Thursday, May 31, 2018

BWorld 216, Positive and negative disruptions in the electricity market

* This is my article in BusinessWorld last Monday, May 28, 2018.

Last week, May 22, a BusinessWorld report said “DoE forecast for peak power demand exceeded on May 17” referring to 10,688 MW peak demand in the Luzon grid on May 17 reported by the National Grid Corp. of the Philippines (NGCP) vs peak demand in 2017 of 10,054 MW.

The increase of 634 MW or 6.3% increase can be considered as positive disruption. Demand for electricity to power various economic activities by households and corporations including those with 24/7 operations remains high and they approximate GDP growth.
Reports of more renewable investments and installations, wind-solar especially, are not “disruptors” because in 2017 or nine years after the enactment of RE law of 2008, solar-wind contribution to total electricity generation in the Philippines constituted only a measly and near-negligible two percent (2%).

Reports also of more battery storage for intermittent wind-solar can neither be considered as a “disruptor” because those batteries do not produce electricity. If it is cloudy or raining then there is no extra solar power to store; if the wind does not blow then there is no extra wind power to store.

During the BusinessWorld Economic Forum 2018 last May 18 at Grand Hyatt BGC, among the speakers were Kristine Romano of McKinsey & Company, and Luis Miguel Aboitiz of Aboitiz Power Corporation. Ms. Romano partly mentioned that innovations in the energy sector is among the big disruptors in the world today. Mr. Aboitiz skirted discussing his sector and mentioned more about the challenges and opportunities of endless innovation and disruption in many sectors.

And we go back to renewables touted as disruptor to “save the planet” (save from what, rains and floods?) and there is one belief or myth that continues to persist — that the cost of wind-solar technology is declining quickly so the cost to generate electricity from them will decline too.

Intermittent or variable renewable energy sources (VREs) are given feed in tariff (FIT) or guaranteed price subsidies for 20 years, among many other perks, by the RE law of 2008 (RA 9513). What happened to this scheme?

First, the FIT rates given to RE developers keep rising yearly, despite the touted decline in the cost of wind-solar, and second, the estimated revenues per kWh is are highest for wind-solar and lowest for run of river (RoR) hydro (see table).

Bangui Wind 1 and 2, built in 2005 then August 2008 or before the enactment of RE law in 2008, a bit anomalous, were also given special FIT rates: P6.63/kWh in 2015; P7.05 in 2016; P7.26 in 2017; and P7.53 in 2018.

Then also last week, May 21, the ERC has granted the rise in FIT-Allowance (FIT-All) in our monthly electricity bill from 18.30 centavos/kWh to 25.32 centavos /kWh starting June 2018 billing. This is to cover under-recoveries in 2017 alone.

And that explains the negative disruption in the Philippines electricity market. Energy coming from “free” solar and wind and “declining” technology cost actually result in even more expensive electricity.

This higher FIT-All rate includes only under-recoveries until 2017. Under-recoveries this year not included yet, so a higher rate of probably 33 centavos/kWh can be expected in late 2018.

The environmental and RE lobbyists succeeded in making cheaper coal become more expensive via higher coal tax of P50/ton in 2018, P100/ton in 2019, and P150/ton in 2020 under the TRAIN law. Taxes for oil used by power plants also went up as well and expanded VAT application to transmission charges.

Expensive electricity is wrong.

Adding more intermittent, brownout-friendly, and expensive VREs like wind-solar is wrong. Adding battery storage will reduce the intermittency but will definitely raise the cost to consumers further.

Government should take the side of consumers who desire cheaper, stable electricity. Government should stop its double standards in energy taxation, slapping higher excise tax for reliable oil and coal plants but exempting from excise tax the unreliable, unstable, intermittent VREs especially wind-solar.

See also:

Tax Cut 32, Rene Azurin on zero income tax

I am reposting this column 11 years ago by a friend, former UP CBA Prof., Dr. Rene Azurin. Rene has published several books. He mentioned me and Vernie Atienza here. Enjoy.

BusinessWorld, July 12, 2007
René B. Azurin

Zero income tax

'Zero income tax' has a nice melodic sound. It produces in me the same resonant vibrations as Toyota's 'zero defect' production system and the environmentalist movement's 'zero waste' program. So, given the current hoohah over the BIR's latest failure to meet its tax collection targets, it seems timely to propose that hard-to-collect income taxes be now scrapped altogether and the revenue derived therefrom raised instead through easier-to-collect consumption taxes. This replaces a messy, susceptible-to-corruption system with a simpler, less discretionary one.

I have actually been suggesting this for many years now to any tax official who would listen so I was very glad to learn that my friend and former graduate school classmate, Dr. Veredigno Atienza, has created an advocacy group to lobby for this to happen. The organization founded by Dr. Atienza is called the Philippine Taxpayers Union and it is affiliated with the World Taxpayers Associations, a movement now in 42 countries that grew "out of the desire of citizens to protect themselves from the increasing tax claims of the state." I think that is an excellent reason for citizens to band together. Taxes, after all, are forcible impositions made by those with power on those without it. From a historical perspective, these are qualitatively no different from the tong extorted from people by the ancient predatory bandits who called themselves kings. In fact, taxes can be effectively looked at as the goods that the productive members of the community are compelled to give up in order to support the lifestyles of a non-productive group of individuals sometimes called politicos.

Of course, in a modern democracy, taxes are supposed to be payments for certain support services – like maintaining order and administering the system of justice – performed by the politicos who capture control of government power. Accordingly, citizens are well in their rights to demand that the goods they are forced to give up is used in the proper manner and not used to enrich parasitic politicos who think that they are entitled to lavish compensation for what they imagine is productive work. From a practical standpoint however, citizens have no real power to make that demand – since politicos wield the coercive instruments and armed might of the state – and this is why it is necessary for individual citizens to band together to achieve the small modicum of power possible through concerted group action.

The WTA and its member associations like the PTU support initiatives that "limit tax burdens, prevent unjust harassment by tax collectors, and provide clear information about government taxation and expenditure." In a recent forum organized by Dr. Atienza, PTU Secretary-General Bienvenido Oplas Jr. presented a paper arguing for the abolition of income taxes and making consumption taxes the main source of government revenue. Principally, he argued that income tax collection is "very bureaucratic, discretionary, costly, and corruption-prone… (because) people do not want to divulge their true income… (and it is) cheaper to hire good accountants and lawyers and bribe revenue collectors than pay the full income tax liability." Additionally, Oplas argued that individuals and enterprises that engage in economic activities – by producing goods, services, and jobs – "already serve welfare functions in society… and they should not be penalized with income taxes and bureaucratic licenses and permits."

I agree completely. Taxes based on consumption are simpler to administer since these are collected from merchants and businesses which constitute a far smaller number than the number of individual taxpayers. Consumption taxes are also inherently fairer. The more you consume, the more taxes you pay. Moreover, this is more consistent with individual freedom because it allows each consumer to spend all that he earns in a manner that maximizes his satisfaction while still generating for the government the required amounts to fund support services. To address social welfare concerns, consumption tax rates can be set higher for non-essentials like cars and condos, and lower for essentials like food and medicine. Certain basic commodities like rice and galunggong can even be exempt from any consumption taxes whatsoever.

If one grants that the present national budget of some P1.1 trillion is a reasonable imposition on the producing classes of our society, then the required tax bite will amount to some 17% of the aggregate
value of goods and services produced domestically (assuming a GDP of around P7 trillion). The amount in tax take to be foregone from the abolition of personal and corporate income taxes – I believe this was around P881 billion in 2006 – can actually be drawn from various consumption-based taxes already being collected like value-added taxes, sales taxes, excise taxes, real property taxes, vehicle registration taxes, travel taxes, amusement taxes, and import duties. How this is to be distributed just takes a little arithmetic.

One might also argue however, as PTU does, that scrapping income taxes will actually expand the total tax base and therefore allow a desired tax take to be raised with not too high an increase in the prevailing rates of existing consumption-based taxes. The argument made is that zero income taxes will stimulate business investment, generate greater economic activity, and bring currently underground businesses (the so-called informal economy) out into the open. This can mean increased government revenues even with lower taxes per taxpayer. And there will be less corruption. In the end, this translates into faster growth for the economy as a whole.

So, citizens, let us band together and support this initiative. A zero income tax system is good for all of us. But not, maybe, for some people in government.

See also:

Tax Cut 29, Culture of exemptions and culture of envy, February 06, 2017 
Tax Cut 30, Trump's 20% CIT, deregulation, October 09, 2017 
Tax Cut 31, Talk at Deloitte TRAIN forum, January 2018, February 11, 2018

Tuesday, May 29, 2018

BWorld 215, Urban mobility index and transport disruption

* This is my column in BusinessWorld last week, May 24.

As incomes rise around the world, they tend to stay within cities, urban hubs, and rural areas on the cusp of urbanization. Congestion follows as a result, even if property developments are done vertically.

After searching for an international transportation or mobility index that includes Metro Manila or the Philippines, I found one made by the Arthur Little Consultancy. They developed the Urban Mobility Index, a point system with 100 points as the perfect score.

The index is composed of three groups of urban mobility systems: Maturity of the system (36 points), Innovation (24 points), and Performance (40 points), with nine topics in each group. These are: Transport-related CO2 emissions, NO2 concentration, PM10 concentration, PM2.5 concentration, Traffic-related fatalities, Increase share of public transpo (PT) in modal split, Increase share zero-emission modes, Mean travel time to work, and Motorization level.

The second biggest group, Maturity, and its nine topics are: Financial attractiveness of PT, Share of PT in modal split, Share of zero-emission modes, Road density, Cycle-path network density, Urban agglomeration density, Public-transport frequency, Urban mobility initiatives, and Urban logistics initiatives.

About 100 cities worldwide are covered. Surprisingly, Metro Manila has scored moderately and not in the lowest group of cities (see Table 1).

People may wonder why Metro Manila has ranked higher than Osaka or Sydney or Kuala Lumpur. Perhaps the surveyors and researchers covered only the EDSA area where a train — however cramped — exists and jeepneys and tricycles are banned. Vehicles move along at slow speeds during rush hours.

Disruption in urban mobility was first made by MRT/LRT a few decades ago. However, an increase in capacity was few and far in between, resulting in a persistent “transport crisis.”

The second round of disruption was made by vans and UV expresses, which help ferry passengers from high density locations and help them avoid taking multiple rides to their destinations.

However, this local initiative was restricted by the government via the LTFRB as it severely limited the franchising of UV express vehicles and heavily penalized vans that were “colorum (unregistered).”

A third round of disruption was introduced by a multinational company, US-based Uber. It was so successful, it inspired a regional competitor, Singapore-based Grab, to offer the same service.

Unfortunately, the LTFRB kept to its antiquated regulations, restricting the number of cars to serve both Uber and Grab. It later penalized Uber with a substantial fine.

Plagued with its own financial issues, Uber later decided to quit Southeast Asia and merge with Grab.

Meanwhile, actions of the LTFRB leave much to be desired.

Of the 19,000 Uber drivers, only 11,000 were absorbed by Grab since these were the only ones accredited by the LTFRB.

Some 6,000 former Uber drivers are still waiting accreditation and are unable to drive for Grab because they are not in the LTFRB master list while some 2,000 ex-Uber drivers have possibly given up (see Table 2).

Grab Philippines Country manager Brian Cu brought this up during his presentation during the BusinessWorld Economic Forum 2018 on May 18 at Grand Hyatt Hotel, BGC in Taguig City. The forum’s theme was “Disruptor or Disrupted: The Philippines at the Crossroads.”

Ride-sharing and TNVS scheme are disruptors in urban mobility system and thousands of commuters have benefited. The LTFRB and government bureaucracy have disrupted this in their own way, resulting in increased inconvenience for TNVS passengers.

To this day, the LTFRB continues to control fares and cap surge pricing, a move that discourages drivers from getting incentives for picking up passengers even in inhospitable areas. This, despite the fact that the agency has already limited the number of accredited drivers, as discussed previously.

Providing comfortable, convenient, and safe transportation is not a crime and government has no business limiting this kind of entrepreneurship. Government should instead further expand competition, stay away from price and fare control, and allow commuters to have more choices.

See also:

Energy 109, Sudden decline in world oil prices

Good news and bad news. The good news is that world oil prices are declining in recent days, WTI for instance fell from $72 last week to only $67+ yesterday, so we can expect lower domestic oil prices around next week.

The bad news is that the $80/barrel Dubai crude threshold may not be reached anymore, so oil tax hikes part 2 by January 2019 under TRAIN will continue, another round of oil price hikes.

Either way, there will be more tax money for Dutertenomics. Higher world oil prices mean higher domestic prices, higher VAT collections. Lower world oil prices means the $80 threshold won't be reached, so part 2 of oil tax hike will proceed by January 2019. Whether higher VAT collections or higher excise tax collections from oil products, more money and jumping with joy for Dutertenomics.

Two main reasons for this. One, US oil production is ramping up fast, 10-11 M barrels per day (mbpd) seems easy. Hitting 12 mbpd may be reached this year or next year. Two, Saudi and Russia are scared of losing some of their market share if they continue the production cut, so they too have to raise their output. 

High oil prices can "kill cars" dream of the ecological socialists? 

Far out. That would mean more motorcycles, more tricycles, more e-bikes and more chaos on the roads. And that won't happen. People would cut their spending on expensive schools and meals, expensive houses, etc but they won't let go of their cars. The multiple ride system if one does not have a car, either owned or via ride-sharing/TNVS, is inconvenient. It means tricycle from house to nearest road with jeepney or bus, then jeep/bus, then MRT/LRT, then jeep again to destination. Reverse the process going home, about 6-8 rides a day. Inconvenience, susceptibility to thieves and maniacs.

See also:

Saturday, May 26, 2018

BWorld podcast 2, TNVS fare and surge control are wrong

My second podcast in BusinessWorld was posted last May 17, 2018.

I discussed there what I frequently argue in my column -- that government interventions in pricing in a deregulated sector is wrong, that price and fare control is wrong. Government restrictions in number of land transportation franchises and transport network vehicle service (TNVS) like Uber, Grab, new players like Hirna, are wrong.

Government should encourage more players and competitors per sector, per industry. Consumers and commuters must have more choices in ride sharing.

See also: BWorld 156, Integrated PPP vs hybrid PPP, October 04, 2017.

Climate Tricks 67, Alarmists with deep-seated intolerance

Last May 22, a friend Joe Real, posted this in his fb wall, praising the automakers and attacking Trump about climate change.

Carmakers to Trump: 'Climate change is real'
BY MORGAN GSTALTER - 05/22/18 08:27 AM EDT

Joe is the older brother of my classmate in high school in Cadiz City, Negros Occidental. He is among the bright boys our city has produced because he went to Philippine Science High School, then UPLB, Agri Engineering. He has lived in California for many years now.

We have debated a few times in the past over climate and energy issues, he taking the alarmist side while I take the realist/skeptic side. One time he deleted my comments, also the comments of his other friend who disagreed with him on his "more renewables to save the planet" argument. It was some sort of an alarm bell for me but I let it pass. So I commented in his post, 

At first I did not read his entire response so I followed up with these questions:

Joe, Pls show (1) of the recent CC say the past 200 years, how much is nature-made vs man-made? Proof?
(2) Medieval warm period, how much was nature-made vs man-made? Proof?
(3) Roman warm period, how much was nature-made vs man-made? Proof?

No numbers means crystal ball hula-hula, hahaha.

Then I re-read his comments and realized that it was full of unsubstantiated claims and personal attacks, of deep-seated intolerance at being questioned of his belief. 

See these for instance and my comments in his thread:

(1) "climatic changes which is very rapid compared to any other geological times" -- where are the proof of this? rapid by how much, 2x, 50x, 100x? Proof and links? say compared with the Medieval warm periodA? Roman warm period?

(2) "you are being part of the problem because you loved fossil fuels as your livelihood." -- Where is your proof, Joe? I wish that was true so I will be rich now. You are guided by emotionalism and voodoo science to make fake and stoopid claims,

(3) "I am writing this in hope that your future children or your future relatives will vilify what you’re doing." -- my children enjoy riding an airplane that uses fossil fuels. If I make them ride giant kites or giant brooms to fly to Negros or Iloilo, they will vilify and hate me.

Now look at yourself and your lifestyle -- you post your travels to far away places, meaning you did not ride giant kites but giant airplanes that use fossil fuels, then you hate fossil fuels. That's 101% hypocrisy double talk, Joe.

(4) "you don’t have any credentials to show, so you only have an opinion that’s worth nothing much except create some noise." -- horrible, if one cannot confront the issues and counter-arguments, just do endless personal attacks.

Again, answer this, you who have "credentials":

(1) of the recent CC say the past 200 years, how much is nature-made vs man-made? Proof?
(2) Medieval warm period, how much was nature-made vs man-made? Proof?
(3) Roman warm period, how much was nature-made vs man-made? Proof?

I did not realize that his intolerance at being questioned is so deep, so wild. He will make fictitious claims like "fossil fuels as your livelihood", I think only highly emotional and intolerant minds would make up stories like that.

I like fossil fuels not because I earn money from those companies. Never worked for any of them in the past and the present, not even part time or consulting work. I like fossil fuels because they gave humanity modern and more convenient lives. I drive a car that uses gasoline; I ride airplanes that use aviation turbo; we cook in the house on LPG, not on firewood or charcoal/biomass; we have 24/7 electricity and internet mainly because of coal, natural gas and oil-based peaking plants, all fossil fuels. Without fossil fuels, life will be horribly dark, inconvenient and backward.

Joe's intolerance and emotionalism like Al Gore-UN-CCC-WWF-others are based on voodoo science.

Joe's other friend, Paul Sarmiento, also made some good observations:

Joe Real To prove that the current change in climate is mainly due to man, you have to clear all doubts that natural climate variability is smaller than human caused forcing. Unfortunately, as I have been arguing across different fora, the records we have is too short and too sparse to draw any conclusions from.

But of course you would ignore that since you've been an AGW believer from the get go. Open your mind and use critical thinking. Use your statistical skills and not rely on conclusions from other scientists. Their own data will belie what they conclude.

Also the argument that the current warming is faster than at any time in history is a phenomena related to the way granularity of data decreases as you average it out over greater time periods.
A good example is the daily swings in temperature is much greater than monthly swings in temperature. And monthly swings in temperature is much greater than annual swings in temperature. This is true in years vs decades, decades vs centuries and so forth. Since current era records are measured in months and years which is being compared to proxy temperature records that are averages over larger periods of time, the fallacy crops up that the current warming is faster than at any time in history.

But a quick way to falsify this notion is to look at the first half of the 20th century vs the 2nd half. Both periods shows a sharp increase in global temperature. From 1900 to 1940 the slope of the temperature rise is almost the same as for the period of 1970 to 2000.

But while AGW theory blames the 1970 - 2000 rise to humans, they cannot attribute the same to the rate of increase in the early 20th century. Therefore, to blame nature for the first and to blame humans for the second is incongruent to the way science works.

See also:
Climate Tricks 64, Bitter cold and snow are caused by AGW, January 06, 2018 

Climate Tricks 65, "Last chance" to save the planet stories, 1992-2018, March 16, 2018 

Climate Tricks 66, Ignoring the implications of worsening cosmic rays situation, March 18, 2018

Thursday, May 24, 2018

BWorld 214, Disruption in global economic power

* This is my article in BusinessWorld last Monday, May 21, 2018.

The past three decades showed major disruptions in global politics and economics. These include the fall of European socialism with the collapse of the Berlin Wall in 1989, the creation of many new countries from the former USSR, the move towards freer trade with the creation of the World Trade Organization (WTO) in 1995, and the transition from heavy central planning to the market economy of two big socialist economies in the world, China and Vietnam.

Disruption in macro economy and business is a result of endless innovation by new players both in business and politics. What used to be dirt-poor economies have transformed to middle-income, Internet-savvy ones.

Let us review global economic performance over the past 25 years. We use 1992 as base year because there was no WTO at that time so many economies were still grappling with trade restrictions and by extension, investment constraints. The then top 10 East Asian economies are covered here (see table).

These numbers show the following disruptions over the past quarter of a century.

One, China’s communist central planning until the ’80s has resulted in a very poor economy. Its transition to some principles of the market economy resulted in massive turn-around towards more prosperity: GDP size has expanded 24x in current prices and nearly 16x in PPP values.

Two, India has similar economic policies with China until the ’80s, very nationalistic, socialist, and restrictive. Its transition to some market reforms allowed it to expand its GDP size nearly 9x.

Three, seven to eight ASEAN economies have experienced GDP size expansion of at least 5x in just 25 years, whether in current prices or PPP values. Only Thailand and Brunei failed to expand 5x because they have a relatively high economic base in 1992 or earlier.

Four, traditional rich economies of Europe, Japan, and US were only able to expand three times at most. This is because they already have a high economic base in 1992, and they have become more regulated and more bureaucratic recently owing to very high labor, energy, environment, and other standards.

Going to the micro and enterprise level, many previously domestic and nation-limited companies in East Asia have become regional players and multinationals initially, then became global players.

The Philippines for instance has produced a number of big regional players: San Miguel, SM, Jollibee, Unilab, Zuellig, Max’s, and Pilmico/Aboitiz.

There are many new players that experienced disruptive ascent in just a few years of existence, like Udenna/Phoenix/Chelsea, Voyager, Mobext, AdoboMall. Their CEOs and presidents were among the speakers in the BusinessWorld Economic Forum 2018.

Endless innovation has brought new players to the top and they are the disruptors of the corporate status quo. But their ascent to the top is not guaranteed because new breed of disruptors are being born and created every year.

The market economy has an inherent disruptive, innovative, and subversive nature. Corporate expansion and bankruptcy, boom and bust, are 100% part of its DNA. This uncertainty and several other disruptions may be bad for existing players but they will always be good for consumers. Satisfying consumers is the single biggest challenge to all players, old and new.

The Philippine and Asian governments should ride the wave of disruptions and allow more market reforms, more deregulation, de-bureaucratization and less taxation of the business environment. Governments’ goal of more welfare, less inflation to the people can be better provided by a competitive and dynamic economy. Plenty of private players can create more jobs and produce newer products and services at lesser cost, better quality, and more variety.

See also:

An old correspondence from Libertarian Viewpoint

While looking for an old email from a friend, I rediscovered this email from an American friend though I have not met him.

October 08, 2010


Hi, my name is jim kearney. I hope this finds you and yours well. I ran across your name in a list of people writing sections for the book "Why Liberty". Congratulations on being selected.

Your name on that list caught me by surprise which is why I am writing. I was not aware that a think tank existed in Manila. With the new laws that passed saying people who do not believe in government cannot be citizens of PI, it sort of dashed my hopes to moving there. I of course came to the conclusion that the government was pushing for more government control rather then more freedom.

Suddenly I get an email with your name on it and hope is once again renewed. It has always been my dream to retire in the PI. Each year we go there for vacation I want to just stay there instead of returning to the US. Of course, I cannot do that yet since the kids still need me to help them stand on their own. I love my kids but they do not want to live in PI like I do.

Well, anyway, I am interested in your think tank. I run my own Libertarian blog here in the US and would be delighted to try and get some exposure for you there (on a regular basis if possible). I would also like to find other Libertarian minded indiviuals there who would like to be authors on my blog. The more authors I get from around the world the more successful the blog will be.

Please tell me more about your think tank.
I see you have some regular posts - can I repost those on my blog as well. your content would be wlecomed to show that Libertarianism is taking hold world wide and not just here in the US.

Looking forward to hearing from you.
May you be filled with the peace of the world and may prosperity find its way to your wallet

yours in liberty


I replied to Jim of course and expressed gratitude for his letter. He was planning to visit the PH that time, his ex-wife was a Filipina and they have a son who lived in the country. 

Today I checked his blog, he still writes there. Among his recent posts that I like is this, reposting below.

You Cannot Legislate The Poor Into Prosperity
By jim kearney, on March 4th, 2018

Adrian_RogersAdrian Rogers was an American Pastor, author and president of the Southern Baptist Convention. Born in West Palm Beach, Florida, he decided to enter the ministries at the age of 19. He dies of pneumonia in November of 2005. I am not the religious type. Though raised as a Catholic I do not follow the church teachings any longer.

None-the-less, I did found info on Adrian to be very informative. He pushed the conservative agenda from the pulpit and believed that Christians had a duty to be involved in government. He had a series titled “God’s Way to Health, Wealth and Wisdom”. In that series he talked about how young people don’t understand the importance or value of “honest” labor. The series produced one of the most famous quotes seen widely across the internet.

I ran across the quote the other day and it started to look into Adrian so I could present it to you here with a little background. Enjoy!

You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

What one person receives without working for, another person must work for without receiving.

The government cannot give to anybody anything that the government does not first take from somebody else.

When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that, my dear friend, is the beginning of the end of any nation.

You cannot multiply wealth by dividing it.

Yours in Liberty.

I like these:

You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
* What one person receives without working for, another person must work for without receiving.

Good to see that you're still writing, Jim.

Wednesday, May 23, 2018

BWorld 213, Disruption, inflation and taxation

* This is my column in BusinessWorld last May 17, 2018.

Disruptors tend to be successful in three ways: (1) They dramatically lower historic prices through new cost structures…”
— Accenture, “Disruption need not be an enigma,”
February 2018

“Inflation is taxation without legislation.”
— Milton Friedman, 1974

Disruption is good for consumers. It unsettles many incumbent and entrenched players which may have been lording over the market for decades with expensive and substandard products and services.

Disruptors are often the newcomers, or old players using new and modern production methods that drastically change how things are done.

Inflation is immediately tamed by disruption, ceteris paribus or all other things being equal or held constant. Consumers are given new choices and they tend to flock to products and services with lower prices or similar prices but better quality or more add-ons.

The institutionalization of freer trade in 1995 with the creation of the World Trade Organization (WTO) has contributed to lower prices across many countries.

As a result, prices in Asia in 1995-1999 were significantly lower than prices in 1990-1994 except in Thailand and Indonesia which were badly hit by the Asian financial turmoil of 1997-1998. Then prices generally declined in the succeeding decades until 2017 (see Table 1).

Higher taxation and more government regulations however, have the opposite effect of market disruption. When a country imposes drastic tax hikes, that country experiences significant inflationary pressure and reverses the gains of disruption.

This is particularly true in the Philippines when it enacted the Tax Reform for Inclusion and Acceleration (TRAIN) law of 2017.

While personal income tax rates have declined, many products (oil, LPG, coal, sugary food and drinks, etc.) and services were slapped with higher excise tax and/or expanded VAT.

While all countries and economies were hit by rising world oil prices, many incurred even lower prices.

But in this case, the Philippines is an outlier.

Inflation jumped even after the sudden rebasing of the consumer price index (CPI) from 2006 to 2012. The two richest economies of North America and Europe are included to widen the scope of comparison, year to date (Ytd) vs. December 2017 as base year (see Table 2).

Note that the outlier inflation rate in the Philippines this year does not yet include fare hikes by land transportation companies and providers (jeepneys, taxi, UV express, buses). If such fare adjustments are granted — and they should be — then the country’s inflation will rise even higher.

The Bangko Sentral ng Pilipinas (BSP) noted this unexpected level of price increases and it raised local interest rates to encourage people to spend less and save more and hence, help reduce inflationary pressure.

Rice protectionism and NFA importation monopoly are also slowly being abandoned and the rice import quota will soon be replaced by tariffs and cheaper rice from our ASEAN neighbors will soon become more available to consumers and this will help reduce inflation.

The bad news is that January 2019 is fast approaching and there will be a second round in oil and coal tax hikes. This means another round of inflationary pressure, fare hike pressure, and even larger inflation spikes.

This is a clear case of higher taxation reversing the gains of innovation and disruption in the Philippines. Government as negative disruptor is not good. The TRAIN 2 bill should be an instrument to reverse these disagreeable provisions of TRAIN 1.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

See also:

Economic central planners meet ecological central planners

When economic central planners were hoodwinked by, or partner with ecological central planners, one result is lousy economic policy based on crystal-ball predictions. Like this high oil, LPG, coal taxes under TRAIN 1. Dutertenomists believed that world oil prices would never rise high anymore partly because they thought that world demand for oil will flatline or decline soon as more e-cars, e-bikes, e-buses come in. Of course the major reason is they want more transfer of money from private/household pockets to government pockets while they help "save the planet."

Here is an example, economic central planners thought that ecological central planners like UN-Al Gore-CCC, etc would be so right in predicting declining world oil demand and hence, low/stable world oil prices.

Pernia: Gov't did not expect crude price to reach multi-year highs
ABS-CBN News, May 19 2018 12:51 AM

I talked to one DOF Junior staff and that's what he told me, DOF and the rest of Dutertenomics were thinking that supply-demand of gas engine cars will decline as demand for electric cars will rise fast. Eh 1980s ko pa narinig yang e-cars e-cars na yan, after 3-4 decades mostly press release lang and far out from being a really useful stuff. The reality is the opposite of what the ecological central planners say -- demand for oil-propelled vehicles, planes, boats, will keep rising.

Dutertenomists (DOF, DBM, NEDA, DTI, BSP) were so certain then when TRAIN was still a bill, that the inflationary impact of higher oil prices due to high oil taxes would be only 0.7% max. As of April 2018, ytd jump in inflation was 1.2% or nearly double their projected rates. So NEDA issued another prediction last May 04 that look like based on crystal-ball de manghuhula again.

May 4, 2018

I said "crystal-ball prediction" by NEDA of inflation tapering off because govt, via LTFRB and Malacanang, with implicit silence of all Dutertenomists, will not grant any fare hike adjustments. Govt is good in sucking taxes from owners and operators of jeepneys, taxi, UV express, buses but will never grant fare adjustments.

If the Dutertenomists are responsible and honest, they should voice out granting the fare hike adjustments now and find other means to minimize the impact. Wala eh, pasimple lang.

Then January 2019 is near, round 2 of tax hikes for oil and coal, also LPG I think. Inflationary pressure will build up as early as December or Nov. 2018. Then tatahimik naman mga Dutertenomists for any fare hikes?

To say that PH inflation rate is high because of high world oil prices is dishonesty. If that statement is correct, then many if not all oil-importing countries in the world should have experienced high inflation in 2018 compared to December 2017 or full year 2017. This is NOT the case. Many countries even experienced deep decline in domestic prices despite the rise in world oil prices. See table 2 here,

Disruption, inflation, and taxation
May 16, 2018 | 9:22 pm

"Inflation, as we have predicted, will be higher in May, June and July but will eventually go down but still at a high level. It will average close to BSP target band, so that should not lead to suspension," Ang said.

He also cautioned against efforts to suspend the implementation of the tax reform law, saying this would affect the country’s credibility as a now investment grade nation. "TRAIN Law cannot be reversed because the cost to economy and credibility is larger," he said, adding that TRAIN is a package for economic growth. "If you suspend it, where will you get the revenues to fund growth and what will investors and ratings agency think."

Suspension of TRAIN may affect Philippines credit rating — economist
Czeriza Valencia - May 21, 2018 - 12:00am

I agree with Alvin there, I do not support the suspension of TRAIN 1. What I support is that many ugly and inflationary provisions of TRAIN 1 like high energy taxes (oil, LPG, coal), sugar tax, should be reversed and removed via TRAIN 2.

Du30 needs more TRAIN money so that the huge and many China loans that his administration will contract will be paid someday. I doubt if any of the Dutertenomists will admit the hidden agenda of build-build-build via loans-loans-loans from the China communist government.

"Government may have been too busy or too excited to collect the revenues from TRAIN that it forgot how important it is to prepare for its implementation. How a tax is implemented is equally important, if not more important, than the tax policy itself. Bad administration means bad policies. All the excel formula on the results of the TRAIN on prices and income distribution will come to naught when producers and taxpayers are left on their own to adjust to changes in tax rules." 
-- Nini Guevarra, former DOF USec.

How not to do a tax reform
Published May 15, 2018, 10:00 PM  By Milwida M. Guevara

Meanwhile, Du30 already reversed financing of Kaliwa Dam, other big projects from integrated PPP to hybrid PPP so that more China loans, China contractors will be committed/involved by his admin. Now even building coal power plants to be given to CN communist govt and its crony firms? #TRAIN money will pay for these new big loans,

Monday, May 21, 2018

BWorld 212, Commodities competition and the mining debate

* This is my article in BusinessWorld on May 15, 2018. The chart is added here as it was not accommodated in the column due to space constraints that day.

Commodities competition as defined in this piece refers to companies that are producing certain commodities and are competing for investors. Thus, energy companies are those that plan to attract more investors and expand operations when world energy prices are high as compared to those companies producing agricultural, industrial, and other commodities.

This is a continuation of a series of pieces about competition.

Last week we discussed overall competition and the role of the Philippine Competition Commission (PCC), electricity competition and the role of Philippine Electricity Market Corp. (PEMC), innovation and the role of IPR protection.

Endless competition also leads to endless innovation and this results in disruption in global economic balance or imbalance, which, among others, would be discussed in BusinessWorld’s Economic Forum 2018 that carries the theme: “Disruptor or Disrupted? The Philippines at the Crossroads.”

Currently, energy prices especially oil are rising again as the supply from OPEC-Russia remains constricted and US shale oil production expands but insufficient to cope with high world demand. But this rise in energy prices do not represent disruption in the global energy balance yet.

I visited the Commodities section of Trading Economics,, and checked which of the many commodities have “disrupting”prices over the last five years.

The commodities are divided into five groups: (1) Energy (crude oil, natural gas, naptha, propane, uranium, etc.), (2) Metals (gold, silver, manganese, palladium, rhodium, etc.), (3) Agricultural (rice, corn, coffee, cheese, lumber, sugar, soybeans, wheat, etc.), (4) Livestock (poultry, cattle, hogs, beef), and (5) Industrial (coal, copper, cobalt, steel, nickel, lead, aluminum, etc.). There are about 50 commodities in total.

What is surprising is the eminence of certain metallic products.

Four commodities have incurred disruptive price hikes — cobalt, rhodium, palladium, and lumber. Zinc and lithium also have rising price trends but not as steep as these four. The rest of the commodities have up-down-up cycles, or declining prices like uranium.

Cobalt is mainly used to produce high performance alloys and rechargeable batteries. Thus, companies producing batteries for mobile phones, electric cars, motorcycles and buses would be scrambling for limited cobalt supply in the world as Congo is the dominant supplier but politically unstable. Cobalt is found in copper and nickel ores and the Philippines is a major nickel producer in the world and an average copper producer.

Rhodium is a silver-white metallic element that is highly resistant to corrosion. Thus, it is mainly used in automobiles as a catalytic converter, changing harmful unburned hydrocarbons, carbon monoxide, and nitrogen oxide exhaust emissions into less noxious gases. It is found in platinum or nickel ores and other metals, and again, the Philippines is a major player in global nickel production and exports.

Palladium is used in catalytic converters, also in jewelry, dentistry and surgical instruments, watch making, aircraft spark plugs, ceramic capacitors, among others.

High lumber demand is experienced as there is a new trend in building construction using treated wood instead of cement and steel. Innovations in wood treatment allow them to be fire-resistant. Demand for “eco-friendly” packing materials and related products also experience rising demand.

And this brings us to the endless mining debate in the Philippines.

The trend is there — rising if not disruptive price hikes in many metallic products — so why make mining production highly politicized and bureaucratic? Why is that DENR circular that suspended or closed several mining companies issued by a former secretary who believes she can fly still not lifted until now?

Not content with bureaucratic licensing and monitoring of mining companies, mining excise tax has been doubled in the TRAIN 1 law of 2017 and there are moves to further raise this tax in TRAIN 2 bill now in Congress.

A better alternative for Congress would be to ban “small-scale” mining as almost all such mining actually use heavy equipment such as backhoes, bulldozers, and huge trucks. They should then be encouraged to pool their resources to become medium- to large mining corporations registered with SEC and subject to mandatory community projects as provided in the Mining Act of 1995.

Australia and Canada, among the biggest mining powerhouses in the world despite having major environmental NGOs, do not have “small-scale” mines that are harder and more time-consuming to monitor.

The Philippine government should be a partner and not a hindrance to more modern and responsible mining and allow us to take advantage of this upward trend in global metal prices.

The government should be an enabler of disruption, not a disruptor, in the clear potentials of metallic mining.

Sunday, May 20, 2018

8 years of "Hope and change" vs 1 year of Trump

I see many people still glamorize the 8 years of "hope and change" in the US when it did not have a single year of GDP growth of 3%. Many policies were simply anti-business. From 2009-2016 of "hope and change," these countries achieved growth of 3% or higher: Canada and Germany 2x, UK and Japan once, USA zero. China, it kept humming at 6-10% growth.

Last year, the US was estimated to grow at 2.2%.

Joblessness, four years before "hope and change", the US has a low unemployment rate of 5% average. Things drastically change in the first term of "hope and change", US unemployment rates almost doubled and were higher than perennially high unemployment Germany and Canada.

By the 2nd term of "hope and change", US rates have declined but still higher than Germany, Japan.

Posting this because some people still think that it should be the candidate of "hope and change", Hillary! Hillary! Hillary! who should be US President so she can continue the high taxes, high bureaucracies, high energy prices to 'save the planet' and related policies. They cannot accept that many US voters were just dissatisfied with 8 years of "hope and change" and do not want its candidate to continue the lousy policies. So they blame Russia and Putin, agh.

Obama is a good orator but many US economic numbers do not match his glorified speeches. Many of his policies are anti-business, anti-job creation and divisive.

Energy 108, On mandatory solar roof in California

I saw this news from LA Times two weeks ago, discussed by WUWT.

California heads toward requiring solar panels on all new houses
By ANDREW KHOURI  MAY 08, 2018 | 4:55 PM 

California to force new home owners to buy solar panels
Anthony Watts / 9, 2018

What political socialism cannot achieve in America in terms of more command and control, ecological socialism can. Bonker, a proposal that ALL new houses in California must have solar roof, that means all new houses must cut and kill all nearby tall trees. Because solar hates shades -- from clouds, rains and tall trees. Shades automatically reduce the efficiency of solar.

Most environmentalists say, "Plant trees to save the planet." Solar developers and advocates say, "Remove/kill all nearby trees to save the planet."

Green, trees -- people can see birds, butterflies, squirrels, etc hopping/flying from branch to branch, or tree to tree. Solar has little or zero tolerance for tall trees with tall, wide shades. Solar is fake "green."

A solid anti-fossil fuel believer Filipino friend living in California, Joe Real, commented in my fb wall that "You have a twisted sense of logic my friend! Ha ha ha ha. Solar panels are twenty times more efficient than trees at capturing the energy of the sun! Basic Scientific Fact!"

It's good he confirmed it, that solar is fake green. That to get energy efficient solar, one must cut if not kill all nearby tall trees. Since he hates fossil fuels, from California to Manila or other far away cities in the planet, he and his fellow anti-oil campaigners and lobbyists should be riding solar planes or planes using water, or uber-kites, uber-brooms, any flying object that does not use fossil fuel.

Solar in desert may be understandable. But in this proposed CA new law, solar roof for ALL new houses will be mandatory. All the fakes and hypocrisy of the "greenies" or watermelon (green outside, red inside) and ecological socialist movement.

See also:

BWorld 211, Intellectual property, innovation, and prosperity

* This is my column in BusinessWorld last May 10, 2018.

The BusinessWorld Economic Forum 2018 is fast approaching this coming May 18 and it has a timely theme, “Disruptor or Disrupted? The Philippines at the Crossroads.” Focus is on the challenges, risks and potentials of artificial intelligence (AI) and other technological advances.

Endless trial and error, research and development, intangible and intellectual creations, are at the heart of innovation and economic disruptions. The role of property rights protection in general and intellectual property rights (IPR) in particular cannot be overlooked.

Here are some numbers showing the degree of competition among countries and economies in encouraging and protecting innovation and IPR as shown by three data sources. These are the

(1) World Intellectual Property Organization (WIPO), INSEAD, and Cornel SC Johnson College of Business, “The Global Innovation Index 2017” (GII); (2) Property Rights Alliance (PRA) — International Property Rights Index 2017 (IPRI); and the (3) US Chamber of Commerce (USCC) — Global Innovation Policy Center (GIPC), International IP Index (IIPI) 2018.

WIPO’s methodology is interesting.

The overall GII score is computed by getting the simple average of the Input and Output Sub-Index scores. The Innovation Input Sub-Index is comprised of five pillars: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. The Innovation Output Sub-Index is composed of two pillars: (6) Knowledge and technology outputs and (7) Creative outputs.

Each pillar is divided into three sub-pillars and each sub-pillar is composed of individual indicators, for a total of 81 indicators. Cool.

Data on GDP per capita income at purchasing power parity (PPP) $ values are from the International Monetary Fund (IMF), World Economic Outlook database, April 2018. The numbers in parenthesis of each report (WIPO-GII, IPRI, IIPI) represent the total number of countries included in their respective reports (see table).

These numbers show the following:

One, countries with high global rank and scores in innovation and IPR index are also those with high per capita income. Conversely, countries with low global rank in innovation also have low per capita income.

Two, the Philippines in particular exhibits this low ranking. Placing only 73rd out of 127 countries in WIPO-GII 2017 report, 64th out of 127 countries in PRA-IPRI 2017 report, and 38th out of 50 countries in the GIPC-IIPI 2018 report. Our GDP per capita income of only $8,300 at PPP values is low, and even lower if nominal GDP prices are used, less than $3,000.

Three, many East Asian economies are rising in ranking, landing in the top 25% in global ranks.

To further reiterate the importance of intellectual property (IP) and innovation, 70 independent and free market-oriented think tanks and institutes worldwide sent an open letter to WIPO Director General Dr. Francis Gurry, during the 2018 World IP Day last week, April 26.

The letter was spearheaded by the PRA in the US and Minimal Government Thinkers is among the 70 co-signatories. The letter was also sent to UN Secretary-General Antonio Guterres, and Director-General of the World Health Organization (WHO) Tedros Adhanom Ghebreyesus.

The letter highlighted some important facts, among them:

* In 2016, a record 3.1 million new patents were filed worldwide. These patents protected groundbreaking technological processes, helped cure devastating diseases, and modernized everyday conveniences.

* Copying is not the same as inventing and enforcement of IP rights helps prevent counterfeits that undermine innovation and help finance criminal organizations. This shadow economy of counterfeits is responsible for nearly 2.5% of global imports, amounting to nearly $461 billion.

* 10% of global pharmaceutical trade is thought to be counterfeit. These “medicines” have serious health consequences, including death. New medicines require research, trials, $2.8 billion, and up to 12 years. IP Rights incentivize commitment and collaboration.

* Removing trademarks through plain packaging has costly economic, health, and security consequences. $300 billion is the implied loss to the beverage industry if such packaging is applied to alcohol and sugary drinks.

Another global group, the Biotechnology Innovation Organization (BIO) is also promoting innovation in biotechnology of innovative health care, agricultural, industrial, and environmental products.

Governments, national and multilaterals like the UN and WHO, should help encourage and respect IPR and innovation. Some cases however show that they do otherwise.

For instance, the 2016 UN High-Level Panel on Access to Medicines, their report has portrayed patents and IP as harmful to global development and human rights. Backward thinking.

The enemy of public health and human rights are counterfeits and substandards — medicine, food, and drinks — and the criminal organizations that manufacture and sell these products.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

See also: