Electoral musings.

One question still lingers in my head, after viewing the Indonesian Parliamentary Election results: did the other 35 parties realistically expect to get enough votes to breach the electoral threshold?

I don't quite understand why these smaller parties actually thought they stood a chance against the bigger parties. Keep in mind a couple of things:
1. The bigger parties are, well, bigger. More funding, more supporters, better reputations. It's hard to compete against parties that get much more publicity than yours.
2. The smaller parties are mostly new, making it that much harder to establish a name for themselves.
3. The smaller parties have nothing special. Most have platforms that are very similar (if not nearly identical) to the bigger parties, because many of these smaller parties were formed by former members of the large parties who couldn't get the positions they wanted in the MP roster. Not to mention that Indonesian politics isn't so much about the platform as it is about the big names.

So, when a 44-party election results in one party getting 20% of the vote, while 29 parties didn't even get 1%, I think it's rather clear that having 44 parties is a waste of campaign funds, no?

P.S. And, apparently, it's also a waste of mental hospital space. No, but seriously, the failed candidates are doing some pretty crazy stuff.

On useless publicity stunts

Yes, I'm talking about Earth Hour.

Like giving to charity and assisting old ladies with their grocery bags, preserving the environment is something we choose to do because of our moral compulsions, and not because of any direct benefits. The only "direct" benefit we get from it is the feel-good effect: we think that doing it makes us better people, and everyone enjoys the idea that we "made a difference" by supporting a good cause.

However, what's most important to individuals isn't that their activities actually help, but that they attempted to help. You know, "it's the thought that counts". That's why research has shown that mechanisms designed to stimulate charitable giving are likely to increase the number of people giving to charity, but are not likely to increase the amount of money donated by each individual. (I read this months ago, and I'll post a link when I find the relevant article)

Simply put, Earth Hour is an easy way out for people to get their environmental feel-good effect. "Oh, we've saved enough energy to light up 900 Indonesian villages! Yay!" say the Jakartan public, as they rush to turn their lights, computers, LCD TVs, and air conditioners back on. And in the morning, as they drive at a snail's pace through the heavy Jakartan traffic in their gas-guzzling SUVs (with AC on full blast, obviously), they'll have this warm, fuzzy feeling inside, because they think they've made a positive contribution to the fight against global warming.

If it actually raises awareness on energy conservation for the long run, that's great. But I'll hope you'll excuse me for being a bit skeptical.

The wrong benevolent mechanism at wrong place..

FYI, I have been going to faculty of economics for almost four years and I have got the senses that this campus is full of incentives-responded mechanisms ever since. Thus, actually, I was quite shock for a while knowing that from badge of 2006 on, every single student of economics must take environmental or human resource economics as one of his concentrations...It's nonsense...

What were they thinking to have students choose one of it? Is it like something they play God?
Truly honest, I can't tell why environmental or human resource? Moreover, why MUST? Didn't they take some important lesson about people responding to incentives thing from econ 101?

Obviously, they are not economists (should I put some 'quote' on?), yes?

Are they long-awaited saviors or mere lemons?

I find Indonesian next year presidential candidates and used-car markets are somewhat similar. Both of them offer nothing but high risk, low return for voters and buyers, respectively. Why? In short, as in Akerlof’s model, used-cars market (Indonesian presidential candidates market) entails lemon’s problem, a problem that prevails when buyers (voters) can’t figure real quality of the cars (candidates) they are going to buy, and thus buy the lemon ones (idiot, greedy, and immoral candidates) instead of mint ones (smart-visionary, ascetic, and law-enforcement-oriented), because there is asymmetric information between dealers (campaign managers) and them.

The dealers try to conceal real information about their cars, hoping they can reap benefits from it, while the real quality is far below the standard, for sure. It is because owners of moderate-quality cars who want to sell their cars due to high cost maintenance would rethink about it for their utilities for keeping their cars exceeding their utilities that emerge from selling it with prices dropping significantly. As a result, cars left to be sold are of the worst quality whose former owners’ utilities are at highest if they sell it because their cars entail severe problems, assuming more people will keep their moderate-quality cars at their garages.

It’s the same with next year presidential candidates’ condition, I suppose. As you know, there would be many very popular yet unknown candidates; they are newbies. Interestingly, like Indonesian celebrities, those candidates are very popular merely because of their outer appearances, but not well-known for what they have done for a better Indonesia, unproven yet, at least. In addition, they deliberately created a dichotomy for youngsters and old cracks, and said that the youngsters are the ones needed by Indonesia at the moment, which is not an elegant campaign, black campaign indeed. Moreover, their track records show that they are not credible; there would be one book-length to tell. As predicted, campaign managers, of course, will tell nothing but only the best parts of their candidates in order to conceal the real ones, which are not that good. However, it would be wise of you if you block your ears with something and leave them telling bullsh*ts. Asymmetric information prevails.

Assuming Indonesian political realm is so dirty that not even worth a second for a man to think about getting involved into the system, let alone fixing it as it contains back-stabbing, highly-corrupted staff, abundant problems, etc. Hence, obviously, smart and rational people will not even ‘try this at home’ since it appears that the system is incurable and clearly no incentives for them, assuming a few nationalists and smart people left who want to volunteer to be a president. Therefore, only idiot-greedy-immoral candidates left, yes? So, why should we believe in such ‘youngsters’ that have repeatedly proclaimed as the ones who are able to lead our nation into a better future? The probability of them to become our long-awaited saviors is very tiny, if not at all, no? Anyway, it’s up to you if you want to vote or not.

How to stop those crazy motorcyclists once and for all!

I wrote a post months back about how we should make regulations that free motor vehicle drivers of any liability if they run over a jaywalker. I think we should try doing the same thing for motorcyclists.

The unwritten Jakartan traffic law of "he with the most wheels is most at fault" has rendered motorcyclists free of most liability whenever they're involved in an accident involving cars. Even if it was their stupidity that caused them to attempt to overtake a car from the right when the car was, say, trying to turn right at an intersection (true story), the people in the car will most likely end up having to take the motorcyclist to the hospital and help out with the bill.

I'm sure everyone has their fair share of motorcycle related incidents, whether it be hit-and-runs on sidewalks (last I heard, motorcycles aren't allowed on sidewalks) or rear-view mirrors getting grazed by motorcyclists trying to squeeze through gaps between cars.

Enforcement of the "motorcycles are only allowed to use the left-most lane" law has been completely non-existent, mainly because motorcyclists outnumber police officers by quite a significant margin. What we need to do is get everyone else to help with enforcement. Extend the law to include "any motorcycle outside of the left-most lane is fair game to be run over", and I'm sure we'll see much safer streets. The first few days will be bloody, but after that, peaceful streets at last.

P.S. I realize it's quite extreme, but so are the antics of some of the motorcyclists I've seen recently. The madness has got to stop.

P.P.S. I also realize that even attempting to pass this law would bring about a massive uproar. But, then again, we also recently passed the Pornography Act, which proves that idiotic and unpopulist laws can get passed in Indonesia, so I'm optimistic that this law (perhaps equally unpopulist, but much less stupid and much more useful than the Pornography Act) will work out just fine =P.

On Structural Transformation...

This afternoon, over lunch, I had an interesting conversation with some friends of mine which really did get me thinking. Two of my friends were preparing for a paper presentation, which they said would be coupled with some sort of debate-related activity. They asked me to help them by providing my insight on structural transformation.

Now, I haven't given this concept much thought since it was first introduced to me in a class two years ago (a class which I failed, and have not yet retaken, I might add). But feeling compelled to give a better answer than "you're asking the wrong guy, I failed the class for a reason, you know", I actually thought about it.

What immediately popped into my head was how the concept of structural transformation (that is, the concept that countries need to develop their industries according to a fixed progression starting from agriculture to light manufacturing to heavy manufacturing to services) is probably irrelevant in this globalized world, where technology and information are extremely mobile, and where there now exist a great variety of ways to produce all goods and services (low tech or high tech, labor intensive or capital intensive), making it possible for any country to specialize in anything at any point of their development.

In a world where the agricultural products are not only produced in farms and fields but also in labs, where Nike shoes can be produced with high-tech machinery or with manual labor in sweatshops, where developing countries like Indonesia and the Philippines export their people to become housemaids and nurses abroad, where US-based MNCs outsource their customer service centers to India, and where China's massive labor force allows them to create whatever industry they want, there really is no sign of any fixed progression or "structural transformation" taking place.

On recent occurrences.

This post should probably be a comment on Lionel's previous post, but I'm writing it as a new post simply because I can.
Disclaimer (since this seems to be necessary nowadays): I personally don't profess to have the answer to everything, so please do criticize/flame (preferrably the former) as necessary.
Second disclaimer: this comment may very well be obsolete by the time it gets published, but I just feel that I need to put in my two cents.

Firstly:
Policy measures intended to stimulate a specific reaction in one sector may not be the best course of action, even if said policy succeeds in creating the stimulus. Why? Because these policy measures can create unintended and unwanted consequences. Thus, policy measures cannot afford to be one-dimensional, and policy makers should never be afflicted with tunnel vision.
For example, even if an increase in interest rates does ebb the capital flight and alleviate our problems in the financial sector (let's assume that it does), any possible consequences in other sectors warrants consideration. Cost-benefit analyses must always be conducted multidimensionally.

Secondly:
Every theoretical basis needs to be contextualized before being used as the foundation of a policy.
For example, even if a continually rising LIBOR generally calls for an interest-rate hike to remedy the impacts, the specific context of "why is THIS particular capital flight occurring?" needs to be taken into consideration. One can argue that given the current situation, where we can assume that perceived investor discount rates have gone near-infinite, policies that hike interest rates will not significantly affect capital flight.

Just my relatively peaceful two cents on the matter.

Why Bank Indonesia Increase Interest Rate?

Some people keep asking "Why Bank Indonesia increase BI rate, while other central banks decrease it? Are they moron or else?". I hope my opinion can answer it:

--- The increase of Interbank interest rate, i.e. LIBOR, is the sign that bank and investor need cash desperately and reluctant to invest in longer time period. They demanding higher rate of return to invest in long time assets. Indonesia is still a country that need foreign investment to boost its economy. If Indonesia want investor's money to stay, they must increase interest rate (rate of return) to persuade the foreign investor, otherwise no. ---

Well, i copy it from my opinion at Cafe Salemba, also with few sentences correction.

Indonesia's Electoral Nonsense

Looking at the U.S. Presidential Elections and the campaign process makes me wish Indonesia's elections would actually be about issues. Instead, we have a campaigning process that is completely devoid of anything even remotely resembling a platform. I did a quick search of political party websites, and only one of them actually contained a link to their "platform". The others only had very vague vision/mission statements, which provide no real information about the party and what it stands for.

I guess that's partially because demand for such information is rather low as well. Not many of your Joe Sixpacks (to borrow a term from Sarah Palin) in Indonesia would be interesting in knowing the detailed platforms of what kind of political, ideological, and economic beliefs the party holds. They're way more interested in the rallies, holiday parcels, and the other free merchandise given out. In other words, parties can substitute cash for platforms in order to win votes.

This, in turn, creates an incentive for anyone with a pocketful of cash to start up a political party. Thus, the superfluity of small political parties we can see today. Since these parties don't have distinctive platforms, they end up only cluttering the election process with no real gain to the system and the people as a whole.

The solution to this seems obvious and simple: political education. In other words, empower voters by giving them complete information on the political parties and their platforms, so that they can make an informed choice during the elections. However, this is unlikely to be enforced by the parliament. This is simply because this kind of empowerment would be against the interest of those currently in power. Policy makers in parliament would find that their jobs get a lot harder when they face an educated and demanding constituency. The kind of accountability that is expected of parliament members is much harder to fulfill when the voters know what's going on. Having an uneducated and "buyable" public would make the politicians' lives a whole lot easier.

So, with this evident conflict of interests in the parliamentary level, and an uneducated majority with "buyable" votes, is Indonesia's democracy doomed to failure? I really hope not, but I'm rather pessimistic.

State Enterprise Credibility Game

In the last day of my advanced macro class, i study how government (central bank) manages the exchange rate. It is a very interesting topic. Using game theory approach we can predict how the credibility of the central bank determine whether the fixed exchange rate will be hold or not. Now I try to use this game theory approach to explain why some state enterprises fail to perform better than private enterprises.

In extended game theory the state enterprise manager has two outcome. The first outcome is make the enterprise work at least as efficient as the private enterprise, for example generating high profit for government or make all the citizen (consumer) satisfied of it's service. If the manager do this they will get reward from the government, for example higher annual bonus for the manager. The second outcome is the enterprise work worse than the private enterprise, for example the enterprise suffered from severe losses because of the incompetency of the manager and this condition create a pressure for government budget to subsidize the inefficient enterprise. If this happen the government will kick the manager out from the office and choose a new manager to make the enterprise work efficiently.

The conclusion from this game is as long as the government punishment is credible, the state enterprise manager will work hard to make the enterprise working efficiently.

The main problem is what will happen if the government punishment is not credible enough to force the manager to make the enterprise working efficiently. For example the government will subsidize every loss generated by the inefficient enterprise. It creates moral hazard among the manager to not improve the enterprise efficiency or working properly.

From my analysis above, I conclude that, probably, the main problem of inefficient state enterprise in developing country is institutional. Weak incentives mechanism generate moral hazard among state enterprise manager. Then, in order to solve this problem i suggest to give more attention to the incentives system.