November 8, 2018

The Wealth of Nation – The Wealth of Filipinos




I want to talk about the wealth of nation (yaman ng bansa), to begin with a question: who owns the wealth of nation? Few people know that the wealth of nation is owned by the people of the nation. In the case of the Philippines, we Filipinos owned the wealth of the Philippines. But in reality, few only benefit from wealth generated by the natural resources of the country, if the government of the past has distributed the wealth carefully, Philippines might have the mega infrastructures of the developed countries, low cost of energy, state of the art public transportation; Philippines might have the free heath care system and pensions of the wealthy countries. 

The challenge of today is for us Filipinos to realize that our country is full of resources and each of us has the right for the wealth of our country. Whatever your status in life - poor, middle class, upper class, the wealth of nation should be for the benefit of all and not of the few. Some people are still blinded by the belief that if they amass all the wealth, if they keep it to themselves, then they will be happy, but I will argue that it will be temporary, as Adam Smith said, no society will be truly happy with a portion of the society down to poverty. At some point, the people down the poverty, who did not benefit from the wealth will negatively affect the society. 

We have to rethink of how to use the national wealth for the benefit of the citizens, if we could do this, we will be able to create an abundant nation where each and every citizen has equal opportunity to live a decent life. The past has failed to distribute the wealth to each and every individual of this country, but we can’t blame the past, today is the day to begin, put self interest behind, and together let us build a country where everyone is wealthy. 


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September 7, 2018

What is the Cost of Living in PH?

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This case shows the income of one mother and her expenses in one month who is living in Metro Manila, Philippines (applicable in year 2018). We can observe that bulk of the expenses goes to food followed by house rent. 

This case is not isolated, since many low-income earners in the Philippines houses 4 or more children. What happened here is that, in the past years the father was contributing to the family income, after things go wrong in the relationship the father left and the responsibility of taking care of the 4 children was shouldered by the mother (the other scenario is that the father died, then the mother shouldered the family responsibilities).




My goal here is to analyze this case and to figure out how we can help these people. We can’t blame the mother since the problem is already there, but if the mother had anticipated the problem, she might as well result to family planning (the mother might have chosen to bear only one child). If she chose to have only one child, the effect on the food cost might have been lowered by 3/5 or 60% equivalent to P2,400 which will reduce the food cost to P1,600 (computation: P4,000 – P2,400 = P1,600). 

Another thing to look at where we can reduce the cost is the housing rent. The government should provide housing facility to low income earners, by this, housing expense could be reduced by half. Developing low cost decent housing facility which can be amortize at P1,500 (or lower) will be lowered compared to prevailing P2,500 monthly rent in substandard home facilities in the metro. 

Electricity bill in this case is high, my assumption is that high electricity bill was due to lighting and use of television. The electricity in this case could be reduced by 50% to P600 if the house use led lights (3watts) and that watching television would not be done whole day. In this case when children are not watching television, they should be engaged in activities that enhances well-being like playing sports, participating in barangay and school activities, and studying.

The price of water is high as well, in the province you can use water regularly every month and have a bill ranging from P150 to P250. The government should review the pricing scheme of monopoly water companies in the metro, and decide whether there is a need for regulation.

Let us look at the new income and expense accounting when reduction in costs are applied:


Look at the big difference in savings from previous P-500 to P3,750, this change is feasible if and only if government will provide the right policies and people cooperate in the changes to be made. 

The P3,750 savings can be used as a security which can be deposited in the bank - which can be invested, or the family can use the money to improve the quality of their food for better nutrition, or they can use it to improve the education and learning of their child; to simplify, increasing savings will open doors to many improvements.


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August 17, 2018

The Beggar Community

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Recently I was walking in the streets of Makati and saw some beggars (along Makati Medical, Dela Rosa St.). The beggars look like they came from the province; my suspicion is that they were natives. I saw in their paper cups (were the passerby put coins) that their earnings were not so decent. I asked myself if this begging phenomenon is due to laziness or is it something that needs government intervention. 

There is a theory that I associate with begging, that is, lack of nutrition and education could result to begging phenomenon. Even though if the person is at age to work and has the physical capability, if his brain does not function well due to lack of nutrition or food, the person will have difficulty of finding solution to his or her problem, which in this case finding a job. Also, hot temperature in the Philippines which drains the energy of the beggars in the side-walk adds to the problem.




Begging results to poverty cycle; even though the beggar earns by begging money, it doesn’t uplift the standard of living of the person. The beggar earns some amount of money to buy small amount of food and the next day he is in the street to ask for alms again, the cycle continues and it never ends. There is only one solution I see, and that is for government to intervene by feeding and providing livelihood education to these people. 

The begging phenomenon is not only present in the streets; it is also present in the neighborhoods and slums. This should be addressed strategically, since this has been a problem of the country in the past decades. If poor people have poor nutrition, how could you expect them to think of right solution, if the normal homes in the subdivisions feel the heat of the sun, how much more are the homes of those in the slums? The climate and lack of nutrition in poor families results to inescapable poverty – because food and shelter is two of the most important basic needs for development.


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August 8, 2018

How to be an Economist

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“He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard.” – John Maynard Keynes (Essays in Biography, The Collected Writings of John Maynard Keynes, vol. X, Royal Economic Society, Macmillan Press Ltd, 1972.)

Economist are rare these days, there are many economics graduate but few are economists. Economist poses a talent not commonly seen in many people. Economist have studied different school of thought which enables them to provide opinion on different topics of life. Economist combines science and art in explaining things; provides explanation in general and in specific. You can ask an economist anything and he will answer based on his knowledge and experience. An economist doesn’t jump into conclusion, before he believes that something is true, it must be supported by facts – numbers and data, previous studies, and mathematical proof. 

Economist believes that each every person in this world should have a good life (high standard of living) – because every person is equal which qualify each person from access to the wealth of the world. No man should be left behind in poverty because that person is part of one race – which is called humanity.




An economist studies past and present so that he would learn what should be repeated in the future and what should not. In a developing country, one person could live a life that is considered a future. For example, the past of a wealthy person is living in a simple house with one bed room; his present is now living in a three bed room house with two car garage. In present, some people are living in a simple house with one bed room; his future might be living in three bed room. In a developed country, in present time, less people are watching TV and most people are using mobile phones and tablets in consuming media. The future of a developing country could be less people will be watching TV and more will be using their mobile devices – because in the present, like Philippines, a lot of people are still using television. The past and future exist in the present; some people are living a life from the past while some are living a life that is considered future; some countries are still in war, which is a thing of the past, while some countries are in full utilization of technology which is a thing of the future. 

Being an economist is a privilege, it opens your eyes and makes you see a world that is hidden, a world that is real; you will be able understand why things have value and why some stories are different on the screen and books versus real life as you experience it. Being an economist will open your eyes to the reality – because that is one of the skills of an economist; differentiating reality from illusion. You can be a wealthy economist or an average earner economist, but what makes both the same is that, both enjoy seeing the world using the lens of reality.


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July 16, 2018

Why Federalism is Good? Why it’s Not?

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Some experts are expressing concern about the effect of Federalism in the economy; while there are cons there are pros.

I have to disagree that Federalism will have a net negative impact in the Philippines economy. First, in changing the constitution what you are changing is the system of leadership - in general, the centrality of power and the power to control tax; not the overall economic activity. In fact if not mistaken, the role of national government should remain the same under federal system, that is to oversee the macro-economy, cabinets should remain under the control of the President; what shall change, is that the president no longer deals with micro-management of the regions. Thus, under Federalism, the President should be able to use most of his/her time in focusing in the big picture of the economy and international relations (e.g. bilateral agreement, country regional agreements, and the likes). If the transition will be smooth, there should be nothing to worry about the existing projects of the government in the pipeline; these projects should continue despite the transition from unitary to federal government; or, if changes should be made in the plan, budget should be re-allocated to projects that have equal or greater utility (a project that provides greatest satisfaction or use to the public).





In terms of worries that shift to Federalism might negatively affect the credit rating of the country; that is probable (has possibility to happen) in any circumstances and in any type of government, but as long as the government doesn’t default (pays on time) from its international obligations, credit ratings should continue to be positive. Based on Philippine Statistics Authority (PSA) Feb 2018 data, Philippines foreign debt amounted to PHP 2.4 Trillion, 12.6% of Gross National Income (GNI).



Graph Data Source: World Bank WDI




Since 90’s Philippines external debt has continued to decline. The graph above shows the ratio of Philippines External Debt to Gross National Income (GNI, the total income of a country). External Debt percentage to GNI measures how big is the international debt of a country compared to its income. The logic behind this data is that the debt should not be bigger than income, or in simple word, a country should not borrow money beyond its income or borrow beyond it cannot repay.

Based on World Bank latest WDI data, Philippines External Debt ratio to GNI as of 2016 is 21%. Latest data from PSA indicates that as of Feb 2018, the ratio has declined to 12.6% indicating that Philippines’ international debt is in the low levels.





Graph Data Source: World Bank WDI



Philippines’ External Debt ratio to GNI is lower compared to other countries(among top 20 lowest External Debt percentage to GNI, at par with India and China). This suggest that Philippines external debt is significantly low and should be a good ground for positive credit ratings.

Other concerns suggest that Federalism will result to other regions to be left behind due to lack of infrastructure. This should be resolved by healthy competition among regions, each regional leaders should promote and entice investors to invest in their region to advance the welfare of its residents. It is just right that the tax paid by the resident workers should be used for the development of their own towns and cities.

On the other hand, the big question arises if shifting to Federalism will lessen corruption or it will result to propagation of corruption in the regional level. This should be the main concern, because if corruption will not be resolved in the national level and it will not be resolved in the regional level then the tax collected will not be felt by the people. Thus, Federalism and Unitary system will just be the same.


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June 28, 2018

President Duterte Questioned the Creation and the Original Sin

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Thousands of years had passed, many things had happened to world - beliefs were created, religions were formed. With all that is happening to world today, the existence of God is still being questioned; teachings of religion is being questioned. For some God exist, for others God doesn't exist. It might happen that when one person is comfortable to his life, he would be more acceptable of God's existence, but for some that were born in poverty, they might not even ask if there is God - all they might think is to survive.

Recently, President Rodrigo Duterte questioned the story of creation in the book of Holy Bible, particularly, why God created Adam and Eve only to allow them to succumb to temptation that destroyed them. He also questioned the truthfulness of the idea of original sin (that people are born with original sin), a teaching of Roman Catholic Church.



In the world today, not all people believe in the Book of Holy Bible - religions have different stories about God. Muslim's story is different from a Christian, Buddhist's story is different from Jews, Taoist's story is different from Hindu. We exist in a world with different beliefs about God, but there are similarities, almost all religion advocates Love and Peace.

The world today is composed of different beliefs; let this be a source of creativity rather than division. Let our differences be the seed for the search of truth and solutions to problems of society rather than it be the seed of hatred and chaos.

I want to quote a passage from Holy Bible form Matthew 22:21 were Jesus said: "Render to Caesar the things that are Caesar's; and to God the things that are God's". I believe that the separation of power of the government and church is related to this passage. The government by all means should exercise its power to improve the well being of the people; while church with all its power should promote love and peace. The government should focus on matters of government while church should focus on the matters of church.

Even the famous scientist Albert Einstein has different belief about God. Here is a letter of a student asking Einstein 'do scientist pray?':


My dear Dr. Einstein, 

We have brought up the question: 'Do scientists pray?' in our Sunday school class. It began by asking whether we could believe in both science and religion. We are writing to scientists and other important men, to try and have our own question answered.

We will feel greatly honored if you will answer our question: Do scientists pray, and what do they pray for?

We are in the sixth grade, Miss Ellis's class.

Respectfully yours,

Phyllis

A. Einstein reply:


Dear Phyllis, 



I will attempt to reply to your question as simply as I can. Here is my answer:



Scientists believe that every occurrence, including the affairs of human beings, is due to the laws of nature. Therefore a scientist cannot be inclined to believe that the course of events can be influenced by prayer, that is, by a supernaturally manifested wish.


However, we must concede that our actual knowledge of these forces is imperfect, so that in the end the belief in the existence of a final, ultimate spirit rests on a kind of faith. Such belief remains widespread even with the current achievements in science. 

But also, everyone who is seriously involved in the pursuit of science becomes convinced that some spirit is manifest in the laws of the universe, one that is vastly superior to that of man. In this way the pursuit of science leads to a religious feeling of a special sort, which is surely quite different from the religiosity of someone more naive. 

With cordial greetings, 

your A. Einstein


(source: https://bigthink.com/articles/did-einstein-pray-what-the-great-genius-thought-about-god)


 Clearly, in the letter of Einstein, he indirectly said that he believes in God, "some spirit is manifest in the laws of the universe, one that is vastly superior to that of man".


It should be known to world that the questions about God and Religion did not only exist in the recent years, it has been in the world in very long years. 
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May 17, 2018

Why Federalism?

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Philippines current type of government is classified as Unitary State, which means that the President serves as the head of the state (nation); the local government units (LGUs): 

· Provincial/Regional Governor 

· Provincial/Regional Vice-Governor 

· City/Municipal Mayor 

· City/Municipal Vice-Mayor 

· Barangay Captain/Barangay Upuan 

are all reporting to the president or under general supervision of the President. The President is also the head of the armed forces of the Philippines. The President also selects the head (secretaries) of the cabinets (e.g. Department of Tourism, Department of Agriculture, Department of Budget and Management and the likes); the Vise President, is usually (not always), assigned a position in the cabinet. Thus, the power and control of the President (executive power) trickles from top to bottom, starting from cabinets, military, police (under DILG cabinet), and LGUs from governor to barangay captain. The Executive power is checked and balanced by legislative (senate and congress) and judiciary (supreme court). 

In a Unitary State, the power is centralized or concentrated to the national government (the President has the say on everything which can be contradicted by legislative, and judiciary). So, what is the difference between Unitary Government and Federal Government? Exploring Federalism (Elazar 1987), says that “if a political system is established by compact and has at least two levels of government, each endowed with independent legitimacy and constitutionally guaranteed place in the overall system and possessing its own set of institutions, powers and responsibilities, it is deemed to be federal.” To simplify, for a government to be Federal, it must have at least two levels of government, meaning, there can be two or more government bodies in a single country; in our case today, what we have is a single government; local government is connected (not separated) to national government. Also, being Federal means that each government body in a country can have its own set of institutions, power and responsibilities.



To understand Federalism thoroughly, let us examine concrete example of Federalism. United States (U.S.) is one of the countries who has successfully implemented Federalism. In U.S., the Federal Government is prohibited from exercising any power over the states, which means that states handle most of the government issues within their jurisdiction. If Federalism will be implemented in the Philippines, most likely (depending on the newly drafted constitution) the national government which is headed by the president, will have limited or no control of the regional governments. regional governments will have an independent power to resolve its own government issues. 

In U.S., state governments are not authorized to print currency, they generally must raise revenue through either taxes or bond. If adopted in the Philippines, budget of the regional government will depend on its independent tax collection, unlike in the Unitary Government where budget allocation is done at the national level under the supervision of Department of Budget and Management (DBM). 

Because Federalism fosters independent governance, each regional government will have the ability to change tax rates depending on the needs of the region; in U.S., tax rates differ per state (for example: Sales Tax of Louisiana (10.02%), Tennessee (9.46%), Arkansas (9.41%), Washington (9.18%), and Alabama (9.10%) source: taxfoundation.org). If this is the case, it is possible that under Federal Government, tax rates in Metro Manila would be different in Davao City and Cebu City. 

In U.S., each state has its own written constitution, government and code law. Thus, it is common for states in U.S. to have differences in laws. The implication of this in the Philippines is that, under Federalism, each regional government can create its own constitution and laws. 

Under the Federal Government of U.S., executive, legislative and judiciary remains independent; the President remains the Head of the State. 

This write-up only aims to give an idea of what Federalism is and how it is being implemented in U.S. With regards to Federalism that is being pushed in the Philippines, its application and implementation will depend on the newly drafted Philippine Federal Constitution. 

It is completely evident that the difference between Unitary and Federal Government is in the center of power. Unitary Government centers the power to the national government (the President) while Federal Government decentralizes or distributes the power to the regional (or state) government (the Governors). 


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May 10, 2018

Stopping TRAIN Law will not be Enough to Curve Inflation

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Some Philippines government official expressed their concern regarding inflation, suggesting stopping Tax Reform for Acceleration and Inclusion (TRAIN) Law to lessen inflation. TRAIN Law seeks to lower personal income tax, simplify estate and donor’s tax and VAT, increase excise tax for petroleum products, automobiles, sweetened beverages. 

Before anything else, what is the root of inflation in the Philippines today? The root of inflation in Philippines is strong consumption of the public and private sector; and strong consumption is rooted to strong economy (6.8% GDP Growth in 2017). Thus, it is highly probable that what we are experiencing today is a “good inflation”. In layman’s term, people have money to spend from earnings from their jobs, businesses, and retirement money and government has money to spend from tax collection, causing demand for goods and services to increase; with the assumption that supply of goods is not increasing as fast as demand, prices will increase. Eventually, when price increased, some people will shift their consumption - others will lower their consumption while some will shift their preference from superior good to inferior good; the shift will slowly normalize the inflation rate.


There is what we call in economics “cost-push inflation”, which is fueled by increase in overall price level caused by an increase in cost in an ‘imperfectly competitive’ market (Nafziger). I would define a “good inflation” as something triggered by a ‘perfectly competitive’ market (prices are increasing because demand is pushing the prices up), unlike “cost-push inflation” which is mostly triggered by price controlling cartels and monopolies. “cost-push inflation” should be the one monitored by the government, with todays inflation news hype, big companies and some retailers might use the news as an excuse to increase their prices. My observation is that Philippines inflation is closely triggered by what we call “demand-pull inflation”, which is defined as increase in the overall price level resulting from consumer, business, and government demand for goods and services in excess of an economy’s capacity to produce (Nafziger). On the other hand, prices can also increase when supply of goods is decreasing (shortage), but with current economic whether in the Philippines there is no overall shortage of goods; retailers are expanding businesses in the province and online shopping continues to gain momentum. 

My suggestion is that government should closely monitor the prices of basic goods and services such as water, energy, oil, food and rice, telecom, and transportation; impose the right sanctions to price manipulators. In 1998 when Asian Financial Crisis hit the Philippines, inflation rate rose to 9.33% (2006=100) on average; In 2008 US Financial Crisis, Philippines inflation rate rose to 8.16% (2006=100) on average; From Jan-Mar 2018 average inflation rate is 4.43% (2006=100), 100% lower compared to crisis years, and significantly far from Hyper Inflation (20% monthly inflation). 

As economy grows, inflation will increase, and government revenue will surely follow the trend; it would be a tremendous help to the people if government will use the revenue to create jobs for the bottom 30% of the society.


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April 18, 2018

Philippines Economy Risk of Overheating Containable

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World Bank (WB) warned that even though Philippines is one of fastest growing economy in south east Asia, it faces several domestic risks such as overheating, higher inflation and climbing fiscal deficit (source: philstar). 

The question about the comment of WB is that, what do you mean by overheating? The term overheating is not use in economics (when I was a student of economics, I’ve never use this terminology) because it is ambiguous (not specific). WB, being leader in the economics industry, if I may suggest, should be careful in using terminologies, as it may trigger public disturbance.


With regards to inflation rate, it is very observable that Philippines monthly inflation rate is on upward trend from December 2016 to December 2017 at 1.30% to 3.30% respectively (data source: PSA). It is undeniable that prices of goods and services in the Philippines are increasing under short term perspective. 

Philippines Monthly Inflation Rate (2006=100)

But looking at the long-term side, we would observe that Philippines 2017 inflation rate is not so high compared to previous years (we will see a down trend). This signifies that inflation is still containable, but prices of goods could go up further in the next months (short term) as demand for goods and services increase (due to increasing income of the people). But as supply matches demand (more businesses produce products), prices will go down leading to decline in inflation rate (this is the long-term perspective). Thus, rising inflation in the Philippines could be an opportunity for businesses, as this signifies strong consumer spending (rather than shortage in supply). 

Philippines Yearly Average Inflation Rate (2006=100) 


In terms of government debt, as of Feb 2018, total debt is P6.8 Trillion, 65% is domestic debt while 35% is foreign debt (source: PSA). I would not worry much about government domestic debt in the short term since most of the maturity are long term; of P 4.4 Trillion domestic debt 75% is classified long term (P3.3 Trillion). Foreign debt on the other hand amounted to P2.4 Trillion, 12.6% of Gross National Product. While it’s very clear that government debt is a huge amount, this could be compensated by increasing tax collection. Bureau of Internal Revenue (BIR) reported P1.779 Trillion tax collection in 2017 which is 12.92% higher compared to 2016 (source: businessworld). Assuming that tax collection will continuously increase in the next 5 years, Foreign Debt will significantly decline in less than 5 years. 

It’s good to remind a country about the basics of monetary and fiscal policy, and I must agree that for Philippines to be one of the Tigers of Asia, it should be able to manage the economy very well; but right terminologies must be use.



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April 17, 2018

Facebook Fake News in PH: Who Should Screen?

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Thursday April 12, Facebook announced its partnership with Vera Files and Rappler as third-party fact checkers in the Philippines (source: Rappler). The announcement came, after reports of Facebook’s data breach by Cambridge Analytica; were estimated 87 million users’ personal data were collected (source: CNN); with estimated 1.2 Million of those data are Filipinos (source: Inquirer).

The Philippines government expressed agreement regarding Facebook’s initiative to strengthen its fact checking effort thru third party organization, but it disagree with Rappler and Vera Files being appointed as fact checkers in the Philippines. Roque (Presidential Spokes Person) pointed out that the two groups are accused of partisanship (bias opinion in favor of a particular cause) (source: Inquirer).



This topic is challenging because you don’t want other people to tell you that your stories are fake, just because they have the power to say that they are fake. Moreover, you don’t want a fake news in your timeline. The question here is a balance between freedom of speech (in words) and the truth. There is also a challenge between identifying a difference between opinion and fake stories. This problem is not new in those people who have been in the internet in the past 10 years, others just know how to tell what is fake and what is not. You must be intelligent in order screen the incorrect information.

Facebook should be careful on this, yes there are studies that shows that fake news can curve democracy; but, controlling the stories that promotes democracy and openness (which can be perceived as fake based on judgement) is a sign of autocracy.

I think the best way to prevent fake news from spreading is by educating the users about fake information. Fake information does not only exist in the Facebook, it exists in the whole internet, and in the real world. False information also exists in institutions you would not imagine telling lies – news organizations, books, journals, marketing ads, and many more. The only defense to false information is to have a questioning mind – and not to be ignorant.



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