What makes the chicken go?

September 27th, 2013 § 0

Ayam

Here’s a typical economic news in the media. This one talks about the price for whole chicken that’s been inching up for some time. A chicken seller in Bandung, West Java, offers his opinion.

"Price had actually started to come down last week to Rp30,000, but now as we’re approaching the Idul Adha (day of sacrifice) holiday it’s going up again."…

He said that increases like this are the result of manipulation by wholesalers.

In a socialistic culture, big business is always the suspect of every crime. Prices go up? It’s the wholesalers. Prices collapse? The speculators are to blame. Prices aren’t moving? Why, its because the wicked big players are fixing them.

Now prices for everything have been generally on the rise for quite a while in Rupiah terms. That’s largely due to the inflation ‘imported’ from the US with the Federal Reserve undertaking their unprecedented monetary stimulus called QE. Recently, foreign money has been flowing out due to rising interest rates in developed countries. On top of that, the government also reduced fuel subsidy this year, which exacerbated domestic inflation.

Another reason is the government’s misguided move last year to cut beef imports as part of their goal of self-sufficiency in beef. The drastic cut led to acute shortage, sending beef price to the sky and causing households to cut down on beef and opt for the next best thing, chicken. Even more amazingly, the government’s solution is not to admit that they were wrong and stop meddling with the beef trade, but to try to buy up land in Australia and tell one of the state-owned companies to operate a big-ass cattle ranch down there.

Now as the Idul Adha approaches, cattle and goat raisers are setting aside a significant portion of their animals for fattening to make them available for the day of sacrifice. This is causing even more shortage in animal protein options for consumers during these days, and the price of chicken surely has to go up to reflect that scarcity.

All these reasons should be enough to explain the rising price of chicken. But of course, it’s a more difficult story to tell than just blaming everything on some nefarious fat men controlling everything from behind the curtain.

Stories like these are always more compelling emotionally when you also describe the plight of the consumers, like the next person quoted, who buys whole chicken for her restaurant.

…That’s why Lia is hoping that the government take action to control the price of chicken.

"Last I knew the price was Rp30,000 per kilogram, but it’s gone up now."

Of course most consumers probably aren’t aware that it’s the government’s action that caused the whole thing in the first place, but they should be. Whenever there’s some imbalance in an economic situation, the first thing is to ask what the government has been up to in that sector.

But of course, that rarely happens.

People just don’t know what they need

September 25th, 2013 § 0

briosatya

We talked earlier about how the Jakarta Governor thought that cheap cars weren’t what the people need. Here’s a news report about how Honda is overwhelmed by record orders for their low-cost models, the Brio Satya, Brio 1.2 liter and the Mobilio, within less than a month after they were launch at the 2013 Indonesia International Motor Show.

Does this mean that the people who buy the cars don’t know that they don’t need those cars? There’s something about demonstrated preference that makes it a more reliable indicator of people’s preference than what a bureaucrat says.

Truth will always set you free

September 23rd, 2013 § 0

Our so-called money is a perpetual non-interest bearing liability of an insolvent central bank, whose balance sheet looks like a bad hedge fund. I don’t know why we couldn’t do without them.

You want me to eat fish for life?

September 23rd, 2013 § 0

 fish

Give a man a fish and you feed him for a day and before you know it he’ll come right back at your door.

Teach him to fish and you feed him for a longer time after which he’ll be bored eating fish and come right back at your door.

Leave him alone and you give him a valuable lesson: Nothing in life is free and only he is the master of his own destiny.

Let the tax go

September 23rd, 2013 § 0

LCGC

"Jakarta gets ready for cheap car assault" says a news headline. The article talks about the ongoing spat between some central government officials and the Jakarta administration over the central govt’s tax incentive for so-called ‘low-cost green cars’.

Low cost car sounds good, right? Except Jakarta administration doesn’t think so. Governor Jokowi was quoted to say that it’s not what the people need, as if one person can determine what millions of others need. He believes that letting manufacturers offer cheap cars to consumers will make traffic congestions in Jakarta even worse.

One of Jokowi’s campaign promises was to fix the city’s aptly described traffic nightmares by setting up extensive public transport networks. People have yet to see this promise made good by the governor, which is reasonable given the complex problems relating to land acquisitions, financing schemes and overlapping government transportation policies.

However, the low cost car scheme is part of the central government’s tax incentive program that was put in place in the middle of this year with the intent of encouraging investment by car manufacturers here to produce high-volume products for the local and ASEAN markets. They do this by lowering the ‘luxury goods sales tax’ from 25 to 100 percent, depending on the fuel economy of the car.

Anything that results in less tax going to the government is always and everywhere a good thing, whatever the reason or intent. It leaves more money at the hands of private people who will make the best choice on how to use the money they have themselves made, instead of giving it to a bureaucrat to spend at his arbitrary discretion.

It’s wrong to support Jokowi’s cause by calling for the tax cut to be scrapped. What people should be calling for is for the government to get rid of tax for all kinds of cars, not just the ones they arbitrarily call ‘green’, remove all the complicated bureaucracy like price controls and licensing requirements for public transport that make it hard for private investors to invest in transportation profitably and let the market do what it does best: allocate resources effectively.

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