I must applaud SBY’s decision to raise fuel price as a matter of policy. Politically, this decision is very unpopular, at least for now. The popular pressure to keep the price at its current level would be very happy to support him if he gives in.
Politically, SBY must be pretty sure that not only this policy will work, but also it will give him results relatively quickly, before 2009 election. Then, he has to hope that the voters can connect the change in their situation to him. Voters don’t have long memory, and 3-4 years is a long time in political time.
His decision might also be based on the prediction that the current economic situation cannot sustain itself for extended period of time. Again, the period is about 3-4 years. Otherwise, he could hang on to the popular support until after the next election, before inflation and other negative effects of fuel subsidy take over.
Update: Aco agrees with me, with better economic analysis.
ariapn Economics, Politics
Nicely summed up by DeLong — about Krugman – on balancing the roles of market and government: “Paul Krugman loves the market more than any other economist I know–in a “tough love” sense. That is, he’s not one of those on the right who thinks that market failures don’t exist, pretends that every market everywhere functions perfectly, and doesn’t care much about how markets really work. He’s not one of those on the left who thinks that market failures are unfixable, and that command-and-control is nearly always and everywhere a better alternative.
“He’s one who believes that market failures are dangerous things that can be neutralized: smart reorganizations of property rights, or small steps that put the government’s thumb on the scale to improve incentives, or tweaks to the legal structure that rule certain kinds of contracts out and other kinds of contracts in will, he thinks, almost always turn the market into an effective and efficient social planning and organization mechanisms that everyone can love. His is a “tough love” approach to markets–and it is a sign that he cares and that he has great faith in Adam Smith.“
ariapn Economics
Laffer himself says so. “It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.“
ariapn Economics
Update: Not quite potato chips, but soybean has Argentina’s economy on rebound.
Tell me again, why did we decide to start airplane industry instead of fostering the relatively low-tech industry such as computer chips, car parts, etc. It would be difficult for us to follow India due to our comparatively low skill level, but we have a lot to learn from China and our neighbors of south-east Asia.
You have to know what your strengths are and how to best utilize them. Lacking the strengths, you play within your ability. If you want to prosper you don’t choose your job for the prestige, you don’t take up an industry because it means you make a quantum leap into high tech world.
Russel Roberts of Cafe Hayek explains that your standard of living does not depend on the title on your business card. It does not matter if you make computer chips or potato chips. You choose the job that you do best.
“[I]f a nation’s skill level is low, making computer chips makes you poorer, not richer. It’s like me at 5′ 6′ deciding to be a basketball player because basketball players have high salaries.“
ariapn Economics
I have to remember this:
“[M]athematics can establish the logical validity of an argument, …, econometrics can establish the empirical validity of an argument.
“However, math and econometrics are neither necessary nor sufficient for establishing the validity of an economic argument.”
ariapn Economics
Don Boudreaux: “Because voting is a decision-making institution in which each voter gets to express his opinions costlessly (that is, without direct, personal consequence), voters likely are rationally irrational.“
Russell Roberts, still in Cafe Hayek explains that voting to elect people with similar office is irrational because your vote is very unlikely to be a decisive vote. So your vote almost never matters. Why then we vote? Read the link. We vote because it’s a moral obligation and to be associated with others with similar identity.
Irrational, moral obligations, identity association. Hmm, seems to me the only reason to vote is an ideological one.
Somewhat a side note, we need goverment to eliminate externalities. How about that for an economic reason to vote?
ariapn Economics