Tuesday, January 13, 2015

Economically Confused

In chapter 4 of Leviathan, Thomas Hobbes identifies four misuses of speech. I think if this writer will use his article as a speech, he committed the first three misuses: 

"(1) When men register their thoughts wrongly through inconstancy in the meanings of their words, leading them to register for their conceptions something that they never conceived, thus deceiving themselves. (2) When they use words metaphorically, that is, in senses other than the ones they are ordained to have, thereby deceiving others. (3) When by words they declare something to be what they want which isn’t what they want."

This economic analyst advocates what Mises called as the "third way," a combination of free market and statism, as if this is achievable. The writer is a master in double talk. 

Of course, his academic and professional credential is really impressive. But this does not mean that he is right, just like the many top leaders and the 15, 000 professional economists in the US who are clueless how to solve the problem that the US government caused (Thomas E. Woods Jr., Meltdown, 2009, p. 8).  

Here are two examples that he got it right: 

First, I think the writer is correct in saying that the Philippines remains a "semi-feudal society" under "crony capitalism." I just wonder why he did not indicate that in his article's title. 

Second, he is also correct in stating this:

"Modernity, above all, is about placing efficiency, meritocracy and knowledge above connections, patronage, and discredited traditions. This is precisely why many of the Philippines' neighboring countries, which have held onto much of their cultural heritage, stand as significantly more modern and prosperous: Social mobility, merit-based success, and knowledge-intensive productivity are incredibly more visible in places such as Taiwan or South Korea than the Philippines."

This is capitalism! This is classical liberalism! But to think that these things can be achieved through the state is a product of a confused mind. 

On the other hand, he got it wrong when it comes to assessing the Korean economy, public infrastructure, view of the state, mixing egalitarian with capitalism, and advocating "inclusive growth" using "modern state institutions" and regulating the "overweening markets."

1. Assessment of Korean economy

Among several sides to the story of Korean economy, the writer just picked up the most unlikely explanation adding "high rates of household saving rates" and "mass production of affordable exports." He ignored other explanations such as the chaebol’s collaboration with the government, American intervention, an outcome of economic experiment between socialism and the free market, and chaebol using the government. Consistent to his statist stance, he just saw the government as the leader in the industrial development of South Korea. 

2. Public infrastructure

"The mind-boggling expansion in the Philippines' real estate sector has gone hand in hand with the perennially disappointing absence of modern public infrastructure. . . . Public spaces are often neglected by the authorities or vandalized by uncaring residents."

"There is limited public space for (spiritual and physical) disengagement from the hustle and bustle of everyday life. The Filipino state has basically outsourced such responsibilities to profit-driven enterprises."
"The country's public infrastructure is among the least developed in Asia. . . ."

Why do the authorities neglect the public infrastructure? Is it the fault of "profit-driven enterprises"? Does the writer suggest for more taxes to motivate the authorities to build and care for public infrastructure? 

3. View of the state

"We are yet to see truly rational, impersonal state institutions, which stand beyond patronage and personalized politics. Even much of the business sector is dominated by few old families, so it is preposterous to talk about 'free market' competition."

We have been hearing this kind of message for so long. It is an illusion to believe in the existence of a "rational, impersonal state institutions, which stand beyond patronage and personalized politics." And why is it that only few old families dominate the business sector? Is it the fault of the market? Or is it because of too much government interference that kills competition and hands business monopolies to these families? 

4. Combining egalitarian with capitalism
"More importantly, the Philippines' rapid rates of economic growth in recent years haven't brought about an egalitarian, modern form of capitalism, which is capable of generating waves of prosperity that lift all the boats regardless of gender, class, and ethnicity."

Here again, the confusion comes in! What does he mean by "egalitarian, modern form of capitalism"? He is mixing the two, egalitarian and capitalism. Government intervention is the means to realize an egalitarian vision, but it suppresses capitalism. The two cannot co-exist. A society must pick one. 

5. Advocating inclusive growth using state institutions and market regulation

"The tremendous lack of inclusive growth in the country is a reflection of the absence of modern state institutions, which can efficiently provide public services and regulate overweening markets. . . ."
What does he mean by "modern state institutions"? Is the state capable to come up with productive institutions apart from bureaucratic management? Bureaucracy produces anything, but inclusive growth. Isn't the exercise of freedom in the market the way to achieve inclusive growth? Isn't too much regulation the reason for the absence of inclusive growth? And yet, our economic analyst is advocating the regulation of something that he doesn't even know how it works.