Monday, September 28, 2020

BWorld 454, Flatten the fear and hysteria, not the economy

* My column in BusinessWorld, September 24, 2020.

As more comparative economic data come in, the more they confirm that the Philippines’ hard, strict, and draconian lockdown policies did more harm than good. We can summarize them as follows:

One, the Philippines has second worst performing gross domestic product (GDP) in Asia next to India, the economic contraction is similar or worse than countries with five times to 15 times as many COVID-19 deaths per million population (CDPMP) than us, like the US, Brazil, Canada, Mexico, UK, France, Italy and Spain. Hong Kong has a deeper contraction but it is partly due to their Basic Law having been amended so that some China laws will apply to Hong Kong.

Two, Philippines unemployment rate of 10% last July is again second highest in Asia next to India, and worse than those in the UK, France, and Italy which have very high CDPMP.

Three, Philippines has the steepest decline and contraction from last year probably in the whole world. From 6% in 2019 to -8.6% in the first half (H1, January-June) 2020, or a dive of -14.6% points.

Four, the Philippines should not have had such a steep contraction considering that we have a small GDP of only $377 billion in 2019, just slightly higher than our neighbors with small populations like Hong Kong, Singapore and Malaysia (see Table 1).  

Among the questions that I often encounter from non-economists is “What do those GDP growth or contraction mean to our daily lives?”

It is a valid and practical question so we have to quantify in pesos, not just percentages, the changes in GDP. We better use current or nominal prices as they reflect current spending and income. The deep contraction means that some P680 billion in national income was lost in H1 2020 compared to H1 2019. It also means that our GDP size in H1 2020 was even lower than H1 2018 or two years ago, despite the increase in population of nearly 3 million over the past two years.

GDP by expenditure, the biggest contraction was in private investment or gross capital formation, a P919 billion decline. GDP by industry, the biggest contraction was in the industrial and manufacturing sector (see Table 2).

The hypothesis “more lockdown = more virus control” has been proven to be wrong. Otherwise we should not have a high number of COVID-19 cases and deaths now considering the very strict lockdowns from March to May.

President Rodrigo Duterte’s policy of indefinite lockdown until a safe and effective vaccine is available is wrong. It will prolong the economic agony without reducing COVID-19 cases. Instead, the President and the Inter Agency Task Force (IATF) should open up the economy by Oct. 1, lift the generalized lockdown for all, and limit the quarantine only to small areas where serious cases are reported, and retain the restriction on mobility those 70 years and above and immuno-compromised people.

The doctors in the Flatten the Fear Philippines coalition suggested many cheap immune-boosting measures that people themselves can take without waiting for the vaccine like taking more Vitamins C and D, the use of known prophylaxis (hydroxychloroquine, zinc, etc.) vs other infectious diseases like malaria.

Yes, there are existing and cheap measures to flatten the fear and hysteria. The economy must rise again, the high government spending and borrowings that will require high taxes and regulatory fees must be controlled and flattened.

See also:
BWorld 451, Electricity subsidies, Meralco, and the wind-solar lobby, September 06, 2020 
BWorld 452, Declining jobs, rising debts, September 19, 2020 
BWorld 453, Coal, growth and carbon tax, September 25, 2020.

Interview at PSVR, hosted by Cathy Cruz

Last week, Sept. 23, I have a live interview via Zoom at Radyo Bandera Bacolod 103.9 FM, hosted by Jean Paul Generoso.  It was also streamed live in their FB page. My co-guest then was Dr. Homer Lim, a young and articulate doctor specializing in Integrative Medicine. Doc Homer is an active doctor-member of the Concerned Doctors and Citizens of the Philippines (CDC PH) in the Flatten the Fear coalition. I talked about the economics of lockdown, Doc Homer talked about Covid control and treatment. 

The next day, Sept. 24, I have another interview at Pinoy Stream Versatile Radio (PSVR) hosted by Ms. Cathy Cruz.

I prepared five slides which I showed in her program.

Interview here, starting at around 13:00 mark,

The other two slides I took from my column that day,

Thank you again for the opportunity to discuss these economic issues, Cathy.

See also:
Interview at BusinessWorld Live, One News, August 07, 2020 
Interview at DZBB and Agila TV, August 15, 2020 
Interview at Turbo Time by Mike Potenciano and Raymond Tribdino, August 16, 2020 
Agenda One News, Part 6, August 31, 2020.

Friday, September 25, 2020

BWorld 453, Coal, growth and carbon tax

 * My article in BusinessWorld, September 16, 2020.

Among the major economic challenges for governments worldwide in dealing with this pandemic is where to raise new revenues as their expenditures and borrowings have greatly increased while their regular revenues have decreased.

In the Philippines, among the groups to mention and lobby again for a carbon tax are the Asian Development Bank (ADB) and some NGOs. See related stories in BusinessWorld recently:
“ADB backs digital economy, carbon taxes to aid recovery” (Sept. 3),
“Microgrids touted as priority area for funding by Asian Dev’t Bank” (Sept. 14),
“Rising missionary charges called ‘misguided’ after Congress queries DoE” (Sept. 14).

The first story is self-explanatory, the second is about solar lobbying by an environmental NGO that opposes not only coal but also big hydro and geothermal, and the third story is about a correct observation by Laban Konsyumer, Inc. (LKI) that the universal charge for missionary electrification (UC-ME) in our monthly electricity bill should not rise. I will add that this charge should stop and be abolished someday, the isolated island-provinces should run on cheaper coal or small modular gas or nuclear plants, instead of big gensets running on diesel and the higher cost is passed on to all consumers nationwide via UC-ME.

The endless lobby to impose a carbon tax to penalize fossil fuels, especially coal plants, is misguided and based on emotion, not reason and hard data. If we go back to recent economic history of countries, the rich ones have developed faster partly or largely due to cheap energy like coal that powered their industrial, agribusiness and service sectors 24/7.

In the accompanying table, I show the coal consumption and gross domestic product (GDP) of different countries in 15 year gaps starting from 1965 (earliest comparative energy data available) until 2019. Data is from the WB World Development Indicators (WDI) database, and BP Statistical Review of World Energy (BP SRWE).

The high coal-consuming countries in the 1970s and earlier decades, like the US, Germany, UK and Japan, were also the high GDP size countries. Starting from the early 1990s when environmental activism and anti-fossil fuel movements became stronger, they have either slowed down or marginally increased their coal consumption. Unit use is Exajoule (EJ) and 1 EJ is equal to 23.88 million tons oil equivalent (MTOE). Lower expansion in coal use in 2019 over 1995 levels by the rich countries led to lower expansion in GDP size over the same period. In contrast, higher expansion in coal use by developing and emerging economies like the Philippines also led to higher expansion in GDP size (see the table).

In addition, the Philippines also has a very small coal consumption (only 0.73 EJ or 17.42 MTOE in 2019) compared to its neighbors like Malaysia, Vietnam, and Indonesia, and yet the Philippines is endlessly bombarded by a high-noise, heavy-emotion, low-data lobby that we should discontinue new coal plants and kill or close existing coal plants.

To recover faster from the lockdown-crippled economies, countries must have cheaper and stable electricity especially now that most work is done at home. Attending work meetings and seminars and online classes requires stable electricity and internet, not fluctuating power from intermittent sources like solar-wind.

What about the planet?

Planet Earth has experienced natural and cyclical climate change (endless warming-cooling cycles) since it was born some 4.6 billion years ago. Nature-made not “unprecedented, man-made” warming.

The multilaterals like the UN and ADB, IMF, WB, and OECD, must recognize climate realism and not alarmism, and advance cheaper, reliable, no subsidy, and no mandatory dispatch electricity. Fossil fuel energy has given us modern and convenient life, air conditioners in hot days and months, heating in cold days and months, huge and tall buildings with 24/7 elevators and aircon, etc.

We should now prioritize faster economic recovery via cheaper and stable energy, and wider economic opening. We should throw away useless and costly proposals like carbon taxes whose goal is to make cheaper energy become expensive energy.

See also:
BWorld 450, Tax competition, not exemption, August 30, 2020 
BWorld 451, Electricity subsidies, Meralco, and the wind-solar lobby, September 06, 2020 
BWorld 452, Declining jobs, rising debts, September 19, 2020.

Sunday, September 20, 2020

On Keynesian Economics

My friend asked me re her daughter college Econ assign:

Y (or GDP) = Y = C + I + G        (1)
C is household consumption, I is private investment, G is govt consumption.

C = a + bY           (2)
a is autonomous consumption, b is marginal propensity to consume (mpc).
a > 0 and 0 < b < 1

If government raises spending to address the pandemic by P708 billion and assuming that mpc is 0.35, calculate the expected impact of the government stimulus package to total output.

Y = (a+bY) + I + G

Y = (a + .35Y) + I + P708B

1Y - 0.35Y = a + I + P708B

0.65Y = a + I + P708B

Y = (a + I + 708B)/0.65

Y = a/.65 + I/.65 + P1,089 B.


A better equation for C would be:

C = a + bYd
Yd is disposable income

Yd = Y - T, taxes

C = a + b(Y-T)

Keynesian Econ only emphasizes multiplier effect of high G. Often silent on distortion effect via higher T to finance G + borrowings.

By 2021, if government will raise T by P1.5 trillion by 2021 on top of regular revenues to cover the higher G of P700 B 2021 on top of P700 B in 2020, the distortion can look like this, assuming mpc remains the same:

Y = C + I + G

Y = (a + b[Y-T]) + I + G

  = (a + bY – bT) + I + G

  = (a + 0.35Y – [0.35*1,500 B]) + I + 700

1Y – 0.35Y = 0.65Y = a – 525 B + I + 700

Y = (a – 525 B + I + 1,400)/0.65

 = a/0.65 – 808B + I/0.65 + 1,076

 = a/0.65 + I/0.65 + 268 B

Since I has significantly declined (-53% in H1 2020 over H1 2019 level), the overall Y would further decline. 
Here's one slide of my talk at China Bank Savings (CBS) last week, September 11.


Keynesian economics is dangerous. Gives the false hope that more govt spending will solve problems created by govt itself in the first place -- the strict, draconian, prolonged and indefinite lockdowns.

Saturday, September 19, 2020

BWorld 452, Declining jobs, rising debts

 * My column in BusinessWorld last September 10, 2020.

Among the pernicious results of the Philippine government’s strict and draconian lockdown policies for nearly six months now is the steep increase in unemployment rate, 17.7% last April and 10% last July, data from the Philippine Statistics Authority (PSA). The underemployment rate also remains high, 18.9% last April and 17.3% last July.

 The Social Weather Station (SWS) Adult Joblessness survey (roughly equivalent to PSA’s unemployment + underemployment rates) for July 2020 also showed a steep increase to 45.5% from only 20% average for 2019.

So, is it worth celebrating the decline in unemployment rate to 10%?

Not really because many of our neighbors in the region did not even experience double-digit unemployment rates both in the first and second quarters of 2020. Even compared to European countries and North-South American countries that experienced 400+ COVID-19 deaths per million population (CDPMP), the Philippines, with only 36 CDPMP, has an “outlier” unemployment experience (see Table 1).

To “jumpstart growth,” the government has embarked on a series of huge borrowings and additional public spending, particularly the Bayanihan I law (which expired in June) and the upcoming Bayanihan II that is waiting for the President’s signature.

Governments around the world including the Philippines regardless of administrations are known for wasteful spending. They have little or no ability to generate fiscal surplus in periods of no crisis, pay back old debts so that when a real crisis comes, they will have more leeway to borrow again.

In 2016, the budget and borrowings made by the previous Aquino administration saw the outstanding public debt stock at P6 trillion. The next three years, 2017 to 2019, saw a big jump in expenditures and the budget deficit so that public debt has expanded by P1.64 trillion or P547 billion/year on average.

Big borrowings mean big interest payment: P361 billion in 2019, P421 billion this year, P531 billion in 2021, and P604 billion in 2022 (see Table 2).

The higher excise tax in petroleum products of P6/liter under the TRAIN law of 2017 has brought extra revenues of P30 billion/year to the government yet it sparked inflationary pressures and some political discontent in 2018-2019. But interest payments of P361 billion in 2019 — 12 times that of oil tax hike revenues — has not sparked any serious political discontent because the amount looks “abstract” despite its size.

I will discuss these numbers in detail plus many other data during my talk on macroeconomic outlook and how they impact the individuals and small and medium enterprises (SMEs) at the China Bank Savings (CBS) this Friday, Sept. 11. The bank also celebrated its 12th anniversary last Tuesday, Sept. 8.

There is a disconnect between two government policies — strict lockdowns that crippled if not killed many SMEs and created millions of new unemployed, versus big spending and borrowings purportedly to revive the crippled and dying businesses. This is similar to a bully who crippled an innocent person then gives him a wheelchair and says that the crippled person should thank the bully for the opportunity to move around via wheelchair.

Consumers and entrepreneurs cannot expect meaningful assistance from the government’s higher spending and borrowings. They are the wrong remedies for the wrong policies (strict, indefinite, no timetable lockdowns). The “animal spirit” of entrepreneurship and innovation must be unleashed. Government should learn to step back, have less regulation, less taxation (thanks to the CREATE bill), less business intervention and arbitrary policy reversals.

See also:
BWorld 449, Energy reserves and security, August 25, 2020 
BWorld 450, Tax competition, not exemption, August 30, 2020 
BWorld 451, Electricity subsidies, Meralco, and the wind-solar lobby, September 06, 2020.


Yesterday a very famous Justice of the Supreme Court of the US (SCOTUS), Ruth Bader Ginsburg (RBG) died at 87. She has been battling cancer for the past few years, in and out of the hospital. RIP, Ms. Ginsburg.

Appointed by former US President Bill Clinton in 1993, she is the second female justice in SCOTUS history, that alone is a great achievement.

Now there is vacancy in the SCOTUS, it must be filled up, naturally. And a twist, the anti-Trump crowd do not want him to appoint any replacement and that it must be done only by whoever wins in the Nov. 3 Presidential elections. This is like asking the President to do his work as President in dealing with the virus and other functions but he must not do his work as President in appointing a new Justice of the SCOTUS. If Trump does it, there are already explicit threats and blackmails of violence, see

This is from Reza Aslan tweet, he seems to be a US-Iranian citizen, has 291,600 twitter followers. Outright, explicit threats. 

If Trump or any of his officials would tweet "burn down...", twitter will likely censor and delete or flag it for "going against community standards." But since it's an anti-Trump tweet, it will remain there, thousands other tweets inciting violence. And TDS people clap and approve the explicit call for violence, wow.

Sunday, September 06, 2020

BWorld 451, Electricity subsidies, Meralco, and the wind-solar lobby

 * My article in BusinessWorld, September 2, 2020.

I have been writing in this column about power and energy issues for about five years now and still the sector continues to amaze me with so many twists and surprises, good and bad for consumers. For instance, see these recent reports in BusinessWorld:

• “Meralco offers P101-M aid to power users” (Aug. 25).

• “Energy experts urge expedited transition to renewable power” (Aug. 26).

• “Five rural utilities charged more on system loss in 2019” (Aug. 26).

• “Government urged to release Murang Kuryente subsidies” (Aug. 27).

• “Meralco fined for lockdown billing woes” (Aug. 28).

• “Consumer group calls for abolition of electricity cross-subsidy for poor” (Aug. 31).

• “Electric utilities risk franchise cancellation — senator” (Aug. 31).

• “Advocacy group tells Meralco to ‘go green’” (Sept. 1).

• “Power sector wants subsidies cut off for non-poor electricity consumers” (Sept. 2).

For this piece, I want to briefly focus on three issues: subsidies to “lifeline” customers, Meralco gives aid yet is fined with threats of franchise cancellation, and the never-ending lobby to kill coal and favor wind-solar.

One, “lifeline” customers or those with monthly consumption of 100 kwh or less are subsidized by the non-lifeline users by six centavos/kwh. Many of these low-usage households are not really poor, like those living in one-bedroom condo units, they do not need subsidy. Besides, households consumed less electricity before the strict and indefinite lockdown because the members often would go out to work, school, meetings, recreation, etc. After the lockdown and endless quarantine starting March 16, many of the lifeline customers would move to non-lifeline users as they stayed home and hence, electricity consumption greatly increased. Plus there were the hot months of March to June. Those who consumed 100 kwh or less in February would be consuming 150 kwh or more during the lockdown, so why subsidize them and continue to penalize the non-lifeline users and private distribution utilities (DUs) and electric cooperatives?

Two, Meralco was pressured in a Congress hearing to sustain the subsidies to its 2.77 million lifeline customers, forking out P101 million. Then it was penalized by the Energy Regulatory Commission (ERC) with a P19-million fine because it failed “to provide accurate and timely information especially during this time of pandemic has created chaos and confusion,” and failure to allow consumers to pay in instalments. Some legislators and populist NGOs even said that Meralco continues to have “exorbitant” prices.

I think all these allegations including ERC assessments are wrong. Accurate information on unbundled electricity rates are freely available online, actual electricity consumption for three months March-May based on actual meter reading in June is higher than estimated consumption, and electricity prices are actually declining, not increasing and exorbitant.

Compared to August 2014 and 2015 total rates, August 2020 are lower and cheaper (see the table).

Three, the wind-solar lobby of certain NGOs keep spreading fake news that coal power is expensive and dirty. See the generation charge in the table which declined to P4.12/kwh in August 2020. A big portion of Meralco power comes from coal plants like Therma Luzon, San Buenaventura, and Sual Power of SMC — their prices are below the average for IPPs and PSA prices. This despite the higher coal excise tax under the TRAIN law, from only P10/ton in 2017 to P150/ton in 2020.

The real dirty energy are gensets and candles, what people use when there are frequent blackouts and power goes on and off. The rich buy gensets running on diesel that is more expensive and more polluting; the poor buy candles which are among the causes of fires. Solar panels produce zero energy at night, little when cloudy and raining. Wind turbines produce zero energy when the wind does not blow. Adding big batteries to address their intermittency also add costs to their electricity prices because those big batteries are not cheap.

See the table again — the transmission charge is starting to rise as the National Grid Corporation of the Philippines (NGCP) is forced to get more ancillary services, back up fossil fuel power plants and big batteries, as more intermittent wind-solar are added to the grid.

There should be more market-pricing, market competition in power generation and distribution. Subsidies (lifeline customers, universal charge for missionary electrification, feed in tariff/FIT for renewables, etc.) should be zero, or kept to the minimum.

See also:
BWorld 448, Growth, mobility and vaccines, August 15, 2020 
BWorld 449, Energy reserves and security, August 25, 2020 
BWorld 450, Tax competition, not exemption, August 30, 2020.