Philippine Telecom Industry: Buyouts And Mergers Don’t Kill Competition, Laws Do

“The consumers suffer when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into big business was precisely their success in filling best the demand of the masses.”-Ludwig von Mises

One thing we can be sure of is that the PLDT buyout of Digitel will reduce the mobile network providers to two major players (Figure 5).

This comes to fore the next important issue: Some politicians have been pondering on expanding political power to avoid “killing a strong competitor”[1] by impliedly calling for the institution of anti-trust laws.

This represents sheer hooey.

Figure 6: ITU/DOTC: Regulatory Framework On Philippine Telecoms

The path towards the monopolistic character of our telecom industry is a product of our existing laws[2]. (see figure 6)

One, there is a constitutional limitation on foreign ownership in public utilities to 40%.

Two, licenses per se are not issued to telecom service operators in the Philippines unlike many countries. Instead, operators are required of a legislative franchise (issued by Congress).

Three, another requirement is the certificate of Public Convenience and Necessity issued by the National Telecommunication Commission (NTC), and

Lastly, approval to provide telecom service via grant authority for operation also from the NTC, which usually covers a provisional period of 5 years.

The above is a manifestation of the huge structural obstacle imposed against companies wishing to enter and compete with present participants in the telecom industry.

Such regulatory labyrinth represents as the anti-competitive anti-business nature of the Philippine business climate that enables such monopolistic character to take place because it substantially raises the barriers to entry, increases the hurdle rate for investors just to comply with these web of statutes and whose success to secure license-to-operate would depend on the whims of venal politicians.

Imagine, any business entity wishing to enter and compete with the entrenched bigwigs would need huge sums of lobby money to get a franchise, and to outbid the existing companies protected by these laws, who would likewise spend enormous amounts of lobby money to oppose their entry!

And that’s not all. There are other administrative regulatory compliance costs such as the NTC requirements et. al. with which prospective new players need to deal with.

So in effect, alot of productive capital will go down the drain just to acquire licenses, pay regulatory fees, and also to oppose entry of competition! And alot of those wasted money would only go to the pockets of these grandstanding politicians and the bureaucrats. And this doesn’t even count on the productive time lost to secure licenses and to comply with such regulations.

The point is: Buyouts and mergers don’t kill competition, (anti-competition) laws do.

These politicians are barking at the wrong tree!

Yet by adding more layers of legal impediments to an environment already stultified by barriers of anti-competitive laws will only punish consumers and reward politically connected persons (Could this also be the reason why Gokongwei is very much interested with PLDT?)

What these politicians should instead do to enhance competition is to dismantle the constitutional restrictions on foreign ownership of the domestic telecom industry, liberalize investments by revoking the need for Congressional franchise, and to streamline administrative regulations. I might add that income and capital gains taxes should likewise be substantially reduced, if not abolished.

Surely, in a blink of an eye competition will flourish.

Also, for politicians to claim that they can politically impose competition is nothing but sheer absurdity.

Using monopolistic coercion to induce competition only translates to institutionalizing crony capitalism and corruption.

Investors operate on the discipline and incentives of profit and loss. An unviable project will not be undertaken by free market agents. Coercing institutions to “compete” would only translate to endowments of political privileges to ensure the viability of favoured political economic agents.

Thus, crony capitalists have little intention to please the consumers but would work steadfastly to satisfy the desires of their political masters whom they owe their economic rent privileges.

Nevertheless competition is not about the number of companies.

Competition, according to Murray Rothbard[3], is a process, whereby individuals and firms supply goods on the market without using force. To preserve "competition" does not mean to dictate arbitrarily that a certain number of firms of a certain size have to exist in an industry or area; it means to see to it that men are free to compete (or not) unrestrained by the use of force.

In short, even if there are only two players in the industry, for as long as they are free to compete without political restraints then marketplace competition will prevail. All politicians have to do is to lay their hands-off these firms.

But with the huge profits the industry has been raking (even if they have recently been declining[4]), the temptation for politicians to dip into them seems so irresistible. That’s one of the reasons why politicos have been looking at various ways to intervene and call for more regulation of the industry; remember proposals by politicos to impose free texting[5]? Or how about recent clamor to have prepaid cards registered[6] in the name of security?

For politicians, profits signify signs of evil or misconduct. Only they deserve to profit by pocketing on more revenues (legit or otherwise) by forcibly extracting or extorting from productive agents. And it is one reason why publicly listed companies would be incentivize to dampen income or profit reporting by padding on expenses (or spend on lobbies)—to keep away from the prying eyes of the envious the political class. Achieving inefficiencies translate to lost productivity which means reduced capital accumulation or wealth and more unemployment and poverty.

Like in most cases, politicians and their apologists always put up a strawman, embellished by noble intentions, to justify their interventionist desires. Yet like in most instances unintended consequences defeats such noble intentions.

We should be vigilant against these forces who always work to curb our freedom.

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[1] Inquirer.net Solons fear monopoly to rise from PLDT purchase of Digitel, March 31, 2011

[2] International Telecommunication Union (ITU) Pinoy Internet: Philippine Case Study, March 2002

[3] Rothbard, Murray N. Abolish Antitrust Laws, Mises.org

[4] Inquirer.net PH telecom companies facing tough challenges, February 26, 2011

[5] See Why Forcible “Free Texting” Will Only Lead To Increased Poverty, June 1, 2008

[6] Abs-cbnnews.com NTC powerless vs SMS rumourmongers, March 15, 2011

A Nation Of Takers Is A Path Towards Poverty

Wall Street Journal’s Stephen Moore in an Op-Ed suggests that the US is becoming more of a nation of takers than a nation of makers or producers.

Mr. Moore writes (bold emphasis mine)

If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.

It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments is the $1 trillion-a-year tab for pay and benefits of state and local employees. Is it any wonder that so many states and cities cannot pay their bills?

Every state in America today except for two—Indiana and Wisconsin—has more government workers on the payroll than people manufacturing industrial goods. Consider California, which has the highest budget deficit in the history of the states. The not-so Golden State now has an incredible 2.4 million government employees—twice as many as people at work in manufacturing. New Jersey has just under two-and-a-half as many government employees as manufacturers. Florida's ratio is more than 3 to 1. So is New York's.

Policy induced bubble cycles, bailouts, subsidies, welfarism, government fostered cartels (banking, military complex, green energy) and the palpable redistribution of power from the markets to the political sphere signifies as a mission creep towards a more socialized society in the US.

For the many statists who sees every imbalances as the fault of China, this clearly is an internally induced economic distortion. In short, the Chinese have little to do with the mistakes of American policymaking.

Chart from Heritage Foundation

And over the years, US politicians have used each crisis as an opportunity to expand government intervention in the name of security. Remember this quote popularized by Rahm Emanuel, "You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think could not do before."

The obvious outcome from the continued pursuit of such policies is likely a transition towards the Philippinization or emerging marketization or simply a material reduction of America’s living standards.

That’s because the welfare state represents an unsustainable model of governance—picking on someone’s pocket is a zero sum game that rewards non-productive agents at the expense of productive agents. Thus the welfare state breeds and nurtures political parasitism.

Ludwig Erhard, Vice-Chancellor and Minister for Economic Affairs of the German, who presided over the post war West German recovery known as the ‘German Miracle’ (Wirtschaftswunder) has this to say of the welfare state (Mises.org) [bold emphasis mine]

In recent times I have frequently been alarmed by the powerful call for collective security in the social sphere. Where shall we get to and how are we to maintain progress if we increasingly adopt a way of life in which no one wants any longer to assume responsibility for himself and everyone seeks security in collectivism? I have drastically described this flight from responsibility when I said that if this mania increases we shall slide into a social order under which everyone has one hand in the pocket of another. The principle would then be this: I provide for someone else and someone else provides for me.

The blindness and the intellectual inertia that are pushing us toward a welfare state can only bring disaster. This, more than any other tendency, will serve slowly but surely to kill the real human virtues — joy in assuming responsibility, love for one's fellow being, an urge to prove oneself, and a readiness to provide for oneself — and in the end there will probably ensue not a classless but a soulless mechanical society.

This process is particularly incomprehensible because, with the spread of prosperity and the growth of economic security, our economic basis becomes increasingly solid; the need to safeguard the achievements from all future dangers overshadows all other considerations. Here there exists a truly tragic mistake, for one meets with an apparent refusal to recognize that economic progress and prosperity based on effort cannot be combined with a system of collective security.

This call for security, which naturally must permit more state intervention, shows up the contradictions contained in this dishonest policy. If the words of these demands are reduced to a simple formula then what is being demanded is no more and no less than a lowering of taxation simultaneously with a greater demand on the public purse.

Politicians can fool MOST people for MOST of the time, but politicians CANNOT fool ALL the people ALL of the time. That’s because the laws of economics ensures that such deception or dishonest policies will be exposed for what they truly are.

Imbalances from unsustainable policies eventually implodes--the MENA political crisis should serve as a concrete example.

At the end of the day, redistributive policies camouflaged by noble intentions delivers the opposite outcome. A nation of takers will eventually drudgingly scuttle under the weight of debt, fiscal deficits and or inflationism.

Saudi Arabia’s Unsustainable Welfare State

The Wall Street blog reports, (bold highlights mine)

Another reason to brace for higher oil prices in coming years: big oil exporters are increasingly dependent on the income.

Saudi Arabia, due to higher government spending this year, will need its oil to sell for $88 a barrel in 2011 for its government to break even–up from $68 last year, according to a new estimate from the Institute of International Finance, a global bankers’ trade group.

The kingdom, in response to the unrest spreading throughout the Middle East and North Africa, is boosting government spending to provide new social benefits for its people. The support for housing units, unemployment benefits and wage hikes for public workers (among a long list of measures) will contribute to a 31% increase in government spending in 2011 from a year earlier.

Aside from the prospects of reducing oil supply to allegedly generate more income (i.e. by manipulating markets), this exemplifies how the welfare state, which works for the benefit of a few, will NOT last.

Like substance abuse, bribing the citizenry would only grow overtime (from demographics and from the feedback loop of the deepening of the dependency culture--which translates to more demand for welfarism).

Importantly, this also shows how the welfare state contributes to inflation and to high oil prices, aside from showing more proof that the global oil markets are vastly manipulated and distorted from the ratchet effect (irreversible expansion) of government interventions.

Lastly like a house of cards, once oil prices collapse, Saudi’s political leadership will most likely suffer from a political backlash which may end their grip on power.

At the end of the day, Saudi’s welfare state could only buy the political leaders some time before the day of reckoning arrives. What is unsustainable won’t last.

Correlation Isn't Causation: Food Prices and Global Riots

The IMF says that the string of antigovernment protests worldwide are all about rising food prices.

The Wall Street Journal blog writes, (bold emphasis original)

100%: The increase in antigovernment protests associated with a 10% rise in global food prices

Despotic leaders, entrenched inequality and new forms of communication have all played their roles in the political turmoil now shaking the Middle East. But new research by economists at the International Monetary Fund points to another potential contributor: global food prices.

Looking at food prices and instances of political unrest from 1970 through 2007, the economists — Rabah Arezki and Markus Brueckner — find a significant relationship between the two in low-income countries, a group that includes Tunisia, Egypt, Sudan and Yemen. To be exact, a 10% increase in international food prices corresponds to an added 0.5 antigovernment protests over the following year in the low-income world — a twofold increase from the annual average.

Rising food prices represent a symptom and NOT the cause of these riots.

People aren’t too dumb to protest on food prices alone, they attribute events to politics (e.g. inequality and etc...) to markets (e.g. speculation, hoarding, et.al.) to economy (e.g. emerging market growth) or to other exogenous causes (climate change etc...).

While all of the above have some grain of truths in them, they aren’t reflective of the entire picture or the bigger force driving these.

In other words, rising food prices serves as the trigger to the unrest from long built in domestic imbalances.

But here is the bigger picture...

US Adjusted Monetary Base has been exploding!

Chart from St Louis Federal Reserve

US Federal Reserve balance sheet has also been ballooning!

Federal Reserve of Cleveland

Bank holdings of US government securities have also been exploding. US Banks have been speculating more than lending. (chart from St. Louis Federal Reserve)

Stock Market leverage has also been ramping up (chart from Pragmatic Capitalism)

Unless money printing has no impact at all, then all these won’t matter. But obviously, money isn’t neutral, and all these money printing have been absorbed somewhere in the financial markets or the real economy.

Surprisingly, the Bank of Japan (BoJ) recognizes this government induced phenomenon. They write,

Globally accommodative monetary conditions have become unprecedented. The relative size of global money stock (M1) measured against the real GDP has surpassed its historical trend (Chart 14). This sustained global excess liquidity not only increases physical demand for commodities thereby affecting fundamentals, but also amplifies speculative factors, both of which are contributing to the sharp rise in global commodity prices.

Incidentally they have been big practitioners of inflationism too. This seems to be a case "where right hand doesn't know what the left hand is doing".

And this only proves how the mainstream economic perspective has been utterly wrong.

In other words, monetary policies by the US, as the de facto foreign currency reserve of the world, have been filtering throughout the global financial system and to the global real economy.

And surging food prices has been aggravated by the shared central bank practice of inflationism and artificially suppressed interest rates by OTHER nations, most especially by the OECD economies.

And in terms of supply side, another key factor behind surging food prices has been due to the restricted international trade of agriculture. Agriculture has been the least globalized among other sectors.

In short, protectionism from the political toxin called “self-sufficiency” has been responsible for the aggregate imbalances of food economics globally.

Chart from Guinness Atkinson

Of course, it is equally nonsense to attribute rising inflation to China as attributed by some observers.

China isn’t the world’s foreign currency reserve. While China is an important driver in the global consumption equation, (in as much as the supply side) China hasn’t been inflating as much as the developed economies. In short, China has only served as an aggravating factor to the main dynamics behind the world’s food price triggered riots. I might add that China has also been plagued by her domestic bubble policies.

Only the politically (and or mathematical formalism) blinded people can’t see anything wrong done by the state. Their knee jerk response is to lay the blame on the doorsteps of either the marketplace or to other nations, for what actually is truly a failure in domestic policies.

To quote Forrest Gump: Stupid is as stupid does.

The Political Folly of Energy Independence

Cato’s Economist Steve Hanke on the popular political drivel called “energy independence” (bold emphasis mine)

Every president since Richard Nixon has asserted that we are sitting ducks for those who brandish the oil weapon. To keep the evildoers at bay, the government must adopt policies that ensure our energy independence. Like his predecessors, President Obama is worshiping at this altar. And why not? How many elections have been lost by blaming foreigners for an impending crisis?

Despite their cynicism about politicians, most people actually believe that mineral resources, including oil, are doomed to disappear. It’s obvious: Start with a given stock of provisions in the cupboard, subtract consumption and eventually the cupboard will be bare.

But what is obvious is often wrong. We never run out of minerals. At some point it just costs too much to produce them profitably. In the 19th century, the big energy scare was in Europe. Most thought Europe was running out of coal. That doomsday scenario never materialized. Thanks to a plethora of substitutes, the prices that European coal could fetch today are far below its development and extraction costs. Consequently, Europe sits on top of billions of tons of worthless coal.

Once economics enters the picture, the notion of fixed reserves becomes meaningless. Reserves are not fixed. Proven oil reserves, for example, represent a warehouse inventory of the expected cumulative profitable output, not a fixed stock of oil thought to be in the ground.

When thinking about oil reserves, we must also acknowledge another economic reality: Oil is sold in a world market in which every barrel, regardless of its source, competes with every other barrel. Think globally, not locally. When we do, the dwindling reserves dogma becomes nonsense. In 1971, the world’s proven oil reserves were 612 billion barrels. Since then the world has produced approximately 990 billion barrels. We should have run out of reserves fourteen years ago, but we didn’t. In fact, today’s proven reserves are 1,354 billion barrels, or 742 billion barrels more than in 1971.

How could this be? Thanks to improved exploration and development techniques, costs have declined, investments have been made and reserves have been created. The sky is not falling.

Oil is just another economic good whose value is determined by the utility it provides. Thus like all economic goods, oil and energy products are subject to price sensitivity borne out of the forces of demand and supply and technological changes.

In other words, in contrast to naive views of neo-Malthusians, the economic value of oil is never fixed.

Proof of this has been man’s shifting use of energy from firewood to coal to whale oil to kerosene and now to the manifold derivative products of crude oil—gasoline, diesel, jet fuel and etc... That’s why while Peak oil is an engineering reality, Peak oil, as an economic concept, is a myth. Engineering does NOT capture human action.

Despite the recent rise in commodity prices, the real cost prices have been declining over the past 161 years!

Yet the recent price surges have partly been about consumptive demand (mostly imputed to emerging markets) but substantially also due to reservation demand (mostly identified as speculation).

The above graph reveals of the consumptive versus reservation demand from Bank of Japan.

The point is current imbalances of energy has been mainly caused by government interventions from artificial demand (quantitative easing programs, suppressed interest rates) to distortions on the supply side (geographical restrictions, price controls, subsidies, taxes and tariffs and etc).

Thus rising prices isn’t about energy dependency, peak oil and other interventionists babble, but about government failure.

The truth is that there is a cornucopia of commodities in the world as shown by the table from Brookenews. All it takes is for the market to discover and enable them to be commercially useful through price signals.

Yet neo-Malthusians interventionists believe in the fallacy where two wrongs equals a right. They address government intervention failure with even more government intervention, seeing that government is the be-all and end-all of human affairs.

Such political religion can be seen in the widespread celebration of the crass symbolism of the earth hour movement, whose anachronistic proposition is to regress human living standards back to medieval ages. It is more than a practise of atavism, it is an implied belief in misanthrope.

Of course people who fall for the energy independence idiocy simply disdain free trade. Such political blindspots are mainly rooted in the aversion to imports which is read as a mortal sin.

Yet what they preach is hardly what they practise. They don’t ever realize that by restricting the division of labor and comparative advantage, man regresses.

Say you hate fossil fuel? Then just walk or bike. Oh, since bike is also made out of fossil fuel, so just get a horse. But like the asinine shift to candlelight in order to project social conformity to earth hour, primitive means of transportation equates to more environmental hazards.

An example expressed by Gerard Jackson of Brookesnews,

The problem of coal smoke continued into the twentieth century when it was finally solved by the benefits of growth, which had already solved a multitude of other problems such as the tens of thousands of metric tonnes of horse manure that had to be taken from city streets each day (a horse produces about 20 kilos of dung per day), not to mention the 300 grams of liquid a horse releases per mile plus the thousands of dead horses that had to be disposed off each year.

The lengthening time of transport reduces man's productivity and increases the cost of doing things.

Also increasing the use of non-commercial energy via subsidies represent as redistribution of wealth from the consumers (through higher prices or through higher taxes), as well as the transfer of wealth from traditional market appointed suppliers, to the politically endowed industries.

Moreover higher prices and taxes reduces people's purchasing power.

So how does one "prosper" with such backwardness?

As you can see noble ‘romanticized’ intentions by socialists are frequently defeated by reality.

The energy dilemma should be resolved by espousing more trade freedom. Let the markets decide on which energy is more efficient, which energy meets the public’s demand for utility and which energy is the safest (one of the reason perhaps why nuclear energy flourished).

chart from Professor Mark Perry

Intervening politicians only distorts the marketplace and shifts the balance of trade towards political favourites, such as Japan’s nuclear ‘crony’ industry.

The fact is the political economic concept known as autarky, which is the root of the political call for energy independence, translates to the promotion of poverty. This also represents a form of neo-Luddism.

Should The Philippines Wage War With China Over The Executions Of The Drug Mules?

“It is just that the Philippines is less powerful than China in warfare” remarked a neighbor in the allusion that the Philippines is powerless to impose her will over its larger and far powerful Asian contemporary following yesterday’s execution of the 3 drug mules.

Stunned by this comment I retorted, “Do you honestly believe that the Philippines should go to war with China for them?”

Such unwarranted emotional interpretation of events appears to be the offshoot of the quality of reasoning peddled by mainstream media which the vulnerable public could have misinterpreted.

From the Inquirer.net

Three Filipinos convicted of drug smuggling were executed in China Wednesday, triggering condemnation in the Catholic Philippines and despair for family members who shared their final moments...

The executions came after repeated pleas by the Philippine government for their sentences to be commuted were turned down, and ended vigils in the country where supporters of the trio had prayed for a miracle.

There are many issues encompassing this case which makes it complex.

One it is the issue of drug trafficking.

Two it is the issue of death penalty.

The populist sentiment seems mostly aligned with the position taken by the influential Catholic church which hasn’t been about the legitimacy of DOMESTIC death penalty laws but death penalty as a moral principle.

From the same article,

Amnesty International as well as the influential Roman Catholic church swiftly condemned the executions.

"We strongly condemn the executions of the three Filipinos," Agence France-Presse quoted Amnesty's Philippine representative Aurora Parong.

"The Philippines should have taken a stronger action, and it is now its moral duty to lead a campaign against death penalty in Asia."

Amnesty International says China is the world's biggest executioner, with thousands of convicts killed every year. The Philippines has abolished the death penalty.

I wholeheartedly agree that death penalty should be abolished. But this is largely a non-sequitur. As you can see from the above article, the Philippines had been suggested to take “stronger action”? But how?

The populist perspective fundamentally ignores the fact that this issue is PRIMARILY about China’s DOMESTIC policies and NOT of ours.

It is the issue of FOREIGN POLITICAL relations.

If the US hasn’t been able to successfully compel China to alter her exchange rate policies (to resolve so called global imbalances) or on other contentious geopolitical issues as the UN environment saving program called the Kyoto Protocol, how the heck can we expect that the Philippines implement “stronger action” on China to save the felons-turned-victims?

As an aside, I don’t have the full knowledge of the circumstances behind this case for me to pass any judgments. I can only deduce from what I read or hear. So I am neutral on this.

So aside from geopolitical relations, the other very important issue is the FALSE impression that the Philippine political leadership can do something at all. This is an example of the religion of politics-the errant belief that government CAN and HAS to do SOMETHING.

Where the local political leadership can hardly control or manage domestic political issues, like the Congressional impeachment of the Ombudsman Merceditas Gutierrez or for many other matters, how can we expect the Philippine government to WANGLE her interests over China? Wage war as my neighbor implied?

The fact is that territorial borders IMPOSE a limit on the sphere of political power influence of the Philippine government.

This also means that the political priorities of the Chinese government will determine the fate of the Filipino drug mules and NOT the Philippine government (as had been the case).

The most we can do is to perhaps appeal—which is what the government did! But this serves no more than as photo OP and as advertisement mileage for politicians.

But in the realization that the Chinese government has been the largest practitioner of the death penalty, mostly applied to their own citizens, Filipinos shouldn’t expect much even from the government’s appeal.

As the Economist reported (bold emphasis added)

CHINA executes more of its own citizens than any other country, and more than all others in the world combined. “Thousands” of Chinese were executed in 2009 according to Amnesty International's annual study, which states that an exact number is impossible to determine because information on the death penalty is regarded as a state secret. But this gruesome record may yet change. The National People's Congress is reported to be reducing the number of offences that are punishable by execution. Among the crimes that currently carry the death penalty are bribing an official and stealing historical relics

Fatalities from China’s death penalty have even been far larger than the composite deaths of the whole world!!!

I’d like to add that there are reportedly some 125 cases of Filipinos scheduled to be executed elsewhere in the world where 85 are allegedly drug related cases, so why pick on China?

I am not a defender of the incumbent administration. But the essential point over this controversy is that the mainstream and the gullible public don’t seem to realize that this is a foreign policy issue, subject to the whims of China’s political leadership regarding the implementation of local rules on our supposedly erring immigrants or OFWs. This is also the issue of China's political and legal system.

This isn’t an issue of nationalist schism.

Importantly, this unfortunate event exposes on the grand delusion that the government CAN do something WHEN they can’t.

Filipinos abroad should realize that they are subject to political risk environment of their host countries that are vastly different than here, and must learn to safeguard their interest than rely on the government.

All the drivel from politicians about more spending to augment legal services for OFWs represent as mere ‘feel-good-vote-buying’ postures. Remember we don’t share the same legal process, institutions or framework with China, thus any assumption for more legal spending would likely only translate to waste.

Finally, when I asked the above question to the media indoctrinated youth, he simply turned around and walked away.

UPDATE: (I forgot to include this)

What happens if the Philippine government does successfully negotiate the mitigation of the sentences of the accused? Would this not serve as moral hazard that could encourage more drug related trades?

It is bad enough for us to expect our government to patently interfere with many aspects of our lives. But it is even worst to believe that our government has to intervene into the lives of people who lives beyond our borders.

The US Energy Consumption Story: Americans Are Better Off Today

The US Energy Information Administration (EIA) reports, (emphasis mine)

While most home appliances have become more efficient over the past 30 years, the average U.S. household uses many more consumer electronics —in particular, personal computers, televisions and related devices, according to data released today by the U.S. Energy Information Administration (EIA) in the latest update to its Residential Energy Consumption Survey.

EIA on Household Devices

US households have increasingly been using more luxury items and convenience related devices than in the past.

Appliances and Electronic devices accounted for 31% of energy use in 2005 than in 1978 where energy use accounted for 17%. Moreover, air conditioning and water heating likewise reveal of the same story where energy use has materially increased today (8% for aircon and 20% for water heating), than in the past (3% and 14%).

EIA on Energy Intensity

And since energy intensity has been materially declining, this translates to even more intensive use of these devises.

This also is a great example of the Jevon’s paradox at work, which according to Wikipedia.org is the proposition that technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource.

Wikipedia.org on Jevon’s Paradox

Bottom line: Compared to the views of the permabears, gains from increased fuel efficiency and technological progress (brought about by capitalism) highlight the fact that American living standards have vastly improved over the past years, despite the stagflation, recessions and financial crisis.

Earth Hour And Reality

Bjorn Lomborg writes, (bold highlights mine)

When we switch off the electricity, many of us turn to candlelight. This seems natural and environmentally friendly, but unfortunately candles are almost 100 times less efficient than incandescent light bulbs, and more than 300 times less efficient than fluorescent lights. Using one candle for each extinguished bulb cancels the CO2 reduction; two candles emit more CO2.

That’s basically the law of unintended consequence at work. Populist political ‘feel good’ actions tend to defeat the noble intentions which it tries to achieve in the first place.

The economic implications is that:

First, we get inefficient and more costly ‘alternative’ energy (this reduces people’s purchasing power—thus we become POORER). Making us poor saves the environment (duh!).

Second, atavistic lifestyles poses more environmental hazards than the current one.

As a Latin proverb goes, Aegrescit medendo or the cure is worse than the disease...

Euro: Geopolitics Over Economics

Austrian economist Dr. Antony Mueller writes, (bold highlights mine)

“the fact that the euro is more a political than an economic project. Even more: the euro is an instrument to (re)gain geopolitical power for the Europeans. In other words: the euro is an imperial tool. In this respect bad economics is a given. The euro does have moral hazard effects...Yet the main point is that the euro project itself is hazardous game. Bad economics would no longer matter if the gamble will succeed. Current losses would be recouped a thousandfold just if oil were traded in euros or partly in euros. As of now it is already a fact that no far-reaching decision concerning the international monetary order can be taken against the will of the leaders of the eurozone. On a net basis, and even with the costs of the current sovereign debt crisis included, the euro has been beneficial for the whole region and beyond.”

Global foreign currency reserve from wikipedia

The time consistency dilemma of money that has been engineered for geopolitical incentives has limits. True, the euro has been gaining market share at the expense of the US dollar in terms of foreign currency reserves but the gains will always be relative.

Yet any political environment that thrives under bad economics will have interim benefits but eventually suffer from the recoil of the imbalances borne out of such bad policies. The euro or the yen or the yuan or the Philippine peso will not escape this basic economic laws at work. There is no free lunch.

To add, the perspective of politics over economics has been the path dependent policy approach employed by current crop of policymakers globally. In other words, interpreting actions by policymakers to address economic problems may not entirely be valid. Economics may just be a front or a cover for other ulterior political motivations that drives the decision making process of the political authorities as the Euro.

To quote economist Thomas Sowell,

Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do-- and nothing is more unpredictable.

The Religion of Politics

Most people see the state as a “be-all and the end-all” or signifying both the ‘means’ and the ‘end’ of our existence. That’s why the flow of communications—reporting, reasoning, narratives, conversations and etc.—mostly revolve around the basic premise where the state has been deified as our messiah.

Libertarian Frank Chodorov exposes the myth of this mentality...(bold emphasis mine)

The weakness of the State lies in the fact that it is but an aggregate of humans; its strength derives from the general ignorance of this truism. From earliest times the covering up of this vulnerability has engaged the ingenuity of the politician; all manner of argument has been adduced to give the State a suprahuman character, and rituals without end have been invented to give this fiction the verisimilitude of reality. The divinity with which the king found it necessary to endow himself has been taken over by a mythical 51 percent of the electorate, who in turn ordain those who rule over them. To aid the process of canonization, the personages in whom power resides have set themselves apart by such artifices as high-sounding titles, distinctive apparel, and hierarchical insignia. Language and behavior mannerisms — called protocol — emphasize their separateness. Nevertheless, the fact of mortality cannot be denied, and the continuity of political power is manufactured by means of awe-inspiring symbols, such as flags, thrones, monuments, seals, and ribbons; these things do not die. By way of litanies a soul is breathed into this golden calf and political philosophy anoints it a "metaphysical person."

You can see such dynamic at work in populist themes such as Earth Hour, anthropogenic global warming, global imbalances and other national sensational issues such as corruption et. al.

For every social problem, the reductio ad absurdum or what I call the three monkey solution approach has always been for government

1) to tax or to regulate someone else (definitely never the proposer),

2) to change the people (what I call personality based politics or a system of musical chairs) and

3) to throw money at the problem (which is why paper money exists).

Hardly anyone infers on the issue that the state itself or the laws from which the state has founded its existence could be the source of imbalances. And in saying so, this would be tantamount to blasphemy. The price for truth is ostracism when it should be the other way around as Mr. Chodorov argues.

Yet George Washington told us why the state should not be seen as our messiah...

Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master.

Video: How Video Will Reinvent Education

I've been saying that the third wave (or the information age) will bring about massive structural changes in how we do things.

Salman Khan in his talk at the TED explains how video will 'humanize' the classroom [via P2P tutoring collaboration etc..] which should reduce the one-size-fits all programs from which the current system operates on.

Great stuff (hat tip: Arnold Kling)

Crony Capitalism: Japan’s Nuclear Industry

Japan’s nuclear industry has been a product of crony capitalism.

Writes Shikha Dalmia, (hat tip: Matt Ridley) [all bold highlights mine]

But nuclear appeals to Japan’s mercantilist rulers, who, since the mid-’60s, have regarded the country’s lack of indigenous energy resources as a major strategic vulnerability that must be corrected at all cost. They have committed themselves to increasing Japan’s energy independence ratio from the current 35 percent to 70 percent by 2030. “We can no longer rely on the market to secure energy,” declared Koji Omi, chairman of the Liberal Democratic Party’s Energy Security Committee, a few years ago. “We should put much more emphasis on energy as our nation’s strategy.”

Such thinking has prompted Japanese lawmakers to push nuclear more aggressively than street vendors hawking broken Mao watches in Tiananmen Square. From 1990 to 2000, nuclear’s share of Japan’s energy mix has gone from 9 percent to 32 percent.

To get there, Japan has poured lavish subsidies into nuclear, starting with research. Around 65 percent of Japan’s energy research budget goes toward nuclear — the highest of any country — with the industry spending $250 million, well below 10 percent of what the government spends. Even France, which gets 80 percent of its energy from nuclear, spends three-and-half times less than Japan.

Beyond research, the government offers the nuclear energy industry loans that are a full percentage point below commercial levels. And for four decades, Japan has taxed the utility bills of electricity consumers, distributing the proceeds to communities willing to house nuclear plants. In essence, nuclear’s competitors are being forced to act against their own interest to bribe local communities to accept a risk against the communities' interest.

But the mother of all subsidies is the liability cap that nuclear enjoys. In the event of an accident, the industry is on the hook for only $1.2 billion in damages, with the government covering everything beyond that. Japan’s cap is generous even by American standards, which require the industry to cover $12.6 billion before Uncle Sam kicks in. (Nuclear proponents in the U.S. argue that this liability cap is necessary given our insane tort awards. However, the fact that even countries without such awards have to offer a liability cap suggests that nuclear technology is not yet considered safe enough to be viable.)

The liability cap effectively privatizes the profits of nuclear and socializes the risk. It uses taxpayer money to diminish the industry’s concern with safety — which government regulations can’t restore. In 2008, Tokyo actually started offering bigger subsidies to communities that agreed to fewer inspections. The problem of regulatory capture is particularly endemic in Japan given that regulators seek industry jobs upon retirement, and hence often cozy up to companies they are supposed to oversee.

When politics become the masters instead of the consumers, it is of no doubt why safety has been compromised.

Social Inequality: The Anatomy of Plutocracy

One of the most popular misimpressions or smear campaign tactics directed against free markets or laissez faire capitalism is that such a system promotes a political order known as plutocracy-or the rule of the wealthy.

This idea either lacks the comprehensive understanding of capitalism or simply operates on the premises of deliberate equivocation (propaganda).

The Consumer Reigns In A Laissez Faire System

In the laissez faire political economic order, it is the consumer that ALWAYS reigns supreme.

Consumers ultimately determine who to reward (by profits) and who to punish (by losses). Thus, the wealthy are those entrepreneurs who manage to continually satisfy the ever dynamic desires of consumers.

As the great Ludwig von Mises wrote, (bold highlights mine)

In the capitalistic society, men become rich — directly as the producer of consumers' goods, or indirectly as the producer of raw materials and semiproduced factors of production — by serving consumers in large numbers. This means that men who become rich in the capitalistic society are serving the people. The capitalistic market economy is a democracy in which every penny constitutes a vote. The wealth of the successful businessman is the result of a consumer plebiscite. Wealth, once acquired, can be preserved only by those who keep on earning it anew by satisfying the wishes of consumers.

In addition, market dominance is neither guaranteed nor in a state of permanence because consumer desires always changes.

Importantly, the highly competitive nature of markets impels entrepreneurs to attain excellence by exploiting windows of entrepreneurial opportunities.

As Professor Israel M. Kirzner writes, (bold highlights mine, italics Prof Kirzner)

What makes possible the entrepreneurially driven process of equilibration is active market competition. It is only the possibility of unrestricted entrepreneurial entry which permits more alert entrepreneurs to deploy their superior vision of the future in order to correct the misallocations of resources reflected in the false prices which characterize disequilibrium. It is the continual threat of such entry which tends to keep incumbent entrepreneurs alert and on their toes.

A good example of such process can be seen from how Apple, the technology behemoth company, has attained its present dominance.

Apple’s Sphere of Influence From Minyanville.com

Apple’s success wasn’t granted by fiat orders from political leaders but from its numerous attempts to satisfy consumer demands via competition derived innovative consumer friendly technology devices.

The above is an example of one of the many failed Apple products (chart and the rest of the story from Minyanville). In other words, Apple’s recent string of successes came at the cost of her previous failed experiences or experiments.

I have recently noted on how Mattel, makers of the famous Barbie dolls, has closed shop in China for failing to adapt to local tastes and how Philippine conglomerate Jollibee has captured the largest market share in the Philippine fast food industry by toppling US based counterpart McDonald’s by ingenously configuring her products to the palate of Filipino consumers.

The point is—the political economic order of the rule of the wealthy (plutocracy) would NOT sustainably persist or would unlikely occur under a pure laissez faire system.

State And Crony Capitalism Equals Plutocracy

The apologists for statism, who see Plutocracy as the main source for inequality, hardly realize that for the wealthy to politically sustain its dominance means to adapt ANTI-COMPETITIVE measures by co-opting with the political leaders.

Writes Art Carden (bold highlights mine)

Bourgeois riches come from customer service. Aristocratic riches are expropriated. Aristocracy rests on intrinsic value whereas capitalism rests on the exchange of value for value.

Libertarian William Graham Sumner wrote, (bold highlights mine)

[M]ilitarism, expansion and imperialism will all favor plutocracy. In the first place, war and expansion will favor jobbery, both in the dependencies and at home. In the second place, they will take away the attention of the people from what the plutocrats are doing. In the third place, they will cause large expenditures of the people's money, the return for which will not go into the treasury, but into the hands of a few schemers. In the fourth place, they will call for a large public debt and taxes, and these things especially tend to make men unequal, because any social burdens bear more heavily on the weak than on the strong, and so make the weak weaker and the strong stronger. ("Conquest of the United States by Spain.")

And it has not been different here in Southeast Asia, Joe Studwell writes, (as I earlier quoted here)

Centralized governments that under-regulate competition (in the sense of failing to ensure its presence) and over-regulate market access (through restrictive licensing and non-competitive tendering) guarantee that merchant capitalists-or asset trader, to use a more pejorative term-will rise to the top by arbitraging economic inefficiencies created by politicians. The trend is reinforced in South-east Asia by the widespread presence of what could be called as ‘manipulated democracy’, either in the guise of predetermined winner democracy (Singapore, Malaysia, Suharto’s Indonesia) or else in the scenario where business interest gain so close a control of the political system that they are unaffected by the changes of government that do occur (as in Thailand and the Philippines). In both instances politicians spend huge sums to maintain a grip on power that has some semblance of legitimacy. This can only be financed by through direct political ownership of big business or more usually, contributions from nominally independent big business that is beholden to politicians. Whichever, the mechanism creates a not entirely unhappy dependence of elites between politicians and tycoons.”

If Confucius once said that ‘give the man a fish you feed him for the day, teach him to fish and you feed him the rest of his life’.

From a political standpoint, libertarians and classical liberals advocates on the method that teaches the man how to fish, so as to make him productive to the society.

Whereas for statists, who along with politicians, will naively insist on feeding the man for the day (moment), by picking on someone else's pocket, supported by a legalized coercive framework that are enabled or facilitated by a politically constructed paper money system, which from the account of the entire history of man’s attempt to produce political nirvana has always failed.

Yet such accounts for exactly the Anatomy of Plutocracy.

Any political economic order which depends on political privileges or distribution of resources—endowments, protectionism, subsidies, bailouts, behest loans, economic concessions et. al. represents NOT a laissez faire system but a political system known as STATE CAPITALISM or CORPORATISM or CRONY CAPITALISM. The important difference is that consumers in a laissez faire system represents as real power, whereas politicians signify as the most powerful agents in the state capitalist order.

In today’s setting, the cooptation of the banking cartel-military industrial complex-green industrial-government labor union-welfare state-central banking system (in the US or elsewhere) are representative of PLUTOCRACY IN ACTION!

As the great Milton Friedman said in this lecture,

A society that aims for equality before liberty will end up with neither equality nor liberty. And a society that aims first for liberty, will not end up with equality but will end up with a closer approach to equality.

Bottom line: Statism or government interventionism, which enables or sustains a political economic order of plutocracy, is what engenders social inequality. The more societies politically organize herself towards attaining social equality, the more inequality gets amplified.

Here, noble intentions and economic reality are separated.

Pornography: How Social Signalling Beats Prohibition Laws

A major reason why pornography can’t be stopped at all by prohibition laws has been poignantly captured by this New York Times article... (all bold highlights mine)

Around the country, law enforcement officials and educators are struggling with how to confront minors who “sext,” an imprecise term that refers to sending sexual photos, videos or texts from one cellphone to another.

But adults face a hard truth. For teenagers, who have ready access to technology and are growing up in a culture that celebrates body flaunting, sexting is laughably easy, unremarkable and even compelling: the primary reason teenagers sext is to look cool and sexy to someone they find attractive.

Indeed, the photos can confer cachet.

“Having a naked picture of your significant other on your cellphone is an advertisement that you’re sexually active to a degree that gives you status,” said Rick Peters, a senior deputy prosecuting attorney for Thurston County, which includes Lacey. “It’s an electronic hickey.”

One: This is not even an issue of commerce but of voluntary exchanges by a niche community where self esteem is at stake.

Two: Some people see pornography as a way to project personal issues-here sexuality in order to command social attention! Yes I know they are minors, but this doesn’t mean they are amoral or can’t distinguish between right and wrong. For them, social acceptance serve as their highest personal priority (value preference) to fulfil.

So what is construed as generally an immoral act is seen by some as a tool to broadcast social status—whereby consensual participants see such as acts as providing social “utility”.

In short, morality is subjective.

Three: This serves as example why it is an act of futility to legislate away exchanges between willing and voluntary suppliers, and eager audiences.

Legislating away self-esteem needs won’t solve this issue.

Four: I would say that perhaps most people are NOT engaged in voluntary exchanges like non-commercial pornography, yet the political imperatives (like the undertone of the article) are directed towards using the fallacy of composition as an instrument towards exercising political censorship.

In short, deviant behaviour of some segments of the society will be used as an excuse to control the public’s flow of information. The implied message is to shoot the messenger (cellphones, web, etc…) when the problem is one of behaviour.