Thursday, December 18, 2008

Global Capital 2: ICT, Capitalism and Government

A friend's yahoo email add was hacked, the hacker or virus was able to get into his address directory, and a message announcing or promoting a particular product and website was sent to everyone in his address directory. What's worse, he lost many of the contacts in his directory. Another friend commented that he's using Linux to protect himself from those undesirable hackers and/or viruses. He mentoned one Linux product or derivative, Kubuntu.

I only hear about Linux, but I haven't tried it yet, or too lazy to try my hand in learning those softwares and IT systems. Just a typical user of whatever is user-friendly, reliable, cheap or freely available.

Kubuntu sounds like an African term or village. Nonetheless, innovations like Kubuntu and its cousins or distant relatives, are all products of capitalism and its subversive nature of trying to knock down the complacent and irresponsible, anytime and anyday of the year.

Yahoo, google, yahoogroups, googlegroups, blogger, facebook, friendster, multiply, Linux, etc., are all products of capitalism too and the continuing innovations inherent to it. These are all free products and services, freely available to the people who wish to use them anytime and anywhere, so long as they have access to the internet. And somehow the capitalists, the inventors of those IT systems are making money somewhere. Zero coercion, zero taxation, zero bureaucracy, but there are free services and millions or billions of $ of income to the inventors. That's the "magic" of capitalism.

And capitalism is being ridiculed by many people who so love government regulations, if not socialism. They even herald the "demise" of capitalism with the current global financial turmoil as the single biggest proof for their claim. But it's not the "crisis" of capitalism. Capitalism is simply removing and culling the complacent and irresponsible among its players. The current turmoil is market self-correction to remove the excesses and abuses in the market. It's a healthy process over the long term, though there are pains in the short-term, the same way that there were unjustied gains in the past as a result of those excesses.

Oeople are rationale by nature. If they lose their jobs in this particular industry and company, there is nothing that can stop them from trying another job or another career in another industry, in another company, in another region or country and continent, using another technology and management style, etc. There are always options and alternatives, provided people and markets are allowed to make adjustments freely, and not curtailed by endless regulations and restrictions to mobility.

In the coming months and years, more versions of kubuntu and other derivative products of Linux or competitors by the latter, will be made available to the people around the world, freely or cheaply. Because capitalism never rests. It's a dangerous virus that can cripple the less innovative players by understanding the needs and whims of the people, the consumers around the world, and supplying such changing needs and whims.

Related Papers that I wrote,

(1) ICT and Government

December 03, 2008

Today, I was one of five speakers in the "Congress briefing on the Global IT industry" held at Edsa Shangrila Hotel. The event was sponsored by the Computing Technology Industry Association (CompTIA). All the 4 speakers were industry players, I was the only "outlier" coming from a think tank that dabbles on various topics and subjects. It is also my first paper on information and communication technology (ICT).

My paper is entitled "ICT growth amids mixed government intervention". Below are my concluding notes:

A mixture of less government intervention and regulation in the ICT sector, and a regime of bureaucratic business regulations plus burdensome multiple taxation in general, created some modest growth in internet use and penetration in the Philippines. The 15 percent of Philippine population linked to the global web in this period is small even among many neighboring countries in east and south-east Asia.

The government needs to step back, not come and intervene more, in business regulations and taxation in general, and ICT sector in particular. The proposed creation of a new and big department to harmonize government use of ICT in the short-term, and centralize regulation of private enterprises in the ICT sector later, may create more problems than solutions because the pursuit and propagation of information is one of the inherent values of people. But since the DICT bills are already in advanced stage of possible enactment in Philippine Congress, regulatory restraint should be emphasized in the said measure.

The government and ICT players should go for policies that stimulate competition-driven solutions, innovation and investment. And policies designed to address perceived market inequities should be avoided as such measures are easily used to advance protectionist trade policies and an anti-competitive business environment.

In the current debate in the EU regarding more regulation of broadband access providers (BAPs) for instance, two writers proposed that “the best approach to improving the provision of broadband access is to ensure that the environment in which BAPs operate is competitive. That means removing regulatory and other government-imposed barriers to competition, not creating new barriers in the form of restrictions on differentiation and mandatory quality of service (QoS).” (Morris, Gelder, 2008).

(2) The Ratings Agencies

February 11, 2008

The world has plenty of big banks, big car manufacturers, big IT companies, big airlines, big hotel chains, etc. But there are only 3 big ratings firms - S&P, Fitch and Moody’s. This looks like an oligopolistic industry. How come? I am curious.

In a number of indebted countries like the Philippines, these ratings agencies are often more powerful than the IMF in reviewing these countries' “credit-worthiness” or their ability to pay later. I have read some of the analysis by the staff of these ratings agencies, and funny that they often sound like the IMF bureaucrats that they are supposed to replace. For instance, it's not uncommon to read the former arguing for "more government spending and avoid early 'balance budget' and tax-cut goals for macroeconomic stability."

Turns out that it's the companies being reviewed, or the countries being reviewed, that often pay for these ratings agencies. Hence, the subprime crisis in the US was not "forewarned" by these agencies.

* See also Global Capital 1: Why Market Turbulence are Necessary, November 19, 2007

Tuesday, December 16, 2008

Pol. Ideology 10: Joe Stiglitz and the Market

Joseph Stiglitz, the Nobel prize winner, at one time one of my favorite economists, recently wrote an article, "Capitalist Fools"

http://www.commondr view/2008/ 12/10-1
Published on Wednesday, December 10, 2008 by Vanity Fair

In his concluding paragraph, he wrote,

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America-and much of the rest of the world-of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

Joe Stiglitz has been among the chief spokesmen of "more government regulations, abandon market self-correction" philosophy these days. It was very clear in his first sentence above.

The US government played big intervention in the build-up to the current housing bubble that burst recently:

a) Community Reinvestment Act (CRA), aka "anti-redlining law" where people with low or unstable incomes, cannot be turned down by banks when they borrow for housing mortgages. Enacted October 1977 by Pres. Jimmy Carter, a Democrat, and never repealed or amended by succeeding Republican leaders who recently turned big government advocates themselves.

b) Freddie and Fannie: if private banks will have some trouble lending to financially-suspect people, the "sub-prime" borrowers, even the NINJA (no income, no job or asset), they will guarantee those loans.

c) 12,100+ government financial regulators in Washington DC alone, working full time, that's not enough regulation?

d) Bail-out statism (AIG, Bear Sterns, Freddie and Fannie, etc.) by several hundred billion $.

And Joe Stiglitz would still consider that "minimal government role"?
He's dreaming, if not lying.

I wrote these two short papers recently:

(1) From Recession to Depression

December 12, 2008

People have now accepted the fact that the US, Japan, Germany, other rich countries are now in recession. The new discussion, even on a limited scale, is if the recession (short-term economic contraction, at least 2 consecutive quarters) will morph and expand into a Depression, similar to the Great Depression of 1929 to 30s, even early 40s to some countries.

A NY Univ Econ professor, Dr. Noriel Roubini, wrote a rather scary scenario, below.

We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.

Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% - that it's going to feel like a recession. I see the unemployment rate peaking at around 9% by 2010. The value of homes has already fallen 25%. In my view, home prices are going to fall by another 15% before bottoming out in 2010.

...You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.

(2) Cut Taxes to Limit Recession

December 02, 2008

The proposal by UN economists, as well as economists by various governments and multilateral institutions, that governments must spend more and bloat their budgets to counter economic slow-down if not recessionary trends, is wrong. When the economy is bad, people tend to limit their spending, to save more, and this further reduces the sales of other people and enterprises selling various goods and services. When government will spend more, then it will tax and/or borrow more. When it hikes the taxes, this further reduces the spending power of the people; when it borrows more to bloat its budget, it will compete with private borrowers from banks and other financial institutions, which can push domestic interest rates to go up, and will help push inflation to go higher.

The alternative policy to counter economic slowdown or recessionary trend, is for governments to cut taxes, fees and borrowings. This will put more money into the pockets and savings account of the people. More disposable income would translate to more private spending, while more savings will translate to lower interest rates, which will encourage investments and job creation.

It is a big myth propagated by many governments and multilateral institutions that more taxation and intervention by them will arrest recessionary trend, when they themselves and their tax-and-spend policies are a big part of the problem.

(3) Capitalism and Bail-outs Don't Mix

November 20, 2008

Another friend from Delhi, Mohit Satyanand, who is also a director at Liberty Institute in that city, posted a short but very frank and provocative paper about capitalism and bail-outs, in Outlook Money website yesterday.

Mohit wrote,

"The begging bowls are out.
All across the world.
And these are not your ordinary tin bowls, with dents in the bottom and black stains on the side. These are huge, yacht-sized begging bowls, being held out by people who haven't ridden a public plane in years, and work out of office suites the size of large family apartments. They're asking for bail-outs of billions of dollars, or thousands of crores of rupees - in loans, sovereign guarantees, tax deferrals, or lower interest rates....

"Failure is the primary reason why capitalism is the most successful way of running business - it is the process of natural selection. Companies that are poorly run or produce products ill-suited to the environment fall, and are taken over by smarter managers who understand the consumers better. Toyota makes cars that people want, at prices they are willing to pay. GM doesn't. It needs to go out of business. If the US Congress decides to bail GM out, ironically, the same people who don't want to buy will be forced to bail-out GM through the strange device called tax-payers' money.

These devices - whether in housing or banking, airlines or automobiles, prolong the agony of a financial crisis, which is a period of adjustment. Those who have failed need to exit; those who will succeed are already in the wings, but getting crowded out by governmental action."

It seems that competitive capitalism, that oldie but goldie economic system where expansion and failure is as certain as the sun rising up and setting everyday, is possible only in a small or limited government political set-up. Government should be BIG only in facing killers, kidnappers, rapists, land-grabbers, extortionists, embezzlers, and other types of criminals. But that same government should be near-zero in business taxation and regulation, so that it will have zero capability to bail-out large but mis-managed and sinking corporations.

It's also a lesson or warning for independent think tanks that rely on donations from private individuals, corporations and foundations. They should not solicit contribution from big corporations that owe their bigness due to political favors and rent-seeking. Sooner or later, those corporations will run into financial trouble in a competitive environment. And when they do, the first thing they will do is ask for government bail-out. And as a think tank that previously got money from them, it will have some "obligations" or "debt of gratitude" to somehow defend them. And it's going to be messy.

(4) Keeping Faith in the Market

October 16, 2008

A fellow free marketer friend expressed some reservation and doubt "if the bailout will make the average joe suffer less or more. What about the liquidity trap theory?"

I advised him to keep our faith in the market. Tthe market is composed of the big and small businessmen; gamblers and risk-averse investors; big and small producers and consumers, rich and poor. It's you and me, our neighbors, friends and enemies.

Even Karl Marx recognized the business cycle in capitalism, under his "declining rate of profit" theory. Smith, Hayek, Friedman, other classical and modern thinkers recognize business cycle and hence, would not recommend government coming in in times of market downturns, the same way that they would not recommend State intervention in times of market expansion and huge wealth creation.

I have argued it earlier, I will repeat it. In times of recession or recession-like conditions where consumers are cutting back on their spending -- meaning producers, shops, malls, restaurants and resorts are not making enough money -- government should cut income tax, drastic cut, to allow people to have bigger take-home pay out of their salaries. And government should better cut its bureaucracy too, encourage bureaucrats to become entrepreneurs or staff of entrepreneurs. Society needs more people producing and trading all sorts of goods and services. Big supply of everything would mean price of everything will later fall, then consumers will buy more, and the economy should be able to rise quickly.

One of the greatest maladies of our time is that the supposedly independent intellectuals -- those in the academe, in civil society, in media, in corporations, etc. -- are generally parroting what the unproductive but powerful people in the State bureaucracy are saying and advocating. For them, drastic tax cut in times like these is a crime; that we should surrender more of our income and savings, both current and future, to the State and the state will take care of us. This is the "mother of all rackets" ever invented and retained in the whole planet.

* See also:
Pol. Ideology 5: Have Movements for Liberty Progressed? June 26, 2006
Pol. Ideology 6: Quotes from Adam Smith, February 04, 2007
Pol. Ideology 7: Individualism, Entitlement and Freedom, April 30, 2007
Pol. Ideology 8: Ideas on Liberty, September 15, 2007
Pol. Ideology 9: Liberty and Choice, Atlanta and HK Conferences, June 09, 2008

Monday, December 15, 2008

Tax Cut 9: Flat Tax, 26 Countries Now

A friend, Bjorn Tarras-Wahlberg of the World Taxpayers Association (WTA) sent me this updated list of countries that have flat, low income taxes.

Flat income taxes 2009
from 1 to 26 countries in 15 years

Kyrgyzstan (since 2006) 10%
Kazakhstan (2007) 10%
Macedonia (2007) 10%
Mongolia (2007) 10%
Albania (2008) 10%
Bulgaria (2008) 10%
Serbia (2008) 10%
Georgia (2005) 12%
Macau 12%
Belarus (2009) 12% New
Russia (2001) 13%
Hong Kong (1947) 15%
Ukraine (2004) 15%
Iraq (2004) 15%
Montenegro (2007) 15%
Mauritius (2007) 15%
Czech Republic (2008) 15%
Romani (2005) 16%
Slovak (2004) 19%
Jersey and Guernsey (1940) 20%
Estonia (1994) 20% Lowered
2010 19%
2011 18%
Iceland (2007) 22,5%
Lithuania (1994) 24%
Jamaica (1984) 25%
Latvia (1994) 25%
Trinidad & Tobago 25%

Why flat income taxes?
1. Simple and fair
2. Promotes economic growth
3. Promotes tax competition
4. Neutral to inflation

Why mostly in the new democracies?
1. Liberal values with more individual freedom
2. Wish to get rid of socialistic high taxes
3. Wish to reduce the black economy
4. Wish to promote economic growth and increased tax revenues with lower taxes (see Russian example)
5. No heavy package of social welfare

Copyright: Björn Tarras-Wahlberg, CEO, World Taxpayers Associations 2008-12-05. Any news to: +46 70 325 00 11.

Meanwhile, I am posting 2 short papers on taxes early this year.

(1) Taxes vs. Subsidy

May 26, 2008

A Malaysian friend, Wan Saiful Wan, head of Malaysia Think Tank London, shared with us a news story, "Making the rich pay more for fuel", May 23, 2008. The article went this way:

"Malaysia's rich will have to pay more for heavily subsidised items including fuel as part of a new two-tier scheme to reduce government spending, reports said today. "We need to have a good system for those who deserve the subsidy, such as the lower and middle-income groups," Second Finance Minister Nor Mohamed Yakcop was quoted saying by the Star daily."

I think the headline was wrong. It says "Government wants to tax the rich" when the story says the "government wants to reduce subsidy to the rich". These 2 -- taxes and subsidy -- are different things. The first is taking money away from the people. The second is giving money to the people, the money coming from various taxes.

My take on this and almost any other issues on other sectors is that subsidies should be kept to the minimum – and taxes should be kept to the minimum too. You encourage something, you'll have more (consumption) of it; you discourage it, you'll have less of it. That's one of the "7 Principles of sound public policy" made by Larry Reed. So you provide more fuel subsidies, you encourage more fuel consumption. You tax oil, you discourage more fuel consumption.

If oil taxes around the world are removed, or at least drastically cut by one-half of their current rates, especially in European and North American countries, retail price of oil will drastically go down, which will encourage more fuel consumption, which will result in ever-higher world crude prices, perhaps shot up to $200 a barrel within a year or less. But at least people will not complain of the artificially high retail oil prices caused by oil taxes. They can complain of high retail price because of the high crude oil prices, high cost of refinery, high cost of transporting refined oil, etc.

If government revenue from oil taxes will decline if not evaporate, where will government get money to build new roads, or improve and expand existing ones? Road, especially expressways, should be on user-pay via toll roads. Roads can be privatized. So that the more you use the road, say you drive 100 kms a day on average, the more you will pay toll fees. If you use less, say only 20 kms a day, you pay less. This still discourages high fuel consumption. The rich who have more meetings, more places to visit and work, will pay more on toll roads and fuel. There is still "equity" there.

(2) On Tax Registration

April 01, 2008

Many firms and enterprises in developing countries operate in the informal sector or the "underground economy". There's one paper on Bolivia that says that on average, formality leads to higher profit. This is especially true for mid-sized firms but not for both smaller and larger enterprises.

Many small- and micro-level enterprises in developing countries indeed remain to be informal. This is because business registration in those countries are very bureaucratic and time-consuming, and the fees are plentiful too.

For medium-level enterprises, formal business and tax registration helps increase profit because the owners and managers of such enterprises can concentrate on their business, and worry less on extortion and harassment by the state's tax and trade bureaucrats.

* See also Tax Cut 8: Comparing HK and Philippine Taxes, March 04, 2008

Sunday, December 07, 2008

Education as parental responsibility

A number of friends commented and agreed with my earlier thesis that education is mainly parental responsibility, not government responsibility. When this idea will be accepted by many people, one implication is that ultimately, we do not need the Department of Education (DepEd) and the thousands of government schools. And we do not need to surrender lots of our earnings and savings to the government in the form of high and multiple taxes.

About language in the school, these days, mobility is the rule of the game. Your neighbors now in your village or community may no longer be there 3 or 10 years from now. They will soon migrate elsewhere, or you and your family will migrate soon, somewhere in the Philippines or somewhere in Asia-Pacific or in other continents. Some middle class families whose parents may not be good English speakers, will work hard to have their children become good in English reading and speaking -- because they plan to migrate somewhere in English-speaking countries in the future. Or they simply want their children to become international entrepreneurs or managers or artists someday. Or some want their children to learn Spanish because the parents will be working with companies that are based in Latin America or Spain. Or have their kids learn Korean or Mandarin or Japanese, etc. Countries speaking these languages are the Philippines' top trading partners,
that's why.

There are hundreds of reasons why parents want multi-lingual, multi-disciplinary training for their children as early as pre-school. Thus, the insistence of a national bureaucracy called DepEd to have one or two language as official language for ALL government schools around the country reflects the rigidity and desire for uniformity by a bureaucracy. They hate diversity.

Meanwhile, while we are stuck with a huge education and other national bureaucracies, and a big portion of our earnings and savings are stuck into forcibly funding those huge bureaucracies, we helpless citizens can only choose which language imposition can cause the least damage to our children's education. If we can't bear those impositions, then we will be forced to bring our children to private schools, while we still forcibly contribute for those public schools that we do not personally support and we do not directly benefit from.

Another friend reacted to my earlier posting and asked,

what if your parents did not want you to go to school.
what if your parents did not care about you
what if you were born as a streetchild
what if your parents cannot afford a good education
what if your parents are not as astute as you want them to be?

Well, if your parents did not want you to go to school, if your parents did not care about you, then you're fucked up! It doesn't matter if it is a cowboy capitalism or bleeding heart socialism state, you’re an unlucky child from irresponsible parents.

In a typical welfarist or trying-hard welfarist state, it is possible for irresponsible parents to work 6 days a week and drink 7 nights a week, because their children's education is not parental responsibility but "government responsibility" . And if the quality of government education is bad and mediocre, they can blame the government, blame the capitalists, blame the rich, blame everyone, except themselves.

But many politicians also like this, even prefer, poor quality public education -- but they won't publicly admit it -- because that would mean bigger allowance for "commissions" and robbery. In addition, the products of public school system in general will be unskilled (save for a few bright and ambitious students) and they become cheap labor employees because they are unskilled, and the poverty continues, and so there is more reason to demand "more tax money for public education" because people are poor. And they perpetuate a vicious cycle.

Meanwhile, there is no government restaurant, govt food chain, govt carinderia or turo-turo. But people are eating, rich and poor alike. Why? Because of product and food diversity. People can eat a P30 meal or P300 or P3,000 meal, but it doesn't mean that the one who eats P30 lunch in a neighborhood carinderia will die or become malnourished next week or next year, compared to someone who eats P3k lunch in a plush hotel.

People accept diversity and inequality in food service, diversity and inequality in clothing, shoes, houses, cellphones, etc.

But how come people won't accept diversity and inequality in education, so that government should always be there?

Now if some parents are too irresponsible to even think about their children's education (and nutrition and health care, etc.), then there is nothing that will prevent other parents and responsible individuals, to take care of the children of the irresponsible people. Voluntary charity is all around us, whether it's church-based or civic clubs and organizations, even village and sports clubs, etc.

Many people will be hesitant to accept there will be big voluntary charity to help the underprivileged people. But if they will not trust you and I, their friends and neighbors, as incapable of such action, why would they trust government politicians and bureaucrats to really care for the poor and underprivileged? What’s with the latter that they are more “trustworthy” than any average citizen?

Also, a household that pays P500,000 per year in income tax to the State, when that tax is slashed to P250,000 per year or less, that household will not burn and throw away the difference or savings or de facto "pay rise". They can go to Cebu or Boracay or Bohol or Boracay, spend the money there, and that money will go to the pockets of boatmen, employees and owners of airlines, hotels, restaurants, souvenir shops, etc. The people who receive bigger income will be happy to save more and bring their kids to different schools that cater to their hopes, preferences and budget constraints.

It still puzzles me why people would resist giving other people more personal freedom and responsibility, and would always call in the State to confiscate a big portion of their earnings and savings, to do things that people and their voluntary associations are capable of doing. Only those functions that people cannot effectively do by themselves, like neutralizing armed robbers, killers, rapists, land grabbers, carnappers, etc., that the State should come in. Then our taxes to the State to perform this kind of social function is highly justified. But the State to assume our children's education? our children's health care and nutrition?

CSOs and State 6: Stichting Kapatiran and Books for the Barrios

(Note:  This is my article for the online magazine,

One of the biggest and longest myths ever invented in this planet is that people are not capable of sustained voluntary assistance to their underprivileged fellowmen -- that is why government must come in to provide and engineer various forms of welfare and social assistance to the poor. That is why governments invented many forms of taxes and fees to finance an ever-expanding list of “government responsibilities”.

But people are greatly capable of voluntarily helping their less privileged fellow human beings. There are thousands of charity groups and civil society organizations (CSOs) in this country, as well as charity groups based abroad that have projects in the Philippines. I will mention two such initiatives here.

Stichting Kapatiran ( is a Netherlands’ based charity organization whose main mission is “supporting underprivileged street children and small local communities in the Philippines”. They have a number of community projects – basic literacy, akay kalinga, income-generating and livelihood projects – from Luzon down to Mindanao. This year, it has been selected as one of the recipients of the “Lingkod sa Kapwa Filipino Award 2008”. It is an award given by the President of the Philippines to organizations that are based abroad. The awarding ceremonies will be held next week.

I have known Kapatiran through one member of its board of directors, Ms. Wads Winjberg-Tiongson, a Kapampangan married to a Dutch lawyer, Bart Wijnberg. I have known Wads and Bart since 1987 when I first went to the Netherlands and they hosted me in their house in The Hague for a few days. I visited them again in 2003 after my seminar in Sweden ended.

In those visits, I noticed that their house would sometimes become a “refugee” or “assistance center” for some Filipinos who encountered problems with their work and employer, their visa or passport, or simply would have no money to go back home, and so on. Not that the couple are rich to pay for the plane fare of the problematic “kababayan,” but they have a wide network of friends there -- private individuals and government officials, both in the Dutch government and the Philippine embassy, who can help the distressed Filipinos. It is a story of low profile, unpublicized and personal charity work, repeated year after year for at least two decades now. Some Filipino graduate students studying at the nearby ISS who feel terribly homesick would also come to their place sometimes and have a “Filipino home plus adobo and other Filipino food” to cure homesickness.

I do not know how many awards Stichting Kapatiran has received so far. What I know is that the desire to help fellow human beings, Filipinos especially, both in the Netherlands and in the Philippines, are always in the heart of this couple and their like-minded friends in the Netherlands.

Another initiative is the Books for the Barrios (BftB program, where thousands of used books from the US that could possibly be heading to landfill stations, are collected and donated to poor students in poor villages in the Philippines and other developing countries. I do not know anyone from BftB, but I have a friend, also originally from Pampanga, who now lives in California, Ramon “Monchit” Arellano, who was passionately supporting that project.

Last year, Monchit heard that “due to dwindling financial support in the wake of many natural disasters (Katrina, tsunami, etc.), BftB may be forced to close its operations this summer if it does not generate enough funds… after more than 25 years of providing quality education materials to remote schools in the Philippines.”

In order to help, he registered for the San Francisco Marathon and started a website -- First Giving, with just a single purpose: he would run to raise awareness among his friends and other people, get donations for the BftB program so it can continue its mission and operations. Monchit targeted a modest goal of raising $4,000 and donate the amount to BftB. His initiave was noticed by the Philippine Consulate General Office in San Francisco and posted his story on their website. ABS-CBN was also at the finish line to interview him and the news was aired at Balitang America and posted in

Monchit works at AT&T in the Bay Area. He infected some guys in his company by bringing the AT&T Fil-Am employees association as occasional volunteers for BftB. He also secured some funding from AT&T Foundation (that was before the current financial turmoil). His family (with wife and their two kids) also do volunteer work for BftB for the past six years -- they help sort and pack used books, toys and computers to be shipped to remote public schools in the Philippines.

BftB received the money raised by Monchit from his First Giving and SF marathon as well as from other sources. In recognition of his support, BftB honored him by building a library in his name in Sapang Batu, Angeles City, Pampanga. The library was constructed with the help of the local government. BftB will supply the books, computers, toys, tables, chairs, etc. from the US.

But BftB does not have used Filipino books for obvious reasons. So when I visited Monchit in his place in the Bay Area last April, he asked me if I can help him on this. When I got back to Manila, I asked some friends for their help and I got emails and text messages that they wanted me to pick up their elementary kids’ used books at their house or office for donation to Sapang Batu. I could pick up only a few of those requests, compiled them in our house, then later delivered to the BftB office in Ortigas Center.

I do not know if the Department of Finance and the Bureau of Customs (BoC) are taxing book donations from abroad even for educational and non-commercial purposes. If they do, then that partly speaks of how “welfare-oriented” the government is. Maybe the BoC can reason out that they need to partially discourage the entry of so many donated books from abroad because this can displace, even on a limited scale, the local publishers, local bookstores, and the people employed by them. This is possible, but local publishers and local bookstores also have to grapple with high government taxes that make their local book prices more expensive, which turn off some potential buyers, especially poor ones.

Many people around the world distrust their governments, that is why their “contribution” to society have to be done by force and coercion, through taxation and mandatory fees. But the same group of people trust their friends, or friends of their friends, and so they give and support without coercion and force. In addition, people can choose which kind of charity project they will support, as well as the group of targeted beneficiaries.

This is the essence of civil society: voluntary support by people for their underprivileged fellowmen, self-reliance, and no coercion to attain certain social objectives.

* See also:
CSOs and State 3: Poverty and Public Education, February 12, 2008
CSOs and State 4: Local Government and Civil Society, August 12, 2008
CSOs and State 5: Subsidiarity, Decentralization and Privatization, September 04, 2008

Thursday, December 04, 2008

Thai politics and the Monarchy

I am inclined to tell my friends to boycott visiting Thailand now. Not that I think the Thais as a whole need penalty for the mob rule of the PAD activists and their supporters. But the latter are now the clear winners of the political instability, even temporarily. These are hidden dictators who have to resort to hostaging ALL incoming and out-going visitors and businessmen to and from Bangkok airport, to pursue their political objectives, no matter how noble or mundane these could be.

The political "victors" will now rule Thailand. And they will call for "national unity" and "heal the wounds" -- after they hostaged and inconvenienced hundreds of thousands of foreign visitors and locals? Such hypocrisy deserves some penalty. Now they will inherit a limping Thai economy with up to a million jobs lost perhaps, in tourism, international trade and related sectors.

Here at home, I do not support our current President. She's probably as dirty and corrupt as the 2-decades ruling Marcos dictatorship that was toppled in 1986. But if some fellow anti-President activists will call for a big mobilization against her and occupy Manila international airport, I will never join. And if the pro-administration police will disperse and whack the activists, I will cheer up and support the police.

People's right to mobility and travel is non-negotiable. Activists can rally and demonstrate anywhere they want -- the President's palace, the parliament house, various public plazas, etc., fine. But NEVER an international airport.

Now if it's indeed the Monarchy who backed up the PAD demonstrators and told the police and military not to disperse the rallyists for cripping the international airport, or the King's family was directly involved in the recent shameful political acts, I wish that this will be exposed and be understood by the Thai people. Then they may take a second look at the kind of reverence and respect they give unto him.

Sunday, November 30, 2008

"Atlas Shrugged" popularization winners

Two bad news in Asia this week -- the terrorist attacks in Mumbai, India, that killed more than 170 people (really sad!), and the take-over by PAD demonstrators of Bangkok international airport, cancelling all international flights. In pursuit of political power, or in revenge of any political repression, people can be irrational and become violent. Big government in many countries around the world is really evil. Those who were previously oppressed would want to use the big and coercive instruments of government to perpetuate a new round of inefficiencies, if not violence.

But have 2 good news -- 2 institutes won the Atlas Economic Research Foundation and Ayn Rand Institute's "Atlas Shrugged" popularization project. I congratulate Barun Mitra and Mohit Satyanand of Liberty Institute, India, and Wan saiful Wan of Malaysia Think Tank (MTT), London. Their institutes will receive $10,000 each.

Details at

Saturday, November 22, 2008

Compulsory coercion

This week, the Implementing Rules of Regulations (IRR) of the “cheaper medicines law” or RA 9502, will take effect. Two of the prominent provisions of the law and its IRR are medicine price control and compulsory licensing (CL). The law and the IRR did not explicitly call it price control but “maximum retail price” which amounts to the same thing. Note the two words: “control” and “compulsory”, which means coercion. These are the 3 Cs of more government intervention and can be called “3CG”, in reference to an initiative that called for Cut the Cost, Cut the Pain or “3CP” by successfully lobbying for the said 3CG. Curiously, “Cut the taxes” on medicines was not part of its agenda.

Also this week, Thailand’s Health Ministry promised “more compulsory licensing” for essential drugs. For twp years now, the agency has issued CL on some medicines for HIV/AIDS, cancer and heart diseases, all manufactured by multinational pharmaceutical companies. (See the article here.) Last year, Brazil also issued a CL on drugs for HIV produced by a US pharmaceutical firm. India and Mexico are also toying with the idea, if they have not done it already.

What is CL and is its issuance for essential drugs – in Thailand, Brazil, and soon in the Philippines – really driven by concern for the poor, or plain envy?

CL, as defined in the IRR, means “a license issued by the Director General of the Intellectual Property Office to exploit a patented invention without the permission of the patent holder, either by manufacture or through parallel importation.” Most policy pronouncements by governments involved and supporting arguments by health activist groups say CL issuance is driven by concern for the poor. This writer argues otherwise. It is plain dark envy and hatred for multinationals, even hatred for globalization and capitalism, that drives those campaigns for CL, for 3CGs and various forms of government coercion, ultimately for health socialism.

Before, many people were dying of HIV/AIDS, cancer, heart and various communicable diseases. Then some medicines were invented by pharmaceutical companies to cure, or at least keep at bay, those diseases. Those earlier medicines were less effective, treatment period was long, and there could be some side effects. So newer, more effective, safe and more revolutionary medicines came on stream. Naturally, these new medicines also required new and more costly research and development, more revolutionary expenses to comply with more strict health regulations and more demanding expectations by patients.

High development cost means high retail price. And this is something that the health activists and government health bureaucrats cannot accept. The inventors of the new and effective medicines are now painted as evil, greedy capitalists who prey on the weakness and ignorance of the poor. Thus, the solution is to confiscate their patent -- that government-issued tool supposedly to allow those companies to recoup their huge investments and losses in non-successful researches and drugs. The tool for such patent confiscation is compulsory licensing.

There are many other medicines against HIV, cancer, heart and communicable diseases. They can cure, they are safe, and they are relatively cheaper, but they seem to be less effective and treatment period is longer. Patients, rich and poor alike, demand something that will cure them fast and quick, at cheap or no cost to them if possible. So governments and health activists target those more effective but more expensive medicines for CL (and government use and price control). And that’s how plain, dark envy came to surface.

The IRR of RA 9502 is 65 pages long. Minus the general provisions and definition of terms, and Annex TRIPS Protocol, it is 53 pages long. Out of this, 12 pages are devoted to CL and Special CL (Rules 12 to 13 of the IRR). If the provisions on “Use by government” (Rule 10) and “Parallel importation” (Rules 16 and 17) are to be included since they also call for patent confiscation, there are 15 to 16 pages out of 53 pages (or 30% of the total pages) on CL alone, a significant discussion and a signal how serious the Philippine government is intent on coercion and intervention in the medicine sub-sector.

This column repeatedly advocates the importance of personal responsibility. Health is, first and foremost, a personal and parental responsibility, not government responsibility. People can drink, smoke and party everyday, or engage in frequent fights, or live in dirty environment, or live promiscuous lifestyle if they want to. But when their liver, intestine, lungs or other internal organs are punctured and weakened by alcohol, smoke, unsanitary environment and addictive drugs, they have no moral ascendancy to demand confiscation of property rights of private enterprises, price control of those enterprises’ products, and more taxes and health forced collectivism.

If governments are serious in bringing down medicine prices and making health care more affordable to the people, there are plenty of taxes on medicines to cut, if not abolish (import tax, import documentary stamp tax, value added tax, income documentary stamp tax, etc.). There are also plenty of regulations that prevent the entry of more medicine innovators into the country.

Manufacturers of generics and copy-cat drugs compete only in producing and selling old and existing medicines. They do not contribute anything in producing new, more powerful and more effective medicines that can significantly cut treatment period. Unfortunately, these are the medicines that patients are looking for. And governments, by issuing CL and other interventionist and confiscatory policies, are discouraging the development and expansion of more innovative pharmaceutical companies. And governments and their supporting health activist groups say they are “concerned with the sick”?

Thursday, November 20, 2008

Thailand politics and the anti-globalists

My friend from Thailand, an academic economist at Thammasat University, Dr. Pichit Likitkijsomboon, wrote a good article summarizing Thailand politics. It was published around mid-2007 on some websites outside Thailand. The article was partly drawn from ‘Thais pay the price for political turmoil’ in the Far Eastern Economic Review, Vol.169, No.6, July/Aug 2006.

Pichit wrote last year,

"Beneath the surface, the conflict is the struggle between the Thaksin government’s policy of pushing Thailand toward a globalized and competitive capitalist economy on the one hand, and Thai anti-globalization forces led and masterminded by the royalists on the other. Prime Minister Thaksin’s globalization policies include trade liberalization, the negotiations of free trade agreements with the country’s largest trading partners such as Australia, China, India, Japan and the United States, the corporatization of state enterprises, bureaucratic reform and economic restructuring. Although implementation of these policies has not been without flaw and has sometimes been subject to the accusation of the lack of transparency, the direction is clear: a social and economic restructuring of Thailand toward globalized, competitive capitalism...."

"...The crisis looks to last for years. The outcome will judge whether Thailand will move forward to be a modern democratic and liberalized country or an authoritarian state covered up with the skin of elected parliament and civilian government and an undemocratic constitution."

The anti-globalization groups in Thailand are misguided, and I assume they are just among the noisy and media-articulate minority. Despite the fact that many Thais don't speak or read English, that country is very globalized. One indicator is the 15 million foreign visitors (or more?) every year, the new and modern Bangkok international airport, world class beach resorts in Phuket, mountain resorts in Chiang Mai. Big exports, presence of many foreign auto manufacturers, etc.

Recently though, the anti-globalists, anti-multinationals, anti-capitalist forces seem to be gaining in some public policy debates. In health, they were successful in pressuring the Thai Health Ministry to retain compulsory licensing (CL) of a number of medicines produced by multinational pharma companies. And more CLs are coming. For the anti-globalists, innovators of revolutionary products like very effective medicines are evil if they cannot bring down the price of their costly health inventions.

Tuesday, November 18, 2008

Decentralization 3: Challenges to Local Government

I wrote this last November 1, more than two weeks ago, while I was still in Gummersbach, Germany, attending the 8-days seminar on "Local Government and Civil Society".

When an individual, his/her family and neighbors, their friends and associates, their village, civic, professional, cultural, or sports organizations, are challenged enough to do more social and economic activities for themselves and their communities -- and they are in fact allowed to do so, then we can say that there is greater individual and community responsibility to take care of society.

Consequently, we can say that there is greater individual and community freedom on what they want to do with their own lives, with their own neighborhoods, with their own talents and skills.

Obviously, there are a number of functions that the individuals and their voluntary organizations cannot do such as neutralizing armed robbers and criminals; or ensuring fast and unbiased justice system for people with legal and jurisdictional conflict with each other.

They are also unable to provide quality social and welfare services to people who have no or little capacity for productive work, like the mentally- or physically-handicapped. These functions that the individuals and their associations cannot perform more efficiently are then expected to be done by the government, whether local or national/federal.

This assignment of responsibilities -- of giving individuals and their voluntary associations more role in running their own lives and delegating bigger functions to government bodies when the former cannot do these more efficiently, is called the principle of subsidiarity.

When you look at it closely, this principle would sound “revolutionary” or “subversive” to current and dominant thinking in public administration around the world where most functions are expected to be done by the government – from garbage collection to buses, education, housing, unemployment and social security insurance, health care, etc.

This principle of subsidiarity is among the important concepts that participants in the seminar, “Local Government and Civil Society” at the International Academy for Leadership (IAF) by the Friedrich Naumann Foundation for Liberty, are leaning towards. I am lucky enough to be one of the 23 participants from different countries – South Africa, Egypt, Palestine, Turkey, Ukraine, Lithuania, Argentina, Paraguay, Brazil, Pakistan, China, Malaysia, Indonesia, and of course the Philippines.

About two-thirds of the participants are city or municipal councilors, or party leaders in local governments while one-third comes from civil society organizations.

The seminar is held here at Theodor Heuss Akademie, Gummersbach, Germany. The small city is 56 kilometers from Cologne, and the akademie is situated on top of a small hill with a good view of the surrounding residential areas below and wide forest plantation around. The seminar started last October 26 and will end on November 1.

Related to subsidiarity are the concepts and practice of decentralization, privatization and competition. I have written a short paper on “Subsidiarity, Decentralization and Privatization” a few months back. These inter-related concepts are intertwined in a bigger concept called New Public Management (NPM). This concept is called “new” because of its advocacy for lean state, lean local government, and more personal and community responsibility.

On another note, I am happy to see a good friend way back from our undergrad days at the University of the Philippines School of Economics (UPSE), Gladys Cruz-Sta. Rita, starting a regular column “Running a Bureaucracy”, also in the

Gladys gave me a thick book that she wrote bearing the same title, and that book is one of my reference materials here in our seminar in Gummersbach because of the wealth of information and practical experiences that Gladys shares with her readers. It is definitely a good reading material for local government administrators.

Nonetheless, government administrators need to ponder on the principle of subsidiarity and its related concepts for them to understand and appreciate the idea of respecting more individual and community responsibilities in running their own lives. And consequently, for government administrators to withraw and remove plenty of taxes, fees and regulations that tend to stifle individual initiatives, innovation and entrepreneurship.

Today, I will share with you my

Experience in Barangay Justice System

Last week, construction workers in a project about 10 meters away from our window woke us up because they worked until 1 am! That was not the first time the same construction work disturbed our sleep. Before I would call up the barangay tanod and security, within minutes the barangay security officers would come to the project site, and the noise will decline if not stop.

This time, I would not stop at a telephone call at the barangay security. So last Wednesday, Nov. 13, I went to the barangay hall of Brgy. San Antonio, Makati City. A lady at the "Lupon Tagapamayapa" (Peace Council) heard my complaint, gave me a paper, I wrote there my official complaint, in a complaint form, paid P100 complaint fee, she attached the receipt to my form, and instructed me to wait for the summon to be served by the barangay captain to me, the complainant, and the respondent, the project engineer of Ironcon Builders and Development Corp. with official address at Intramuros, Manila but the project is in Yakal St., Makati, just across our street.

I received the Summon yesterday morning, November 17, telling us to report to the Barangay hall on November 18, 1pm. Within an hour, I got a phone call from the respondent, he asked me what do we want, I said we only want to sleep soundly at night. I could sense he wanted an informal arrangement with me, I told him that if I talk to him, there will be no witnesses. I want the barangay officials to hear my complaint, he can defend his company, and we will both listen to the judgement and ruling of the barangay peace council. So he put down the phone.

Today November 18, my wife joined me, we also brought our 2 years old daughter as we have no yaya at the moment. 1pm we were at the barangay hall. The lady said the other Lupon official will be late as he has a prior meeting somewhere and he was not consulted of the 1pm meeting. The respondent came about 1:40pm. The lady said we wait for the barangay chairman to possibly hear us but he was busy with many other guests who keep coming.

The 1pm became 2:15pm, but at last, the meeting started. The other Lupon Tagapamayapa official, Joey Angeles, is a respectable-looking man in his 60s perhaps. Upon learning about my complaint, he did not ask me to detail everything as he is very familiar with similar complaints, and he immediately talked to the respondent, the young project engineer.

Joey was very calm yet clear and emphatic in his points. Construction work of whatever nature should start no earlier than 7am, and should end no later than 7pm. Should there be an extension due to delayed deliveries of materials, the barangay should be informed as well as the affected neighbors, and such extension should be no later than 10pm. No exception.

He also pointed out that he does not want to see us again filing the same complaint. Should there be any complaint of similar nature, the barangay will automatically go after them. The worst that can happen to the contractor is the barangay will move to stop the project. Joey cited the case of a medium-high construction project in the barangay. When digging was made, no structural support was made on the neighboring lot. When the soil began to soften in the neighboring lot, the owner complained to the barangay up to the city hall. The verdict: the construction project was stopped, the contractor and project proponent were left hanging with all their plans and investments.

I was very satisfied with the result of the hearing by the Lupon Tagapamayapa. The respondent clearly understood the constraints on their part. They have to abide by the ruling, or risk facing a bigger problem with the barangay, not just with individual respondents from the affected neighbors.

Being an advocate of small and limited government, the role of maintaining peace and order is one function that I believe should be strengthened in government, both national and local government units. Most other functions can be given back to private enterprises and voluntary associations by individuals.

I have personally experienced how barangay justice system is handled and rendered, and I am impressed.

On another note, I also like the responsiveness of the barangay security personnel whenever complaints via phone calls are made, whether it's during regular office hours or unholy hours at midnight and early morning. The security personnel would normally come within 4-5 minutes or less.

See also:

Thursday, November 13, 2008

US Debt 5: Obama's Taxes, Bail Outs, $56 Trillion Debt Bomb

Below is a good analysis from Cato blog...
Obama's Tax Promises
Chris Edwards

... Note that many of Obama's proposed tax breaks are "refundable," meaning that much of the effect is to increase federal spending, not to cut taxes. Refundable tax breaks involve cash hand-outs to many people who do not pay any federal income taxes.
With that in mind, here are Obama's main proposals to change the tax system from its 2008 structure:

Tax Increases

Raise the top two personal income tax rates from 33 and 35% to 36 and 39.6%, respectively.
Restore the income phase-outs for personal exemptions and itemized deductions, further increasing effective tax rates at the top end.
Raise the top capital gains tax rate from 15 to 20%.
Raise the top dividends tax rate from 15 to 20%.
Increase taxes on oil and gas companies.
Increase taxes on U.S. multinational companies.

Combined Spending Increases / Tax Cuts

Making Work Pay. A refundable tax credit of up to $500 for low-income workers.
Mortgage Credit. A refundable tax credit of up to $800 for nonitemizers who own homes.
Saver's Credit. A refundable tax credit of up to $500 per family for retirement saving.
American Opportunity Credit. A refundable tax credit of up to $4,000 for education expenses.
EITC Expansion. Expand the refundable earned income tax credit.
Child Care Credit. Turn the current child care credit into a refundable credit.

The Urban/Brookings analysis (pages 22 and 25) found that more than half of the dollar impact of these six tax code changes will be to increase federal spending, not to cut taxes. That's $648 billion more in federal spending over the next ten years. In addition, Obama is proposing a new refundable tax credit for buying health insurance.

Tax Cuts

Exempt people age 65 and over from federal income tax if they earn less than $50,000.
Minor business incentives. These promises were so small and undefined that the Urban/Brookings study didn't even score them.

For the economy, for tax code complexity, and for the America ideal of equal treatment under law, Obama's tax proposals would be a disaster. With Obama's tax and spending proposals, government as Santa Claus has reached new heights.

Related papers I wrote recently:

(1) US Budget Deficit

October 23, 2008

Before the $700B bail-out was even proposed, projected US Federal government budget deficit for 2008 alone was $480B. Not included there are budget deficit by various states, cities, counties in the US, also budget deficit of certain government enterprises. So the consolidated public sector deficit (federal + state + other local govts + govt corporations and banks) could be in the $1 trillion + or - several billion $.

That is why I consistently question the logic, the institutions that cannot even discipline themselves in terms of appetite to live beyond their means, are supposed to be the "saviours" of corporate failures?

Is government failure the solution to market failure?
If there are market solutions to market failure, then there should be govt solutions to govt failure. Govts, US govt in particular, should start in their own backyard by stopping the bleeding in their fiscal balance sheet.

But with the current bail-outs and take-over or part-nationalizatio n of a number of private banks, government failure and irresponsibility is being injected with more irresponsibility.

A friend here in Manila, Lardy, shared this funny caricature about the fiscal condition at the end of the following US Presidents:

Ronald Reagan, Fiscal conservative ...... $200 billion deficit
George Bush, Fiscal conservative ......... $300 billion deficit
Bill Clinton, Tax and spend liberal ......... $200 billion surplus
George W Bush, Fiscal conservative ..... $482 billion deficit

Those were nice points. Among my favorite US think tanks is the Cato Institute ( It assembles in one roof many of the world's intellectual giants who believe in more personal responsibility, limited government, and more personal responsibility. Many of them have never been a fan of either the Democrats or the Republicans. Rewarding personal irresponsibility with various subsidies is like choosing which way to socialism, by train or by plane.

Why can't the guys from both parties move to sell and liquidate Freddie and Fannie, get the billions of $ and use it for the bail-out now that it is a law?

From some of my readings, those 2 state enterprises are the depository of nepotism and rent-seeking politicians and bureaucrats, mostly from the Democrats, but some Republican politicians were also showered with some lobby money.

(2) The US' $56 Trillion Debt Timebomb

October 08, 2008

I stumbled on this commentary today in CNN, below…

Commentary: America's $53 trillion debt problem
by David Walker

The Emergency Economic Stabilization Act contains plenty to make lawmakers on the left and right shudder. On the right, it's the apparent abandonment of free-market principles. On the left, it's the absence of punishment for high-flying Wall Street CEO's....

The nation's real tab, on the other hand, amounted to $53 trillion as of the end of the last fiscal year. That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations -- all according to the government's most recent financial statement of September 30, 2007.

The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year....

The US' gross domestic output (GDP, the combined production of goods and services by the federal + local & state governments + private corporations + households) in a year is about $14 trillion. The cumulative debt of the federal government alone will be about 4x of GDP!

If federal debt + state and local govt. debt + corporate debt is combined, how large can it be, $100 trillion? $200 trillion? More? I don't know. But maybe Batman and Spiderman know the answer.

Now, if we listen to many legislators, media commentators and just many other people out there, they say that the US government should do more regulation of all private corporations, whether sinking or floating high up there. Really? They mean, an institution that can irresponsibly accumulate an estimated $56 trillion debt that's 4x of GDP is expected to be the "bright guys" to provide “leadership” in regulating further all private corporations, responsible or irresponsible, earning or misbehaving, private corporations?

Sorry, I really can't see the logic. But then again, maybe Batman and Spiderman can provide the mathematical and philosophical logic.

Meanwhile, got a Filipino friend here in Manila, Sam, who, when we were forming "Minimal Government" way back in 2004 for registration with SEC, commented, "The name sucks! Eeewwww! Why not 'atomize' or 'vaporize' government?"

He has migrated to the US about 2 years ago, but thanks to that capitalist invention called “yahoogroups” or other online networking and web-based mails for free, communication anywhere around the world is very easy. Sam recently wrote, “I agree that change is constant. I am no fan of big government and still have to experience this animal called minimal or no government but smart government? The term smart government is in my opinion oxymoronic. It is and remains a pipe dream.”

Keep on kicking, Sam!

(3) America's Finance Socialists

July 27, 2008

The bailout of Fannie and Freddie (F&F) in the US seems to be over. I read a good article criticizing it as clear socialist attempt at using taxpayers' money to bailout irresponsible fund managers. The author, Gerald O'Driscoll, noted that capitalism without bankruptcy is like religion without sins. So true. Corporate and individual bankruptcy is part of a free society. If people cannot go bankrupt, if they cannot become poor, then they will become irresponsible, complacent and lazy. And there will be equality in society, everyone is equally poor and miserable.

I find the author's writing style frank and funny (f&f, hehe).
Read on!

Treasury's Thieves

by Gerald P. O'Driscoll Jr.

Gerald P. O'Driscoll Jr. is a senior fellow at the Cato Institute. He was formerly vice president and economic adviser at the Federal Reserve Bank of Dallas.

This article appeared in the New York Post on July 23, 2008.

Treasury Secretary Henry Paulson's bailout plan for mortgage giants Fannie Mae and Freddie Mac should be titled "The Bondholder Relief Act of 2008": The taxpayers will be providing the relief to holders of Fannie/Freddie debt, many of whom are foreigners.

Paulson has asked Congress for a blank check from the taxpayer to pay off investors for losses already incurred and likely to be incurred in the next few years. He told Congress that, if it promises unlimited funds to backstop the lenders, Fannie and Freddie are unlikely to draw on the credit line. But the nonpartisan Congressional Budget Office estimates the most likely outcome to be a cost of $25 billion over the next two years - and more if housing deteriorates further.

He also wants authorization for Treasury to buy senior preferred shares in Fannie and Freddie. That prompted Sen. Jim Bunning (R-Ky.) to remark that he thought he'd woken up in France. Yes, socialism is alive and well in America - thanks to a Republican Treasury secretary.

Absent from Paulson's plan is any protection for taxpayers. They'll fund the downside if losses mount at the two mortgage giants. But if Fannie and Freddie recover, stockholders and management gain. Call it "casino capitalism" - taxpayers bankrolling management high rollers.

The plan doesn't ask stockholders or management to suffer for their financial indiscretions. The players who put their companies in jeopardy get to stay in charge - Paulson says he isn't looking for "scapegoats." Someone should remind him that capitalism without failure is like religion without sin.

There are now three possible outcomes:

* Congress passes the Treasury plan in its current form. That gives us the status quo on steroids - Fannie and Freddie continue to make risky bets and rack up more losses, with the taxpayer guarantee fueling the financial fiasco. This would be the worst outcome, but it's where we're headed.

* We could truly privatize the two companies: Remove the federal guarantee and force them to retrench and reform. Fannie and Freddie would have to raise private capital and downsize their bloated portfolios. They'd become just two ordinary-sized financial firms, whose balance sheets would be measured in billions, not trillions, of dollars. A long shot now, this would be the best outcome.

* Nationalize both companies and end all pretense that they're private. (Fannie was a government agency until 1968; Freddie was only chartered in 1970.) They could return to being federal guarantors and packagers of mortgages, and would hold no sizeable assets themselves. This last approach is called "honest socialism."

See also 
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
US Debt 3: Crisis of Irresponsibility, October 13, 2008
US Debt 4: Obama and US Entitlement, November 11, 2008

Tuesday, November 11, 2008

US Debt 4: Obama and US Entitlement

Dear President-Elect Barack Obama supporters,

Belated but big congratulations!

I'm no fan of either OBama or McCain, because I’m no fan of state welfarism and “entitlement” mentality and social policy. But I believe that Obama deserved to win mainly because McCain can’t. Obama should also win because of his impressive talent in mobilizing so many donors and volunteers, across all states, social classes, race and colors. Even across nations and continents.

So I want to see him push more welfarist policies – like more socialized health care, more socialized housing, pension, etc. – by next year as it's being expected of him, and I want to see immediate and medium-term results later on.

Obama and his supporters are right. The US needs change, and they will get it. But the change they want, to my mind, is not towards the classic Jeffersonian-Reagan type of limited government and more personal responsibility, but towards French, Sweden, similar types of highly welfarist but also highly interventionist state and high taxation type of “social democracy” or related social model. A welfare state that decapacitates plenty of personal, parental and corporate responsibilities and assign more responsibility to the State is very expensive to maintain.

The Republicans under 8 years of Bush Jr., I guess, was a disaster in pursuing limited government, more personal responsibility philosophy. The slogan and some rhetoric was there but the actions were not. The $400+ billion budget deficit annual average by the Federal government alone in recent years is one proof of such lurch backwards. The current and on-going bail-outs amounting to several hundred billion dollars more will further stretch out America’s fiscal discipline, or mal-discipline.

Since the US has never been to France-Sweden type of high welfarism society, perhaps it deserves to try this path. Economic, business and political historians of the future will have a grand but hard time assessing the results 2 or 3 decades down the road later.

For the meantime, hats off to Obama and his supporters.
Yes they can!

No, no, no, this is not an endorsement of socialism and welfarism in the US. But that's where the US is headed to, I guess. The signs are there.

Expensive socialized health care promises by Obama and many American voters clapped vigorously. More money for Freddie and Fannie have been poured even after their recent financial debacle, towards continuing socialized housing, and this is not being questioned by the incoming administration. Socializing many things means socializing people's pockets and savings.

Many US voters I guess are salivating to "experience" the French and Swedish, other north-western European welfare system. It's a high expectation that will pressure Mr. Obama to heed rather than digress from.

The big challenge is for the Republicans -- how soon they can go back to the Jeffersonian-Reagan legacy because the current breed of party leaders and politicians seem to be far out from going back to this tradition. Only when the party can realize this that they can put up a more distinct alternative to the new philosophical direction of American voters and political development.

A month ago, October 06, I wrote this:

Majority of Americans Believe in Less Government

The US bail-out was granted, long live the politicians and bureaucrats. So, where will the US government get money to pay for the bail-out? From borrowings, where else.

And what will the legislators, SEC, other government bureaucracies do now that they bailed-out many companies? Regulate those companies more, what else.

For many people in Washington DC, perhaps they think many US corporations became big because of their "support and facilitation". So when some of these big corporations fail, they should not go bankrupt through their new "support and facilitation" powers.

Unfortunately, majority of the ordinary American public believe that less government is better, see the Rasmussen Report below. Their problem though, is that Ronald Reagan is dead, and no one else among the succeeding Republican leaders bothered to follow his wisdom.

May I quote here a friend, Mr. Joe Lehman, new President of Mackinac Center.
In 2004, in an Atlas-FNF conference in HK, he said,

"While the Democrats want to bring us (Americans) to socialism on a train, the Republicans want to bring us there on a bus."

Two weeks ago, I asked him if he still thinks the same, he replied,

"While the Democrats want to bring us to socialism on a plane,the Republicans want to bring us there on a train."

So back to the question, why the current Republican leadership can't see Reagan's wisdom? My guess is the usual politicians' hunger for power -- the power to give away welfare, give away bail-out, to reward personal and corporate irresponsibility.In return, the power to reduce, cut, or retain current high US taxes; the power to retain, reduce or increase government regulations and bureaucracies in business.

59% Agree With Ronald Reagan—Government Is The Problem
Friday, October 03, 2008
In his first inaugural address, President Ronald Reagan delivered a line succinctly capturing the sentiment that elected him: “Government is not the solution to our problem; government is the problem.”
A generation later, that attitude still resonates with a solid majority of Americans. A new Rasmussen Reports national telephone survey finds that 59% of voters agree with Reagan, and just 28% disagree.
Support is found across a wide range of political and demographic groups. Sixty-seven percent (67%) of men agree with Reagan, as do 52% of women. A majority of voters in all age and income groups agree.
The only demographic group to disagree with Reagan’s statement are those who identify themselves as politically liberal. Just 35% of liberals agree that government is the problem, but 46% disagree. Moderates embrace the Reagan view by a 61% to 25% margin, and conservatives are even more enthusiastic.
Republicans overwhelming embrace Reagan’s view, and 55% of unaffiliated voters agree as well. Democrats are a bit less enthusiastic, but 49% agree with Reagan while 34% disagree....

See also 
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
US Debt 3: Crisis of Irresponsibility, October 13, 2008

Saturday, November 01, 2008

Spontaneous Market 7: Price Control is Price Dictatorship

The price of a commodity is an indicator of both its value or usefulness to society (demand side) and its availability or scarcity (supply side). Thus, when a product or service is deemed useless by the consumers, say telegram or personal pager, then its price based on the willingness to pay of the consumers, will be zero or near-zero. At that price, no service provider will supply the service. The result will be clear: telegram or paging companies will cease to exist.

On the other hand, when a commodity or service is deemed very useful to society but it is freely available, or the supply is unlimited, like air, then the price for its consumption will be zero. Luckily, the supplier of that service – nature – does not demand any monetary compensation. But there are certain places and instances where air is very thin if not absent and hence, people will have to buy a “bottle or tank” of air for them to survive, like those in scuba diving or those climbing Mt. Everest or other very tall mountains.

Price, therefore, is a beautiful mechanism that tells people and producers what products and services are most or least demanded by certain groups of consumers in a particular place in a particular time. It is necessary therefore, that pricing of commodities and services be left as freely and spontaneously as possible to allow both producers and consumers, both sellers and buyers, to adjust to each other. If the price is too high, consumers can walk away and the sellers will not sell anything and go bankrupt, even temporarily. If the price is too low, producers will not supply and consumers will buy nothing that they need and they will be the end-losers.

The idea of controlling the price of anything is born out of various motives, from humanitarian and pure public service, to political rent-seeking and pure envy. Price regulation and control is a clear proof and explicit signal that an economy is not free, that pricing of the regulated commodity is highly politicized. Price control is also a naked and blunt proof that there is price dictatorship: the price dictators decide at what price the producer and/or seller of a final product or service can sell, even though the same price dictators do not decide nor dictate the price of all inputs and intermediate products and services needed to produce that final product or service.

Thus, while the rationale or alibi given to institute price regulation and control is to “give justice to the consuming public”, there is great injustice to the same consumers when producers and/or sellers of commodities whose price has been politicized and regulated will be discouraged from producing further. When prices are controlled, producers who can possibly make some “miracle” products at sky-high and “miraculous” costs will be discouraged from innovating and producing those products. Ultimately, it is the public, the consumers, who will be the losers because they will be deprived of enjoying such revolutionary products.

Can people expect the “same” quality of a commodity after government has distorted and coerced a lower price? This does not look possible.

Producers will be discouraged from producing better quality commodities or products that require higher cost of raw materials and intermediate inputs, higher wages for higher labor and technological skills, higher office and plant rentals for cleaner production environment, higher cost of storage and packaging, etc. When the price of the above-mentioned production and marketing costs are uncontrolled, plus there are uncontrolled taxes and fees slapped on them, then the price of the finished product will be controlled later, then it is a perfect formula to discourage production of good quality commodities. Only low quality and mediocre products will be produced and sold in a politicized pricing system.

This partly explains why under normal, non-coerced, non-politicized pricing system, there are different prices for different quality products of the same generic category. For instance, there are different prices for different designs and brands of running shoes. And people love this price segmentation or price differentiation for differentiated designs, quality and packaging of products.

Here in the Philippines, price control is seldom practiced, thanks to some sanity in the minds of government regulators and bureaucrats. Unfortunately, that populist and interventionist policy is never erased in the minds of many people in government. That is why in the recently-enacted “Cheaper medicines law” or RA 9502, price control of some drugs and medicines “when national emergencies exist” was included.

This already sends a negative signal to producers of good quality and innovative medicines while sending positive signal to producers and traders of low quality, non-innovative, even counterfeit medicines. Because a “maximum price” to be set by the government through the Department of Health (DoH) and ordered by the President of the country will now be used by the second group of medicine producers and traders as a “target” price. Even low quality and non-innovative drugs can be priced near or at the level set as “maximum price” by the State.

The potential damage of the price control provision in the law, however, can be mitigated if the implementing rules and regulations (IRR) that will be issued will make it difficult and nonarbitrary to declare a “national emergency” to justify medicine price control. Thus, certain safeguards that are strict enough should be included in the IRR.

The current draft IRR prepared by the DoH somehow lists some good and strict criteria before a maximum retail price (MRP) can be declared. Among such criteria are the dozen-plus factors and inputs that contribute to the final price of medicines, like cost of research and marketing, taxes and fees, exchange rate, and so on.

But the composition of the Price Control Advisory Body or Consultative Council was not defined. This writer suggested some proposals on who should be in that body or council, mainly players from the private sector plus consumers. Since the composition of the body or council is not defined in the DoH draft IRR, it is possible that such body may be packed with lots of government officials, like people from the DoH, DTI, BFAD, DoST, DSWD, NEDA, DILG, and so on.

A definition of what constitutes “national emergency” was also not made in the section on Definition of Terms. Again, there is danger that such phrase can be abused by an abusive and corrupt DoH Secretary and President of the country someday. They could threaten the manufacturers and distributors of safe, effective, but “expensive” medicines with: “Hey, we will issue price control (or compulsory license) on your most popular and blockbuster medicines, unless you pay us…”
This is not to say that the current DoH Secretary and President are corrupt and extortionists. This law will stay with the citizens and residents of this country for the next 20 or 50 years or even longer, unless amended by another law where the price control provision is removed and abolished. The appearance of corrupt and extortionist DoH Secretaries and Presidents of the country in the next 20 or 50 years or even longer, is a big probability considering the bad governance culture and history in the country.

Hence, mechanisms should be instituted to make it difficult for future corrupt and extortionist DoH Secretaries and Presidents to impose medicine price regulation and control arbitrarily. More innovators and inventors of effective, revolutionary and safe medicines should be encouraged to come in, and not discouraged with politicized pricing and patent confiscation. With more competition among such type of medicine producers, the public will be protected with quality and affordable medicines.

* See also:
Spontaneous Market 5: Limits to Free Market? November 16, 2007
Spontaneous Market 6: Removing Pork Barrel, December 16, 2007