Planned economies have no way of replicating this knowledge-collecting and knowledge-disseminating function of market prices. They therefore deprive themselves of vast amounts of information, which must lead to worse economic decisions. This is not just a problem for fully planned economies, where prices are set by a planning board. It is also true in an economy where the private sector accounts for the bulk of economic activity, but where the government tampers with market prices--Kristian Niemietz, Socialism: The Failed Idea That Never Dies
In this issue
COVID-19 Cases May Have Peaked! Health Officials Admit that Lockdowns Don’t Work, Jobless People: 4.6 Million or 27.3 Million?
I. The Curve has been Bent! COVID-19 Cases Peak!
II. IATF Admits Home Quarantine Fueled Rise of COVID-19 Cases, Health Chief Confesses that Lockdowns Don’t Work!
III. Jobless People: 4.6 Million or 27.3 Million?
IV. Statistics Is Not Economics: Where are the Investments?
V. A Boost of Pledged Investments from Zombie firm San Miguel?
VI. The Broken Window Fallacy: What are the Costs of the Forced Boom in eCommerce?
VII. OFW Unemployment Rate is 22.7% and Counting! Conclusion
COVID-19 Cases May Have Peaked! Health Officials Admit that Lockdowns Don’t Work, Jobless People: 4.6 Million or 27.3 Million?
Yes, COVID-19 cases exhibit significant signs of bending.
But health officials have surprisingly been confessing that their grand experiment on the Philippines has failed! It won’t take long that they may change their tune.
The National Government’s (NG) recent job data tried to present the case that the loosening of the economy translates to a revival in jobs. However, the NG’s data has been diametrical to the data published by another private sector survey.
Economic logic says that a recovery in employment won’t merely come about from the mere relaxing of rules because jobs are funded by investments.
So the NG proposes a jump in FDIs while the economy was in a strict lockdown, and also floated investment numbers that had been a result of investment pledges by San Miguel.
And given San Miguel’s deteriorating financial conditions, it seems doubtful if these pledges would occur at all. Even if it does, the ever-growing yoke of debt will continue to haunt it.
The NG also cited statistics showing that eCommerce has been booming, but this would account for the broken window fallacy.
The OFW unemployment rate must likely align with the actual domestic jobless rate.
I. The Curve has been Bent! COVID-19 Cases Peak!
First, the good news.
Figure 1
The charts, courtesy of our world in data, exhibits how that Covid-19 cases seem to have peaked or the curve seems to have been bent!
However, it would be a mistake to expect COVID-19 cases to disappear soon.
Rather, the chart tells us that the pace of new cases and deaths are likely to slow further.
And since changes in death rates are lagging indicators, slowing increases in COVID-19 cases should translate to an eventual slowdown in death cases.
The current dynamic doesn’t mean too that the risks of a second wave, like the recent episodes in Europe and some parts of Asia, have diminished.
And because of its intense politicization, do expect the National Government to claim victory over COVID-19 due to its policies soon.
II. IATF Admits Home Quarantine Fueled Rise of COVID-19 Cases, Health Chief Confesses that Lockdowns Don’t Work!
But before that happens, here are more stunning admissions of the grand failures of the Medical Gulag experiment.
From the GMA (September 3): The common practice of undergoing home quarantine for asymptomatic and mild cases of coronavirus disease 2019 (COVID-19) fueled the widespread community transmission of the respiratory illness, Secretary Carlito Galvez Jr. said Thursday. Galvez, chief implementer of the government’s pandemic response, said home quarantine was one of lapses observed by the National Task Force Against COVID-19.
Hasn't this been so obvious? The lockdown fundamentally transferred the transmission mechanism from public places to the household. Many studies already pointed to households as a critical channel for transmissions. And because indoor lockdowns only weakened the population’s immune system, which by magnifying deficiencies of Vitamin D, it increased the odds of infections!
And health officials, after more than 5-months of community quarantine, have come to know this only now?
Incredible!
More.
From the MSN/GMA (August 29): Health Secretary Francisco Duque III on Saturday said the Philippines can no longer sustain stricter forms of lockdown as this can have adverse long-term effects on the economy. “We can no longer afford to revert to a higher quarantine status of MECQ (modified enhanced community quarantine) or ECQ because that will irreversibly injure if not damage the economy beyond repair,” Duque said during the ceremonial launching of “Mask Para sa Masa” initiative in Quezon City.
Health officials, including the political leadership, who once portrayed savings lives as different from the economy, have suddenly had an epiphany? Have they come to realize that the economy is not about statistics but about human lives?
This comment represents a stunning confession of the critical error of experimenting or gambling with people’s lives using supposedly “science” guided technocratic central planning policies!
As noted last July…
The point is not that they have been wrong, yes they have been consistently and flagrantly wrong, but rather, their rapidly shifting projections do not even seem to be even driven by data or by context.
The most important lesson, aside from the moving goalpost, has been that the NG subjected the population to a repressive social “health” policy when they were either clueless of its economic implications or had an unstated different agenda in mind.
The Failure of the Centrally Planned ECQ Health Policy, Statistical Charades, and 1Q Real Estate Divergences July 12, 2020
Finally, some institutions are seeing into this critical fundamental miscalculation.
From the Inquirer (September 4): The Philippine economy is likely to contract by a steeper 8.5 percent this year and will be slow to recover next year as the country grapples with rising infections and continuing constraints in public transport alongside fiscal conservatism and weak public health institutions and leadership. This is according to New York-based think tank Global Source, which further downgraded its gross domestic product (GDP) outlook this year from the original 7-percent contraction. Next year, it expects GDP to grow by 4 percent, which will bring the economy to just 95 percent of its precrisis level. “In its fight against COVID-19, the Philippines is handicapped by weak public health institutions and what appears to be a leadership vacuum. In the same way that the President has been able to delegate management of the economy to his able economic managers headed by the Finance Secretary, perhaps the President ought now to find an equally competent alter ego to manage the health crisis,” said a Sept. 1 research authored by Filipino economists Romeo Bernardo and Marie Christine Tang…Global Source also said the government’s projected V-shaped recovery—or a strong recovery after a steep decline—in 2021 was unachievable due to shocks to demand and supply alongside massive unemployment, business disruptions and regulatory and political uncertainties. Global Source added the government’s handling of the health crisis, which exposed long-standing institutional flaws, was “quite concerning.”
Well, the fundamental error has barely been about a “leadership vacuum”.
Instead, it is rooted upon policies mistaking health or lives as distinct from the economy, when they are inherently INTERTWINED. Under this premise, the concern over “long-standing institutional flaws” extends not only from the public health institutions but to policies instituted from an increasingly command and control, centrally planned economy. Everything is interconnected.
For instance, the continuing lockdown has been sold to the public as an emergency health issue, but because authorities used this opportunity to aggressively expand its control over the economy.
They gambled with a false premise. They acted on the foundations of free lunches or consequence-free politics. It boomeranged!
Belatedly, even health officials now confess of the significance of the economy. But the damage is already there.
And what has been the role of economic managers in pushing for “regulatory and political uncertainties”?
Or what were the actions of economic managers? Didn't they impose a bastion of regulations that encumbered business operations? Didn't they conduct an aggressive public spending spree that widened deficits that required the BSP’s printing press and the massive accumulation of debt and imposition of price controls? Have these factors not represented for “regulatory and political uncertainties”?
Public debt jumped 17% to a record Php 9.16 trillion last July according to the Bureau of Treasury. Together with the BSP’s bank lending data at Php 8.87 trillion, system leverage has now accrued to a whopping Php 18.033 trillion, which represents 93.6% of the targeted NGDP or 104.85% of the 1H annualized GDP! Public debt is expected to soar to a historic Php 13.7 trillion by 2022! [Inquirer September 4, 2020: COVID-19 impact: PH debt to hit P13.7T in Duterte’s last year in office]
The BSP has likewise monetized a staggering Php 400 billion of the National Government’s debt in the last 7-months, which now stands at Php 100 billion above the original Php 300 billion target!
And again, are we supposed to think that these are cost-free measures?
Figure 2
Actions have consequences. To what extent has “regulatory and political uncertainties” resulted in “business disruptions” or better to massive economic displacement?
Oddly, if economic managers have been competent, why has the Philippines succumbed to a deep recession? As well as, why the GDP downgrade?
As the great Austrian economist and Nobel Prize winner, Friedrich von Hayek, presciently wrote in his The Fatal Conceit, (p.76)
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
Actions. Consequences. Reactions. Feedback loops.
III. Jobless People: 4.6 Million or 27.3 Million?
The DOLE published its estimates a day before the PSA released the nation’s employment report.
From the ABS-CBN News (September 2): The number of job losses in the Philippines has reached 180,207 this year, in conjunction with the COVID-19 pandemic. This is based on the Regular Job Displacement Monitoring Report released this Wednesday by the Department of Labor and Employment, which collected data from January to the end of August. According to the DOLE, the unemployed came from 9,548 establishments or companies.
Back in late August, the DOLE had another estimate. From the Inquirer (August 21): Only over three million Filipinos were rendered jobless due to the continuing scourge of the coronavirus pandemic, which has infected 178,022 people nationwide, the Department of Labor and Employment (DOLE) said Friday. “Sa amin (In DOLE), 3.3 million and that is growing,” Labor chief Silvestre Bello III said over Teleradyo when sought for the labor department’s data on job loss due to pandemic.
The BSP, the DOLE, and the DOF have been pushing back on the notion that their policies have incited massive business closures, and subsequently, immense job losses. Hence, they have been toying with different statistics to confuse the public to soften its political impact. Such could be part of the propaganda campaign designed to implicitly preserve the administration’s political capital.
That said, predicated on fewer job losses from the loosening of the economy, the PSA released a report along the administration’s favored theme.
From the CNN (September 3): Some 4.6 million Filipinos were out of work in July,slipping from an all-time high as lockdown rules were gradually eased, the Philippine Statistics Authority said Thursday. The PSA reported a 10 percent unemployment rate among Filipinos aged 15 and up, easing from 17.7 percent in April althoughstill higher than the 5.4 percent level a year ago.(Figure 3)
However, the administration friendly SWS published in August unemployment data that ballooned by a staggering 45.5% or 27.3 million people!
From the SWS (August 16): “The special Social Weather Stations (SWS) July 3-6, 2020 National Mobile Phone Survey found adult joblessness at 45.5% of the adult labor force. This is a 28-point increase from 17.5% in December 2019, and a new record-high since the 34.4% in March 2012 [Chart 1, Table 1]. The estimated numbers of jobless adults were 27.3 million in July 2020 and 7.9 million in December 2019.” (Figure 3)
Figure 3
4.6 million or 27.3 million? So which of the surveys from the two agencies have been close to reality, the administration friendly SWS or the PSA?
And yet, why the ocean of difference?
IV. Statistics Is Not Economics: Where are the Investments?
It is a convention in politics to shout or spout statistics in support of normative claims.
Yet, let us use a simple logic predicated on the base effect.
If there were 10,000 firms at the start of the year and 20% fewer companies, as a result of the permanent closures due to the lockdown as of July, how can there be lesser accounts of the unemployed if there had been little investments made?
For instance, this report from the Inquirer (September 2): Long term capital from overseas rose sharply in May as foreign investors brought in more equity into their local operations and acquired long-dated debt instruments issued by Philippine entities, according to the central bank. In a statement, the Bangko Sentral ng Pilipinas (BSP) said foreign direct investments (FDI) net inflows grew by 42.4 percent to $399 million in May 2020 from the $280 million net inflows posted in the same period in 2019.
Yes, 42.4% signified a growth surge in May alright, but in a holistic context, it was hardly a dent to the overall cascading downtrend of FDIs. (Figure 3)
Furthermore, the growth came about from a weak base.
Yet, with the critical parts of the economy under a strict community quarantine (MECQ) in May, what must have been the source/s of attraction for such flows?
From the Inquirer (September 4): The Board of Investments (BOI) reported a 25-percent increase in investment pledges as of August, bringing the total to more than P760 billion, although this growth was due largely to a big ticket project that got registered for tax breaks back in June. BOI Managing Head and Trade Undersecretary Ceferino Rodolfo said in an online press conference with economic managers on Thursday that pledges grew by 25 percent from January to August this year compared to the same period in 2019. Although he did not provide absolute figures, the BOI registered P609 billion in the comparative period in 2019. A 25-percent growth would bring the latest figure to around P761 billion. The BOI has not yet responded to requests for additional information as of press time…. Amid an economy in recession, the BOI surpassed the P600-billion mark back in June, when it registered San Miguel Corp.’s (SMC) P530.8-billion airport project in Bulacan called Airport City. This investment alone is already 70 percent of the current pledges. Now registered with BOI, the Airport City will get tax breaks such as income tax holidays. SMC said the project will cost a total of P735 billion.
So a single project boosted the statistics of pledged statistics. Without San Miguel, the BoI’s statistics would have cratered.
Hence, June’s statistics of pledged investments have been about political accommodation to a political ally.
Yet, what is the fulfillment rate of such statistics?
We will never know.
V. A Boost of Pledged Investments from Zombie firm San Miguel?
Figure 4
And speaking of San Miguel, does the company have the wherewithal to generate such a grandiose project?
Not only is the company DROWNING in debt, but its debt-servicing capacity has dropped to critical levels! San Miguel’s debt jumped 11.83% to reach a mind-boggling Php 953 billion in the 1H, though SMC debt levels have been modestly down from 1Q’s Php 971.032 billion!
A billion here, a billion there, pretty soon, you're talking real money! (An Excerpt from US Senator Everett McKinley Dirksen)
The company’s Interest Rate Coverage (ICR) ratio has dropped to a record low of .924%, which has even been magically boosted by a significant fall in interest payments.
Debt levels significantly up, but interest payments decline.
See how the BSP’s low interest rate regime redistributes resources and wealth to unproductive zombie crony firms?
And see how the forbearance from the Bayanihan Law must have mitigated SMC's debt servicing woes?
That being said, more business hurdles, barriers and gridlocks, higher prospective taxes, and other operational interventions affecting price signals, economic calculation and property rights are magnets to investments???
VI. The Broken Window Fallacy: What are the Costs of the Forced Boom in eCommerce?
And we have been told that eCommerce is booming.
From the Inquirer (September 3): The Department of Trade and Industry (DTI) has seen a 4,000-percent increase in the number of registered online businesses during the six-month lockdown enforced by the government to curb the spread of the coronavirus (COVID-19). During a Senate committee hearing into the proposed Internet Transactions Act on Thursday, DTI Secretary Ramon Lopez said there has been a “substantial” rise in online businesses in the country. After the government imposed lockdowns, Lopez said the number of online businesses registered with the DTI jumped by 73,276 from March 16 to August 31. “We now have a total of 75,029 online businesses registered,” he said. “This is over a 4,000-percent increase.”
So who accounts for the bulk of new businesses?
From the Inquirer (September 3): Millions of Filipinos have turned to becoming their own bosses in business ventures as some jobs returned in July, easing unemployment to 10 percent as lockdowns eased. Sheila de Asis, 38, owned a startup video production firm but all her projects were put on hold at the height of the longest and strictest COVID-19 lockdown in the region, as the Philippines tried to contain the number of infections since mid-March. While staying at home, De Asis had ventured into running an online marketplace offering food and household products, delivering them to friends and clients who had been similarly stuck at home during quarantine. De Asis’s cousin, Joanne Osorio, 43, had it worse — her spa had to close down during the lockdown as the huge rent turned into losses, cutting short what could have been a 10-year run. With three kids and her savings at risk of drying up, Osorio turned a hobby — cooking — into her new business, this time selling chicken empanada. Since the pastry she gave away to neighbors on Father’s Day was a hit, Osorio sold more empanadas in their village. “Our earnings from the food business augment our food budget, while the rest of our expenses we draw from our savings,” Osorio said. National Statistician Claire Dennis S. Mapa told the Inquirer on Thursday (Sept. 3) that the number of self-employed Filipinos without any paid employee rose to 12.1 million in July from 11.5 million a year ago. The impact of COVID-19 lockdowns was also felt by self-employed individuals as their number dropped to 9.7 million in April when restrictions in movement of people and goods were strict. Mapa said bulk of the self-employed last July, numbering 4.5 million, were engaged in wholesale and retail trade.”
First, because of, or under the guise of COVID-19, the NG restricted physical movements, which led to a surge in business closures and employment losses. In doing so, for economic survival, commerce has abruptly shifted to the digital space.
What the DTI pleasurably sees a surge in eCommerce business statistics, in reality, have been a representation of the drastic transformation or upheaval of the economy caused by the political dicta.
And the swelling of such businesses has likely represented mom-and-pop online entities with few or no employees. And the DTI fails to note that start-ups have high mortality or low survival rates.
Also, absent in the DTI’s statistics are the businesses or projects that have been permanently disabled and destroyed, as well as businesses and projects that have been shelved or have failed to materialize because of them. Of course, also disregarded are the chain links of possibilities from such actions.
The great 19th century French, proto-Austrian, economist Frédéric Bastiat elucidated this phenomenon as the "parable of the broken window" or the broken window fallacy. The fallacy spins destruction as beneficial to the economy, ignoring the opportunity costs that account for the law of unintended consequences. Or the fallacy fixates on short-term gains at the expense of the longer timeframe.
Under the current setting, the NG doesn’t even mention the actual, implied, or opportunity costs emanating from their policies, and instead, divert the public’s focus on superficial gains.
What they do is to brandish contrived statistics in the hope that such will be enough to change the tide.
VII. OFW Unemployment Rate is 22.7% and Counting! Conclusion
And despite repeated attempts to sterilize economic losses through statistical manipulations, there are too many holes to plug.
From the same CNN article: “About 500,000 overseas Filipino workers have likewise been displaced by the public health crisis, which could rise to 700,000 by yearend if the global situation does not improve, Tutay added.”
From the Philippine Statistics Authority (June 4): Based on the results of the 2019 Survey on Overseas Filipinos, the number of Overseas Filipino Workers (OFWs) who worked abroad at any time during the period April to September 2019 was estimated at 2.2 million.
500K divided by 2.2 million equals an OFW unemployment rate of 22.72%!
Is the Philippines doing better than the global economy? Global GDP is projected to fall by 4.9% (IMF) or 4.3% (Fitch) in 2020. That’s better than the NG’s revised annual GDP projection of -5.5%.
So if the Philippine economy is doing worse, why then should its employment rate outperform? Because of the magic of statistics?
The actual jobless rate must be at least 23% or around 10.551 million.
Likewise, the July job data exhibits a trend to embellish NG’s national income statistics. Unless the global economy sputters anew, the PSA will likely ensure the outperformance of the statistical economy, the GDP.
As pointed two years ago…
5) The last option would be for the NG and BSP to manipulate markets and statistics in the hope that the markets will conform and comply with their political targets.
[See Why Interest Rates Will Rise: 1Q Fiscal Deficit Blowout Financed by BSP’s Debt Monetization (QE) and Spiking Public Debt! May 6, 2018]
Regardless of what they do with statistics, as Sir John Mills said “As a rule, panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works."
