The law of supply states that
“all else equal, an increase in price results in an increase in quantity supplied”
From Philstar:
More than 250,000 soldiers and policemen are set to receive P5,000 in additional allowances next month in place of the raise in pay President Duterte had promised them.
Duterte promised personnel of the Armed Forces of the Philippines (AFP) and the Philippine National Police (PNP) a raise, but the annual budget submitted for 2017 does not include any increase in salaries.
Budget Secretary Benjamin Diokno said that the matter can be remedied if Duterte issues an executive order mandating an across-the-board increase in the allowances of soldiers and policemen by September.
“We hope the President would sign the EO that we have drafted soon so we could immediately effect the increase in the allowances of soldiers and policemen,” he said.
Diokno said the increase in the salary of soldiers and policemen will hopefully be in effect by 2018.
Last weekend, I wrote about the regime’s priority of buying of support of the police and military institutions.
I noted of the funding problem for the proposal:
Yet the Budget Secretary not only denied that the government has enough funds for these, but refuses to resort to reallocation of budget due to technical restrictions. So how will the military take this? Will the leadership force the issue? How? Will taxes be raised? More borrowings? Will the leadership resort to unconventional ways of raising funds? Will civil forfeiture to be incorporated to the war on drugs, perhaps? Or could war on oligarchy have been grounded on this?
Because buying support of institutional force has been the administration’s priority, it will be fulfilled.
Proof?
However, there will be no pay raise for teachers and nurses yet as soldiers and policemen have to be prioritized, Diokno said.
Php 5,000 allowance would likely (or at least) entail, Php 1.25 billion of additional spending on top of the Php 3 trillion earmarked for the Philippines government in 2016 where 84% have reportedly been released as of April.
That’s aside from the proposed Php 50,000 minimum pay for cops or about Php 50 billion of additional spending.
Considering police pay will significantly rise relative to private sector pay, pls go back to the what the law of supply implies. Well, ok it tells you simply that the ranks of the police will SWELL. Or the police population will soar!
Or people will gravitate into working for the government (police for now) than for the private sector.
This essentially “crowds out” the private sector. And for the private sector to compete with government, they would have to RAISE wages SUBSTANTIALLY. This serves as an indirect minimum wage hike!
But doing so, such will mean INCREASING costs of doing business. And consequently, this would put on a scrimp on or a squeeze on profits. And by reducing profits in the face of greater government consumption, this should redound to the SHRINKING of the private sector.
Current events essentially continue to validate what I wrote in early May: First, an increase in the size of the government translates to more competition with the private sector for resources, this should entail of the ‘crowding out’ of the private sector (all things being equal). In short, the more the transfer of resources to the government, the less resources available to the private sector. Second, such transfers would entail of less efficient use of resources. The focus on consumption, particularly politically directed consumption, will infer to more deadweight losses in the economy that would lead to lower productivity—and eventual decline in the standard of living.
If there is anything that characterizes leftist governments, it has been insatiable spending...until, of course, they run out.
One may rebut, "but the government has limits on police recruitment". Limits? But intervention begets intervention. Or repression begets repression. Intervention would mean MORE manpower to meet its goals. National goals cannot be achieved without the grassroots. So grassroot level implementation means more manpower. And to cover more and more aspects of interventions (from drugs, liquor, gambling, cigarettes and more) also means more labor requirements.
But it’s not only manpower, government needs MORE logistics (weapons, radios, vehicles and other administrative supplies) and property (offices, stations, outposts and etc…). Simply, MORE intervention translates to requirements of MORE real resources!
As a side note, eventually there will be an outcry or kvetching by other sectors of the government, and so the response will likely be to raise wages through out, but perhaps not as significant as the police-military complex
And where the real economy slows (not the statistical GDP), the attraction to become part of the government will transform into a magnet.
And because of ideology and because of the devotion to populism, this will most likely occur.
The rate of growth of government revenues or tax collection has been in a three year decline. It's a signal and not a noise. Yet that’s the legacy from the previous administration’s bubble economy. (Bureau of Treasury data here)
Notice that the direction of tax growth have starkly contrasted with media’s and the establishment’s flaunting of statistical GDP. Worst, tax collection growth are now close to, or approaches retrenchment (negative growth)!
This tells us WHY the BSP launched a silent stimulus in 4Q 2015 to 1Q 2016
And this comes even as previous government has already been accruing budget deficits.
What MORE with an onslaught of government police recruits! And what more of the expansionary spending on resources in support of the manpower expansion!
While overall debt grew by only 2.06% in 2Q, that’s largely because peso debt contracted by .99%. But local debt continues to be replaced by external debt. The growth rate of external debt ballooned to 8.06% in 2Q 2016, the highest in the past two years
External debt has powered higher since 1H 2015. And the distribution share of external debt relative to overall debt in June 2015 was 34% as against 36% in the same period of 2016.
These numbers account for the end the Aquino administration's performance. The coming numbers will reflect on the new administration.
Yet why the outgrowth of external debt (dollar shorts) instead of local debt?
And if new government will not have sufficient taxes in support of this massive spending spree then deficits can be expected to zoom. But since there is no such thing as a free lunch, someone will have to pay for all these.
And that someone is you and me.
So this means HIGHER taxes, (sorry for those expecting permanent tax cuts), a SURGE in debt and or HIGHER consumer price inflation.
And how will such dynamics distill into direction of prices of the peso, bonds, interest rates and stocks? Also how will these impact those mounting malinvestments?
Yet seen from the social or political economic spectrum, welcome to the Philippines’ Police State!
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