Arescom using the specs offered by ZTE as the baseline. (How in hell did he do this in multiple dimensions?) Apparently, all three proposals were unsolicited. The following questions immediately arise:

1. If the project had been a priority since 2000 after the passage of the e-commerce law, why didn't government have any list of minimum requirements? Such a bill of specifications would allow us to appreciate the general and specific needs for a national broadband network, and led to a more transparent and publicized invitation for courtship?
   
2. If we grant that at some point the ZTE-PROC executive agreement/tied loan possibility became too beautiful to resist, why didn't the DOTC and NEDA-ICC give the other proponents a chance to modify their own proposals or offered costs?
3. Why did Malacanang (PGMA) and when did it "back off" from the initial desiderata (BOT without take-or-pay, no guarantees...) officially articulated by JdVIII's president?

I have an open mind about whether a fundamental service should be provided by government or the private sector, although in the past I had an ideological bias against the latter. It is a matter of incentives, after all. But what strikes me about the Formoso presentation is the lack of rigor and detail in regard to project benefits. His oral testimony referred to cost savings (and I will not get into that for lack of reliable data) but not to any valuation of benefits.

1. Why is it so important for government to have its own network? And what is the difference in value between using private and self provision? Can they quantify or monetize the value of enhanced (but still imperfect) security?
2. More importantly, do the DOTC and the NEDA have an estimate of the value of improved communication among and between government agencies at different levels?

Unfortunately, what the hearings yesterday unintentionally demonstrated was government (executive) instrumentalities was that even with low-tech methods, they don't communicate. They have no common appreciation of the relevant laws and not even prescribed executive procedures.

Information, Democracy, Communication

DOTC Secretary Leandro Mendoza adverted to his background in 'intelligence' and proceeded to contradict himself with his subsequent responses. Could he not be aware that under his watch that his very own agency is among the least communicative ( to the people) and the most corrupt?

If we have to prioritize the information and communication problems that should be addressed, there are many, unfortunately, and these don't really require much expense or commissions. It is a matter of culture. In many cases, such as in the communications and energy bureaucracy, there are debilitating turf wars. Why? Your guess is very good.

Okay, let's grant that the private providers have limitations. But these have not yet even been breached! I would have asked Formoso for evidence that a public servant from a 6th class municipality in Mindanao wrote to someone in the central government (maybe the president) to complain of inaction. I bet the bottleneck is not in the medium but in the message and the way it is formulated.

Mam, I am a lowly farmer wanting to use a plot for biofuels and I seek advise on how I may and can avail of govenrment help, if any.

Culture and communication

Just visit the websites maintained by government ( three levels) and you are very likely to agree that the problem is not hardware but software (including the processes in the brains of public servants). Government officials who have e-mail addresses don't even read much less answer electronic mail! Yes of course they have minions to do that. But these minions are not empowered and are just like the customer service staff of private providers and worse. They get paid anyway, regardless of how they deal with the public.


So why not e-mail?

Using currently available technology but under a much-improved culture of transparency and responsiveness, a lot can be accomplished to improve government services. And there would be an electronic trail, especially with commercial media. The problem with the NBN, even if it may have a few merits, is that it would only reinforce biases of a government so secretive but still so incompetent, it doesn't know how to talk to minions and other branches. But this can serve loyalists or minions, and a dictatorship and what it means is what we are all supposed to remember on Sunday.

If you ask me, the more pressing need is for government to communicate to you and me. The only reason they need a dedicated and secure network is because they want to screw us, secretly. Secretary Mendoza appeared before the Senate yesterday, but only to defend the FG. And, even if I had a colony of ants to bite his scrotum, I'm afraid they would rather go to Mars than wait for him to tell the truth.

Corrruption and inefficiency in Philippine Rural Electric Cooperatives

The conventional wisdom is that the major reason for inefficiency and corruption in rural electric cooperatives in the Philippines is the lack of incentives for good management. Because there is no group of private stakeholders large enough to care how an REC (rural electric cooperative) performs, the managers are left to their own devices, especially if their pay is not linked to such performance. While the coop members elect the boards of directors which in turn supervise the managers, that is pretty much where their participation ends, which is why it has been said that the RECs are cooperatives only in name.

REC elections are also said to be well-contested because the boards exercise tremendous political power; in some cases even more so than local government elections. In fact, the party-list party of the rural coops, APEC, has always been a top vote-getter in national elections owing to a large bloc of ‘command votes.’

Occasionally a group of members might have enough community spirit to exercise vigilance over management while the rest of the members simply ‘free-ride’ on their efforts. This is also why the standard (and perhaps even dogmatic) prescription is to encourage the entry of private capital imbued with a profit motive to lower costs. But that is just one solution to enforce greater accountability and efficiency, by encouraging greater membership participation.

This is what this account of graft and corruption in BATELEC II (Batangas Electric Cooperative II) illustrates: member vigilance and heroic management. The board, elected in 2003, is facing charges of corruption brought by some members (in 2005) for approving and awarding a P75 million computerization contract to I-Solv, a company based in Metro Manila, with a paid-up capital of P62,500 and organized just a few days before the contract award in April 2004.
The graft charges were presumably lodged after the National Electrification Administration (NEA) audit, at the instance of the same group of members, found the whole project irregular for lack of the proper technical study and bidding. Furthermore, the board had usurped the authority of the bids and awards committee, the audit said. It also found that the board approved a 100% overprice of 10 boom trucks. In this controversy, general manager Marlyn Caguimbal has been on the side of the members.

It is unfortunate that PDI reporter Marlon Ramos ends his account with developments way back in 2005 and thus leaves us wondering on the status of the case and what other actions, if any, the NEA has taken against the board.

About nine years ago, I had occasion to visit the offices of BATELEC I, the other REC serving Batangas, and was impressed by the professionalism of management. The REC had been chosen for a brief historical case study, excerpted in a chapter of The Challenge of Rural Electrification, Strategies for Developing Countries, edited by Douglas Barnes and recently published in May by Resources for the Future (RFF) and Energy Sector Management Assistance Program (ESMAP). I co-wrote the chapter on the Philippines “Power and Politics in the Philippines” with Gerald Foley.

Taxi strike: unfare?

Philippine taxi drivers are generally a friendly lot, though there are many horror stories associated with rogue drivers who reject fare, short-change passengers, collude with robbers, and eject customers midway through trips. (The last shows cab drivers know their economics and the value of time, because some would even give up the registered fare simply because going further would result in a loss---in other words, they think in terms of 'net incremental benefit.'

They are are also a bit talkative and need little provocation to lecture you on politics and philosophy, and many of them in their 60's would still even hark to the 'good old days' of Marcos and the period of discipline and (false) sense of national purpose. With a little provocation they'll even tell you whom they voted for in elections and subtly try to sway you to their position. I have always used their stories as a vane to give me a sense of the social weather. In one unforgettable ride not too long ago, a driver, having eavesdropped on my conversation on politics with a friend, butted in politely and eventually confessed he was an 'intelligence agent' of the armed forces. No, his cab driving was not a front but genuine moonlighting, though that was not really reassuring. And cell phones were not affordable then. In fact, at about the same time in 1995, I was amazed that my cabbie in HK handed me his handset to call a friend to ask for directions. And no, his name was not Vidal Doble.

Once, in my early 30's, I was mistaken by a cabbie as of his age. After I complained about the metallic rock on his radio, he gently reminded me that things were a lot different in 'our time.' I didn't protest that because I had much earlier accepted having been born old and grumpy. But then, in another ride, while I was waiting for change, this young driver insisted he recognized me as a lead member of a local rock band.

I don't know the status of renewed efforts to finally enforce the requirement in the tax code (circa post-Marcos 80's) that cabs should issue receipts to passengers as part of enhanced tax-revenue generation. I guess government has balked again. I agree with the measure but recognize government has to be fair to both cab companies and drivers but fairer to drivers and to passengers. Clearly there is a lot of room for improved regulation of behavior. The economic fact is that drivers merely respond to the so-called incentive structure of the system, like free 'profit-maximizing' agents who take all the demand risk, because they pay a fixed rent regardless of kilometers travelled or fare volume. Bus drivers, on the other hand, get a share of revenues. But in congested thoroughfares, the resulting behavior results in disastrous consequences for both passengers and air quality (I digress too much, as usual).

I travel fairly often and fairly wide and know that Philippine taxi rates are among the cheaper in the world, and have spent large sums because of my habitual laziness and addiction to door-to-door delivery. An absolute increase in fares resulting from regulation might do a lot of good all around, most of all by encouraging more mass transit patronage. With some caveats, mainly for people like myself, who, as a lazy patron, also use cab drivers to attend to other addictions. When I was a beer-drinker and smoker, and whether alone or with guests, but as lone occupant in a single male-headed household, I would call the nearest cab company to request delivery of beer and cigarets.

Do cabbies generally overcharge? I don't think so. Rates are much higher in areas where entry is either regulated or banned, especially airports. That is because the entry regulator is usually corrupt but justify the regulation as part of ensuring passenger safety. Hell, they could do that by simply charging a parking fee and enforcing a monitoring system.

Without much ado, local cab companies have been shifting to alternative fuels like liquefied petroleum gas (there is an LPG filling station just a few hundred meters from where I live) because it makes financial sense. It also results in less harmful emissions.

This brings me to the implications of this news article from the New York Times, New York Taxi Strike:

Fare increases in 2004 and 2005 — totaling some 25 percent — were contingent on taxi owners installing global positioning systems and credit-card machines. Drivers were desperate for the increase — the first in eight years — and accepted the terms. That was the deal they made, and they should stick to it. The city had an equal obligation to make sure the mandated technology is functional, up-to-date and serves both driver and passenger. So far, the results are not encouraging.

It is not surprising they are talking about GPS and credit card payments while we are arguing about receipts. After all, we are in the Philippines. But our level of economic development, I should say, does not really indicate our comparative level of civility.

Electricity and Philippine Growth: amateur detective work

I can understand why the recent GDP growth figure of 7.5% has elicited a lot of skepticism and hostile criticism , and most of the justification has to do with the fact that even the middle class, especially in Metro Manila don’t feel better off compared to last year.

Let me first disclose that I am confident about the professionalism and integrity of the people who compile and estimate the growth statistics. I have worked for long periods with NEDA assistant director general Estrella Domingo, mainly in the nineties, and mostly in regard to estimating the environmental impacts of growth. She and her people are competent and open to criticism and suggestions, especially in regard to methods.

First let us grant that the statistics are correct. The natural questions to ask are where did the growth come from, which sectors and which regions?

Growth in electricity consumption

My preferred method of validating economic growth figures is through looking at electricity consumption. So I examined the sales figures of Meralco for the first semesters of last year and this year. The second row of the following table shows percentage growth in kilowatt-hour consumption by customer class. The Meralco service area comprises about 60 percent of value added (GDP) in the Philippine economy.

Residential	Commercial	Industrial	C+I	Others	Total
3.02	5.78	3.59	4.83	-1.80	4.18

From the figures above, here are my initial observations, not necessarily in order of importance:

The NSCB claims growth is consumption-led. Clearly growth in residential consumption is much less than overall growth, and is also less than growth in personal consumption expenditures of nine (9) %.. Thus the elasticity of demand for household electricity is less than 1 (0.33), which means an additional peso of income creates much less demand for electricity in the Meralco area. This could be higher in areas outside MM (AOMM)., which is intuitive because these areas are starting with less electricity consuming appliances.

1. But looking at C+I in electricity consumption in Metro Manila, which is much less than growth in the value added of the service and industrial sectors (8%) per NSCB nationwide, I can only surmise that growth in these sectors must be happening in AOMM. Unfortunately, the NSCB does not provide a spatial disaggregation of value added and growth. But this is the most likely explanation I can find.
2. If we assume that GDP growth in Metro Manila is the same for the rest of the country, it would mean that the elasticity of demand for electricity overall with respect to GDP growth would be .56, which is contrary to historical experience and incredible.

From the above, if we assume the NSCB figures are correct, these can only be explained by higher growth in AOMM.

To whom is credit due?

Here I will allow myself some political bias, which you might agree is justified. The effects of policy always come with a lag, and it would be fungus-faced (to quote my favorite senator) for the Arroyo administration to claim credit for the growth figures. It is probable that phenomenal growth occured inspite of its incompetence and erratic responses to threats of its survival. One thing I can concede, without offering empirical proof, is that the value added tax did and does lead to a higher growth trajectory.

Equity and skepticism

Among the more reasoned essays with respect to equity and healthy skepticism published in cyberspace recently are those of Ricky Carandang and Manolo Quezon.

On the matter of equity, the Central Bank used to publish a disaggregation of GDP into returns to capital and labor but it stopped doing this sometime in the 1980’s. A simple way of ascertaining whether growth is equity-enhancing would be compute the growth in the ratio of labor's share per capita (simply divide the labor share of value added by population growth). Unfortunately I have no method to estimate this, though I suspect that if domestic demand is fueled by OFW income, growth, and if consumption growth accrues to sectors in the economy with market power, growth might be inequality enhancing. Note that I am not sure about this.

For those interested in the structure of the economy and the growth figures click here. The NSCB has one of the better government sites, but please write the webmaster and demand that it present data files in downloadable format.

Bull, Ron Nathan, Run?

The stock market analyst of the Inquirer claims he made the right call for his clients and Inquirer readers a few weeks back. Maybe, but who is to say, especially if he doesn't publish the wrong calls he made for his clients, who've been paying a fixed fee for his advice?
Let me be kind. Can Mr. Nathan honestly tell us he has made money for his clients in the last two months,on average, and how much. He may have articulated some warnings but also still managed to hype some stocks (especially mining)? It probably is not his fault, but that of a system where so-called investment advisors don't really face the same risks and rewards as their clients do. Thus their risk-aversion is not properly reflected in their advice to clients.
So, Mr. Nathan,can you at least be honest and narrate some of the stories of your disgruntled clients?
One consolation of the market downturn is that Ron Nathan is more somber now and has refrained from making his wife a punching bag for his nasty jokes. Perhaps, he can get out of this with suggestions on how his fate can be more closely followed by his clients. How about that, Ron?

President Mar Roxas? It may not matter...

With still over two years before the next presidential elections, Philippine pundits are already obsessing about the potential candidates, although some commentators argue that the landscape will have changed radically by then, either with a dictatorship or a parliamentary system dominated by the same elite.
Last night I had a chance to view an interview with one of the most articulate and ‘wonkish’ of the 2010 contenders, by one of the (if not the) sharpest talk show hosts on Philippine tv.
Because there are no ideologically defined political parties in the Philippines, voters usually look for personalities that have the most of their desiderata in a leader. Let me qualify this a bit. The Left is usually assumed by the so-called intellectual elite to offer a distinct alternative, but the Philippine Left, almost two decades after the end of the Cold War, is still finding its bearings. Its political participation is limited and its parties and their programs suffer from the same superstition centering on the battle between Good and Evil as their bourgeois counterparts are.
Ricky Carandang and his colleague Manolo Quezon have of late rightly brought the issues of poverty and inequality into focus in their work and it was to be expected that Carandang would confront Roxas on these issues. Roxas would be categorized as a compassionate conservative in the US and a left-winger here. But because I am far to the left of the Democrats, I would still consider him just as an over-cautious liberal. Roxas’s program on equality is to allocate (actually reallocate) funds to education and health. He will not impose new taxes. I would, especially more punitive ‘sin’ taxes on cigarets and alcohol ( I am a former heavy smoker and still a tippler) and impose efficiency-enhancing environmental taxes ( fuel prices in the Philippines are too low, especially from the standpoint of environmentalists) and lessen income taxes on the middle class.
But it is possible that Roxas will be the best in the field in 2010. And that is only because the Left, advocating a shorter path to poverty eradication and greater equality, doesn’t really have a significant constituency. Why not? I don’t really know but I will attempt to answer this later.
How much of a difference can Mar Roxas make? Not much, as the evidence marshalled by Steven Levitt shows. But it can, if you read it, especially the links in the comments, more carefully.

Chances are GMA is fantasizing

What is the price elasticity of demand for fantasy? I don't know, and neither does GMA. But I suspect it would depend on the kind of fantasy one is buying. But the president fears that raising the prices of lotto tickets might drive people to switch to illegal numbers games, which, I think, shouldn't be illegal in the first place.

Lotteries are technically mostly losing propositions for players, not because of the low probabilities of winning fantastic wealth, but because of the administrative costs and profit margins of the operators and the government take. Otherwise, the game would be fair, meaning the ticket price would be equal to the probability of winning multiplied by the pot. In the case of 6/42, where the chance of hitting the jackpot is one in 5,245,786 and not a million and one as reported here, the jackpot should be 52,457,860 if the choices are uniformly distributed and all the numbers are taken, for the expected value to equal P10. (Here I assume away the consolation prices as insignificant). But the PCSO guarantees only P3 million for this variant, which implies that at a minimum, the PCSO assumes that there are at least 545,454 fantasizers at the start of each 'game').

I have observed that the queues do get longer as the pot increases, but at a declining rate, which means that eventually the lottery becomes fair and perhaps, even a winning proposition. So people are not that dumb after all, as mainstream economics suggests, starting with the letdown that lotteries are a regressive tax on the innumerate.

Many years ago, I welcomed the articles of one Dean Jorge Bocobo in the pages of the Inquirer because he 'sounded' numerate and scientific, as opposed to many opinion writers whose only claim was the strength of their convictions and prejudices, until one day he wrote a feature on the lottery, betraying his lack of understanding of probability theory and statistics. Unfortunately, when I see him on TV these days, I get the impression he has retrogressed even further to the level of the pundits he used to criticize.

If the president were sincere in her concern for impoverished players of lotto, she would be more productive if she reduces admin and operating costs of the lottery and revisiting the contract with the private operator. But more importantly, she can also reform the funds allocation system of the PCSO. This is a difficult task, I imagine because these funds are under presidential discretion. But she can convince me if she relinquishes control and makes PCSO earnings part of general funds under congressional control.
(Disclosure: in 2005 I helped an acquaintance settle hospital bills through political connections, by accessing PCSO funds. His wife underwent expensive brain surgery. Though I would not classify him as poor, there was just no way he could foot the bill. But how many people are able to access such funds, especially if they don't have political connections?)
(Aside: It's funny that one Cris Remonde from Argao, Cebu was one of those protesting the PCSO move. He might be related to Cerge Remonde of the presidential management staff, tasked by Arroyo to discuss the matter with the PCSO.
So what are the benefits and costs of fantasizing? While economics can help, perhaps psychology can do better.
If President Arroyo fantasizes about leaving a legacy for the Philippines, the chance of that might be one in a billion, and she also might need professional help. Wanna bet?

Greed's not always good

The raw assumption that economic agents are primarily motivated by selfishness has been refined in recent decades. Here is a recent study which illuminates motivations in human market interations. Scientific American Mind: Is Greed Good?
Economists are finding that social concerns often trump selfishness in financial decision making,a view that helps to explain why tens of millions of people send money to strangers they find on the Internet...

More Sex is Safer Sex (and also maybe better)

More Sex is Safer Sex
The Unconventional Wisdom of Economics
Steven E. Landsburg

(Free Press, 2007, pp 274; PhP1170 at fully booked)


Expectedly, Landsburg got a lot of hate mail for the lead essay in this collection from readers who misinterpreted it as advocating promiscuity. It does not. What it does is use economic theory to argue that if responsible individuals shy away from the casual sex market, it leaves that market with a greater proportion of individuals with more risky behavior, and thus increase the risk for other people of contracting HIV.

Landsburg, who writes a popular column (Everyday Economics), is one of a few economists who believe that the world would be a much better place if the findings (and also the methods) of economics had a wider audience, and who act on that belief. He does a good job explaining these findings because he refrains from using economics jargon. He succeeds because he is a good writer, and he is a good writer because he is a clear thinker, though he falters in some instances. (Why he appreciates Scrooge).

The main reason I appreciate Landsburg is that he painstaking explains a key concept in economics without ever using the technical term (externality). As a perpetual student and practioner of environmental economics, I am often frustrated with people who don’t understand the idea, because I am a distance removed from the clear thinking of people like Landsburg.

But back to sex, which is probably why you are my accidental reader. To my knowledge, the AIDS scourge is already contained in the Philippines, but I could be wrong and the health authorities could be lying, or maybe the entrepreneurs of the sex industry here might really be more responsible. (Hey, I’m no expert on the sex industry and I’ve never had sex with a prostitute). But the main assertion in the essay holds, regardless. Certainly such ideas would raise the hackles of ‘respectable’ citizens in a morally challenged and hypocritical Catholic country such as ours. But wait, Landsburg refrains from discussing morality, but recognizes that moral values do matter.

In another essay, he could also be misinterpreted as supporting the Catholic church’s position on birth control in the essay “Be Fruitful and Multiply.” He argues that a larger world population would be good for all of us, but he doesn’t necessarily argue that governments (especially in the developing countries) should not spend tax money educating poor households on the merits of birth control and responsible parenthood).

Readers who enjoyed Freakonomics would probably enjoy this book. But they should know that there is a limit to how much economists would reveal the secrets of their profession, because after some limit, they would start to make themselves dispensable. And they would not generally want to cross that line.

The ‘more sex’ idea is not really his but that of Michael Kremer, a Harvard economist, who did the rigorous analysis and reported the results in “Integrating Behavioral Choice into Epidemiological Models of the AIDS Epidemic” in the Quarterly Journal of Economics.


I bought a copy as a wedding present for a very good friend. Books generally make for unimaginative and inappropriate wedding presents, but not in this case. My friend Ben Endriga not only is a good economist and pianist, he would also most likely enjoy reading the lead essay.