Plus Ca Change: President Aquino's Policy On Jueteng

It's been argued in this space that the new administration will unlikely provide a meaningful change in the way current things are being done.

For instance, the declaration of war against corruption will be unmasked as nothing more than demagoguery or posturing, for the simple reason that we cannot solve "corruption" by mere virtuosity because governance is about laws. And laws affect the way people conduct their business or individual actions. And in most occasions, official malfeasance function as a product of arbitrary laws.

Well, events are indeed turning out the way we see it.

President Aquino seems likely to begin his term by taking upon a populist stance.

This from the Inquirer,

``Presumptive president-elect Benigno “Noynoy” Aquino III has thumbed down a proposal by his uncle to legalize “jueteng,” a numbers racket that brings in millions of pesos in cash to operators and their protectors.

“Jueteng is against the law and we will enforce the law,” Aquino told reporters."

Nice.

Whether it is the church, media or politicians, the simpleminded solution to any social problem will always be the visible...in the case of jueteng, a numbers game used for grassroots gambling--by prohibition.

There has been nary an attempt by the domestic academe or by any institutions to study or analyze the impacts of these laws on society or how prohibitions can lead to corruption.

Incidentally, accepting jueteng money had been used as the main basis for the indictment of former President Joseph Estrada's plunder trial in 2001 to 2007.

For the mainstream, enforcement issues are merely a matter of virtue.

And it is why for the economically misinformed public, the solution is to change the people in charge, rather than to examine the net effects of the law. And it is also why eradicating corruption has been an ever elusive task.

And President Aquino's actions seem no better than his priors.


The fundamental problem with prohibition laws is that it does not deal with demand.

It mistakenly assumes that if you do away with supply, so will demand. That's where things go awry. Demand does not go away, but supply is now controlled by illegal elements through the backdoor with apparent blessings by those in charge. The huge profits from restricted supply and monopoly, thus, allows for mass payoffs along the layers of government's bureaucracy and to media.

Here is Professor Mark Thornton on the supply side impact of the Economics of Prohibition.

"Prohibition is a supply-reduction policy. Its effect is felt by making it more difficult for producers to supply a particular product to market. Prohibition has little impact on demand because it does not change tastes or incomes of the consumers directly. As supply is decreased, however, the price of the product will rise, the quantity demanded will fall, and demand will shift to close substitutes. For example, consumers of narcotics might shift their demand to alcohol and tranquilizers as their prices become lower in relation to narcotics as a result of prohibition."

In the case of jueteng, or the poor man's gambling game, this represents as an alternative (substitute) to horse racing or casino or Jai Alai which are legalized.

Ironically, the disparity of application of laws makes it appear that the poor have no right to engage in the same activity as the rich or the middle class. Hence, in my view, such laws are not only arbitrary and unenforceable but also discriminatory.

So whether rich or poor, where some people are inclined to gamble, the choice of horse racing, jai-alai or jueteng becomes an issue of accessibility or as substitutes to the poor.

Jueteng, in short, is a niche market for grassroots gamblers.

Nevertheless another negative effect of prohibition laws: waste of resources.

Again Professor Thornton,

"Efficiency in economics is the search to equate the marginal cost of an activity with its marginal benefit. For the individual, this means that the number of apples consumed depends on each apple's being valued at more than its cost. In public policy the situation is more problematic.

"In simple terms, the marginal cost of prohibiting one unit of a product is the cost of the law enforcement necessary to bring about this result. Every dollar spent on prohibition enforcement means one less dollar that can be spent on alternative public policies such as national defense, shelters for the homeless, or Congressional postal privileges. If taxes are increased to fund prohibition enforcement, individuals will have less to spend on food, medical insurance, and lottery tickets. Initially, the declaration of prohibition, the use of excess law-enforcement capacity, and the existence of marginal users make expenditures on prohibition enforcement highly productive.

"Also, these resources can be diverted away from the least important policies or consumer expenditures and therefore can be obtained at a low cost. After these initial conditions, the price of additional enforcement increases, its productivity declines, and the cost of expended resources increases."

So resources that could be spent on worthier social programs are wasted on law enforcement which has little benefit to the society. In short, society suffers from a net loss/deadweight loss (cost greater than benefit) on jueteng prohibition.

And here is the corrupting influence of prohibition laws...

Again Professor Thornton,

``Another motive for enacting prohibition legislation is to reduce corruption of both public officials and the democratic process. People have sold their votes for money or drugs, and the alcohol industry tried to influence elections and public policy. Politicians could also be subject to corruption and blackmail because of alcohol and drugs, and drug use can have a corrupting influence on the actions of political leaders. For these reasons, prohibition was promoted as a means to maintain the integrity of democracy and government.

[my comment: same here, the only difference is that good intentions backfires]

``In general, however, prohibition results in more, not less, crime and corruption. The black markets that result from prohibitions represent institutionalized criminal exchanges. These criminal exchanges, or victimless crimes, often involve violent criminal acts.

``Prohibitions have also been associated with organized crime and gangs. Violence is used in black markets and criminal organizations to enforce contracts, maintain market share, and defend sales territory. The crime and violence that occurred during the late 1920s and early 1930s was a major reason for the repeal of Prohibition (Kyvig 1979, 123, 167). The nondrug criminal activity of heroin addicts has been associated with the economic effects of prohibition laws and is viewed by Erickson (1969) and others as a major cost of heroin prohibition.

``Corruption of law-enforcement officers and other public officials is also a familiar manifestation of prohibited markets. Experience with prohibition has shown it to be a major corrupting influence. The corruption of the Prohibition Bureau proved to be a major stumbling block to the effective enforcement of Prohibition and was also cited as a reason for repeal. Most important, this corruption penetrates beyond the enforcement bureaucracy to government in general. Recent experience has shown that worldwide multidrug prohibition is a major corrupting force in several national governments, such as Colombia and Mexico."

So whether it is about drugs, abortion or jueteng, these issues have fundamentally the same grounds: Prohibition induces corruption but does not stop or limit these activities or that the unintended effects are greater than the supposed benefits the law aims to achieve.

So President Aquino's first act demonstrates more of the same things, an administration that seeks popularity or desires to look and feel good (public choice theory again!) but seems tolerant of law induced corruption and wastage of government resources from feckless Prohibition laws.