Friday, April 29, 2011


Labor Day is upon us once more; in the Philippines, it is a time for militant groups to petition the government for this and that, and for the government to pretend to try to appease them.

A friend of mine shared with me this blog, apparently written by a staff member of some party-list representative in the House. The blogger’s latest post is a bid for the passage of the legislated P125 wage hike, a bill that has been filed and refiled through the years. The proposal would in effect raise the current P404/day minimum wage.

The blogger reasons out that, contrary to what “neoliberals” say, companies could bear the brunt of such a wage increase. I suppose that to him and many others, a P125 hike is a small concession, compared to their desired overhaul in wealth distribution where everyone would have an equal amount of economic possessions ― the socialist ideal.

Out of playful mischief, I wrote a not-so-sincere comment:
Very good points, Mr. Villanueva. Several questions:
1. To what extent will investors cut back on new ventures?
1.b. To what extent will such a cutback in new ventures affect employment?
2. Is it safe to disregard percent changes in profitability (e.g. 15% only), when considering the effect of wage hikes on employment?
3. What are the better things to cut back on in the event of a wage hike, other than workers?
4. What effect will wage hikes have on prices, what with an increase in demand of goods? How will such price increases be shouldered? More wage hikes?
You're doing a great job exposing the dogmatic thinking of many heartless people who refuse to recognize the need of the Filipino people. It's only right that your money is spent on trips to Hong Kong, you surely deserve it.
"The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." - Henry Hazlitt

The reason I’m even making a whole blog post about this is, he rejected my comment, or perhaps it was registered as spam.

It’s funny how this guy could cast aside as irrelevant ‘mere percentages’ of profits to be used for salaries, as though such would not have even a marginal effect on employment or the capacity of businesses, large or small, to operate. At what percentage of profits then would there be an adverse effect?

And for all the vitriol he unleashes against greedy corporations, and sympathy he claims to have for the downtrodden, he has no qualms about enjoying a relatively luxurious activity as going to a theme park abroad, let alone one named after one of the richest capitalists in history.

It is also quite reasonable to suppose that with the negative effect on employment and output as a result of a legislated wage hike, the prices of goods would rise all the more. And then what? More cries for wage hikes?

This is the tragedy of poverty. It makes people eager for quick fixes that do harm in the long run. Instead of looking to the real obstructions to economic growth (state interference via taxes, regulation, monopoly, etc.), these militants are intent on taking existing wealth from others, even if this means greater poverty later on.

Although plenty of corporations are successful precisely because of their political ties ― which makes them cronies ― the remedy is not to legislate a forced taking of profits to fund salaries, the redistribution of which has no rational justification. A real solution would be to disable such political power as exists due to unjust laws.

In order to make a change, one has to recognize their limitations; all the wishing, all the compassion in the world could not overturn economic principles. The next best thing would be to redirect one’s hopes and compassion accordingly.

Happy Labor Day!


So Channel 7, GMA, is going to be covering the royal wedding here in the Philippines, which will happen 5 p.m. today (April 29, 2011). The Inquirer actually has a separate section in today’s paper, just for the royal wedding. It’s an enchanting story, of a commoner becoming royalty; it’s like every girl’s dream to be married to a literal Prince Charming! How could you not get into the spirit?

Of course, the whole thing is a sham. The UK is already governed by a totally separate Parliament, yet these figureheads are getting billions in funding every year.

I often point out the absurdity of a certain office or agency, by doing a little thought experiment: Let’s pretend that a community is figuring out what institutions they have to create. Does it even make sense for someone to go, “I got this great idea! Apart from these agencies that have some purported rationale to exist, let’s create something totally separate, with a ‘king,’ a ‘queen,’ ‘princes’ and ‘princesses,’ ‘dukes,’ ‘duchesses’… and they’ll be waving their hands to the public for various ceremonies and it’s going to be grand!”...? Stupid, no?

I am looking forward to the day when William, upon becoming King, campaigns for the dissolution of the monarchy. He seems like a sensible enough guy to do such a thing; perhaps he will have the ‘will’ (pun intended!) for this as well.

Still, in spite of my hatred of hoopla… I have to admit being amused by today’s feature on the princes’ ‘yaya’; to think that Princes William and Harry know how to say ‘putangina’!


The issue of US presence in the Philippines is heating up once more, what with the recent visits of US officials.

It seems to me that the aversion of Filipinos to having US bases in the country, whether in Subic, Clark, or elsewhere, is misguided. The mentality goes something like this: “I am Filipino, so only the Filipino government can control my life.” It isn’t so much the coercive nature of government that is rejected, but that it’s a foreign coercive nature, that makes our nationalists wary.

The Visiting Forces Agreement, or VFA, apparently limits US presence in the Philippines to military exercises and the like. But the spirit of such a provision is akin to the 1987 Constitution’s 60-40 limitation of foreign ownership of companies, which has been a great hindrance to foreign investments and subsequently to an uplifting of living standards. In the VFA, ‘government rights’ are the issue; the concept of individual property rights is neglected altogether.

I nonetheless think it’s good that there is staunch opposition to the prospect of US bases, because the US government, especially since 9-11, has been a notorious violator of property rights and privacy. The US has probably the worst foreign policy record of all time, even if we include the Roman Empire and Hitler’s Third Reich. But Filipinos are still a long way from waking up and realizing that no government, Philippine or otherwise, has a legitimate claim on them.

Wednesday, April 27, 2011

RECTO WANTS HIGHER EXCISE TAX ON MINING, a.k.a. Choking the chicken that lays the GOLDen egg (pun intended)

You have got to admire Senator Ralph Recto, a.k.a. Vilma’s hubby. Despite losing in 2007 due to his role in passing the unpopular E-VAT law in 2005, he is not afraid to call for higher taxes once more. Goes to show how ‘disinterested’ he is.

Recto filed Senate Bill No. 2754 last month, seeking to raise excise taxes on mining activities, to 7%, from the present 2%. How timely that this Compostela Valley landslide occurred which resulted in the deaths of over half a dozen miners! And of course, his proposal won’t result in a loss in pogi points after all, as he is targeting not the masses, but those greedy bastards who exploit Mother Nature.

Recto’s rationale is that mining companies cause so much damage to the environment that there should be a way to singil them for this. This to me is an avoidance of the real issue; the matter of pollution has to do with accountability to property owners rather than expropriating money for its own sake.

Sure certain mining operations result in an emanation of smoke (I suppose so; I know shit about mining), which goes to the atmosphere. But in the absence of a mechanism by which property rights violations can be reasonably determined from such activities, a blanket industry tax provides no justifiable recompense. Why don’t we charge all automobile operators then? Or smokers? And Mount Pinatubo apparently owes the government trillions! And it’s not just the Philippine government that should be taxing all these ‘offenders,’ but all governments! Air molecules don’t stay put in a geographic location, after all.

Absurd, ‘di ba? In the first place, why is the government being made beneficiary of such penalty payments?

The inadequate property rights system when it comes to the business of mining in the Philippines is indicative of a corresponding weakness in property rights enforcement in general, by which indigenous folk and the less politically connected suffer from the activities of crony companies. Recto, instead of providing freedom to an industry that is severely restricted as it is, proposes to choke it some more.

Without recognizing the role of property rights in human affairs, all ‘solutions’ proposed by policymakers are arbitrary, not to mention ineffective in lifting people’s living standards.

Related article:

Tuesday, April 26, 2011


I’ve been thinking that it’s almost a disadvantage that the Catholic Church is against the reproductive health (RH) bill. There are surely plenty of Catholics who use somewhat substantive arguments against the ‘responsible parenthood’ legislation, but by and large, those representing the Catholic position such as the CBCP are asking their flock to obey mindlessly.


I don’t see how the ‘argument’ of “So you’re not against contraception; don’t call yourself Catholic then!” helps matters. It simply diverts the issue into a question of allegiance or membership. It has nothing to do with the viability of the proposed RH program, which I would think is what concerns most RH bill proponents like Lea Salonga (whom I still love in spite of the chasm wrought by our conflicting views).

[Update: And then there is this Cebu Archbishop Jose Palma calling RH bill advocates “terrorists.” Clearly a very refined debater.]


Advocating an information campaign on family planning should not be equated with supporting abortion, same-sex marriages, divorce, etc. As it is, there is an ongoing contraceptive industry; to make a government program out of it will not make people any more ‘immoral,’ in the Catholic sense that is.

For all the inefficiencies and property rights violations inherent in government intervention, we are not about to see an explosion of behaviors deemed “unnatural” by many. The enacting of same-sex marriage, for example, will require altogether separate legislation, of which RH will not set a legal precedent. After all, Church decree has no legal weight even at present, although Catholics’ opinions may be holding enactment at bay.


So the CBCP, and anti-RH bill Catholics in general, should load their guns with more pragmatic bullets, lest they be accused of being out of touch with the real world.

A friend of mine whom I consider to be a political ally wrote to our Facebook group, of assisting a certain ‘pro-life’ organization in its campaign versus the RH legislation. Many of us in the Facebook group think this would be a great opportunity to lay the issue out in utilitarian terms, where it could be explained that an RH law will have adverse effects, good intentions notwithstanding.

I for one hope that most ‘pro-lifers’ are capable of grasping the economic principles involved and don’t succumb to the ‘right to life’ rhetoric that RH bill advocates have heard a billion times before. Being on the side of God (and I use that phrase with irony) can only do so much.


It never fails that after any disaster occurs, people from all sides call for a ban on this, or regulation on that. In the case of the Compostela Valley landslide that killed at least eight miners, we have Bishop Broderick Pabillo calling for a moratorium on all mining operations until some new regulations related to monitoring of activities are implemented.

In the first place, it is mistakenly assumed that the government will have perfect foresight as to the occurrence of acts of God such as landslides. But in fact, all activities entail a level of risk. Reducing dangers to human life has little to do with government regulation as it has to do with the freedom to engage in long-term profitable operations, for which the most successful private entities will have developed their respective safety measures.

You might counter that, “Those mining executives don’t give a damn about having one or two employees killed,” and that may be so, but does this mean that they would be careless with the use of their capital?

Second, this moratorium is proposed by those who take it for granted that the civilized world will go on as usual, and that the output that would have otherwise accompanied mining activities is negligible or not worth the lives saved. But statistically speaking, it is already less likely that another mining accident will occur: landslides don’t kill people everyday, not even worldwide, and local mining companies would now likely be more cautious in dispatching personnel even without government intervention.

So any suspensions of mining operations would only be pakitang tao (for show) ― just as malls ramp up their security checks after a bombing ― but the reduced productivity and the bad signal it sends to investors would result in larger losses than any short-sighted bishop could be made aware.

It is too bad that people see any moves towards freedom such as the Philippine Mining Law as bad, precisely on account of their moving towards freedom (as it is, the current restrictions on ownership of natural resources and of mining companies far outweigh any liberalizing that has occurred). What these anti-market folk do not realize is that their enemy is not freedom, but the lack of recognition of property rights, specifically, the rights of those indigenous people who do have their lives affected by mining operations. I briefly discuss the matter in my book, here.

My friend Benson Te, in his blog, points out how the Philippines has so far enjoyed the worldwide rise in commodity prices, as seen in mining share prices; he also discusses how prohibition on any market activities only increases the likelihood of accidents. Check it out for yourself.

It would be a shame if, as a result of politicians and fearing citizens eating up these anti-market statements, mining companies, and by extension, their employees and those in their communities, would fail to experience the benefits of having a stake in commodities. What a lot don’t realize is that more economic damage is coming our way, and it’s best to be prepared.

Related article:

Sunday, April 24, 2011


I love Jesus’ saying, “The Sabbath was made for man, not man for the Sabbath,” because of its incredible relevance to human affairs. Its meaning is not confined to the literal Sabbath, for sure. For this article, I’d like to focus on how man was not made for the law.

People tend to have reverence for ‘The Law,’ without questioning whether a law is actually good or just. The fact is, written laws are merely after-the-fact observations of things that worked in the past. Hence the need to keep laws as general principles ― e.g. rules of private property owners are to be followed in their respective properties ― so as not to be a hindrance to future beneficial activity.

When laws are formulated for the sake of a certain group or sector, or for the achievement of a particular goal ― e.g. food stamps, as opposed to the absence of laws inhibiting the trading of food and other goods ― we have the beginning of a crumbling of the social order, where ‘law’ is not quite law and is short-sighted in its necessarily coercive nature.

In political issues, it is best to retain our humility and acknowledge that none of us can ever be fully aware of the specific market processes that make for long-term, maximum utility for the human species. Interference, no matter how well-intentioned, disrupts desirable outcomes the horizons of which may be beyond us. We must reject ‘laws’ that undermine freedom, and surrender to this negative system of peaceful association among individuals.

Happy Easter!

Related articles:
‘The Sabbath was made for man’ ― Environmentalism ― Holy week in the Philippines 2011
‘Give to Caesar’ ― Holy week in the Philippines 2011

Saturday, April 23, 2011


For this Black Sabbath edition of ‘Holy week in the Philippines 2011,’ I thought an ‘Earth Day’ theme would be appropriate.

One of the more profound moments in the gospel is where Jesus tells the dogmatic Pharisees, “The Sabbath was made for man, not man for the Sabbath.”

This has relevance to the highly politicized issue of environmentalism, where emotionally misguided tree-huggers tend to support policies that exacerbate the depletion of natural resources.

The world, with its economic resources, is ultimately for the satisfaction of man’s desires. Man necessarily exercises power over nature, and as long as we are human, we could not escape from this paradigm. It is ridiculous, downright nonsense, to preserve forests or species for preservation’s sake; there is always some utility derived from our actions. We always weigh our differing preferences, for example, the enjoyment of a certain forest view and protection from floods, to the use of logs for the creation of everyday supplies.

It is private ownership that maximizes utilities derived from economic resources. Unfortunately, people and politicians mistakenly lament how, say, ‘profiteers’ are wiping out forests, which leads to the enforcement of log bans. They do not realize that it is the lack of reforestation and not the logging in itself that makes for unfavorable environmental conditions.

Why would conscienceless corporations bother replanting trees in government property, when the land they take from is not theirs? And who’s to stop shady deals from happening, when government officials maintain control of these forests in spite of the absence of entrepreneurial (consumer-driven) considerations?

When government control is removed, it is the profit incentive that drives private owners to maintain their supply of natural resources, so as to continue making money. The enforcing of private property rights makes for long-term sustainability.

As for resources that are not as replenishable as trees, e.g. oil, private owners would indeed seek to maximize their profits and extract as much as would be patronized by consumers. Simultaneously, other sources, as well as alternative resources, would be in the process of development. It is advantageous to all that such coveted resources are owned by competing private owners, as opposed to one coercive body.

In seeking protection of the environment, we must always be mindful that our purpose is practical; to live apologetically for the use of Earth’s resources is delusional.

Related articles:

Friday, April 22, 2011


The verse “Give to Caesar what is Caesar’s, and to God what is God’s,” as found in the gospel, is typically interpreted as declaring a separation of church and state. Some may say that Church officials should be inhibited from even commenting on political issues, when in fact the aforementioned separation refers to the absence of coercion in Church decrees ― which is more or less reflective of the current situation.

‘Excommunication,’ if ever exercised by Church officials, or the threat of hellfire in the afterlife, are by no means coercive, as individuals are still free to associate or dissociate with each other while on this finite earth, according to their beliefs.

I have a more holistic interpretation of the Caesar verse: each part of our life has its place, by which we devote respective amounts of energies. It wreaks havoc on our organism to ‘misplace’ our emotions for inappropriate situations. Fear and anger, for example, are crucial for our biological survival when we are actually faced with bodily threats, say, when we have to defend ourselves from robbers; or, we may be dissuaded from doing stupid things like walking on the ledge of a building.

At other times, such an expending of the energy of fear burns us out, to the detriment of our organism, such as when a mob cries for vengeance and wants to see a criminal executed, or, more subtly, when government programs, which rely on violence to expropriate funds, are supported by a democracy.

Our everyday lives ought to be of social cooperation and voluntary transactions, and it benefits us to be aware of when we are exhibiting unhealthy behaviors, as is manifest in a support of coercive institutions such as government, intolerance to other people’s beliefs, or prejudice towards things we do not understand. We may occasionally need to summon our defensive emotions, fear and anger, but as living standards go up over time, our energies can be better devoted to a self-replenishing and advancement of civilization.

Related articles:

Thursday, April 21, 2011


The parable of the talents (Matthew 25:14-30 ― you know, where the master gives his three servants certain amounts of money and they make different use of their respective shares) not only recognizes the worth of entrepreneurial risk, but is a strikingly accurate depiction of the flow of wealth in unobstructed markets.

It goes against the Marxian adage “From each according to his ability, to each according to his need.” Capital naturally grows more in the care of the entrepreneurial; to the degree that free expression of market preferences occurs, this raises living standards.

The parable might seem harsh, or support “the rich getting richer,” but widening of income disparities only occurs in a status quo society controlled by bureaucrats and cronies, much like what we have today.

In fact, when left alone by coercive government, the future distribution of resources has more to do with individuals’ abilities to satisfy the consuming public, and less to do with the particular sums of money the rich keep. In the absence of this true ‘public service,’ even the wealthiest man will have his estate depleted to the level that his consumption is not regenerated by creation of goods and services.

If the poor are to be assisted by those better off, this should be done by fostering the entrepreneurial attitude in them, and not in redistributing resources for their consumption. This might seem like a call for public education, but if theory and history show us anything, it’s that the government has to get out of education altogether, by which each income class can be catered to, courses from elementary onwards can be customized, and competitors raise educational standards, all of which would result in substantially lower tuition fees.


Since it’s holy week and the newspapers are filled with boring rehashed stories, I thought it would be a good time to provide something alternative, and expound on some passages in the gospel which have a freedom slant to them. I will be doing so until Easter Sunday. Mind you, I am not pretending to be an exegete, and this isn’t so much the historical intention of the evangelists, but rather my 21st-century interpretation.

And this isn’t another ‘pro-life’ anti-RH bill rant, as though I were an apologist for the Catholic Church. If anything, I’d want to distance myself from that, what with Archbishop’s Oscar Cruz’ ridiculous statements against RH bill supporters like President Noynoy! Noynoy! Noynoy! Aquino. It is obvious in Cruz’ claim that contraceptive use promotes promiscuity and may lead to overpopulation, that he is still of the Malthusian belief that the country’s population level is the cause of its economic woes. And Cruz is being speculative at best about RH enactment leading to divorce and same-sex marriage laws.

Such intellectual bankruptcy is to be fought against in addition to the misguided efforts to pass the RH bill.

Related articles:

‘GOVERNMENT REGULATION’ ― THAT’S why we need a government! ― No. 3

We need government regulation! Here’s why!

Related articles:
Invoking Mother Nature as complainant, a.k.a. Unicorns hate corporate greed!
Why that laborer you hired is incompetent and you can’t find a better replacement

Tuesday, April 19, 2011

ECONOMISTS ATTACK ‘POPULIST’ PRICE CONTROLS VS HIGH OIL PRICES, a.k.a. When being pro-market is not being pro-market

The Foundation for Economic Freedom, a group of distinguished economists and businessmen, warns the government of embracing the “populist view” of requiring oil companies to sell their products according to cost of acquisition.

Given that this group claims to promote “free market policies in the Philippines,” and that the above statement made by them is quite accurate, it might be too easy to conclude that they mean what they say. In my opinion, their advocacy falls short, and this can be seen in the exposition of their views.

I guess the fact that the FEF consists of former socioeconomic planning secretaries and other former Cabinet members, as well as supporters of the reproductive health (RH) bill, should be telling enough. But I’d like to avoid ad hominem reasoning, and will thus explain why I could only support this group’s ‘free-market’ advocacy in “broad strokes,” very broad ones.

Besides, even if they don’t remember it, I’ve had a chance to talk to some of the members, and they’d been very accommodating and enthusiastic in sharing their ideas, for which I’m grateful.


Sure the FEF speaks out against price control, but they also speak against a removal of VAT on oil products. Apparently, they consider the government as a corporation for which it would be folly to allow deficit spending. If the FEF were truly pro-market, they would have not only called for an abolition of VAT on oil products, but on VAT altogether, and a corresponding cutting of government spending.


Moreover, the FEF is supportive of Department of Energy measures for ‘the big three’ and other oil companies to explain their pricing system, including the initiatives to:
Require oil companies to explain when their price adjustments are higher than the DOE computation to prevent anti-competitive behavior


Conduct dialogues with consumer and transport groups for a more open discussion of the oil price movements and other concerns

How are these measures free-market by any stretch? This fear of “anti-competitive behavior” shows a lack of an understanding that the market, in as much as it is allowed to function, will bring about an optimum price corresponding to supply and demand (having nothing to do with “replacement cost.” See my earlier article on the matter of pricing).

In a free environment, consumer sentiment is best reflected at the pump, not through public relation gimmicks like ‘dialogues with consumer groups.’


Can you really consider the FEF a free-market group when they support subsidies “in favor of vulnerable groups”? First off, such subsidies are funded by expropriation of private property. Second, subsidy programs may benefit certain needy groups, but always at the expense of other needy groups. Third, and I won’t be surprised if some FEF folk agree on this, subsidies are always short-term quick fixes, of which the siphoning of resources makes for net losses.


People should be more careful about brandishing the term ‘free market’ when what is actually meant is merely a different form of government planning. This just gives the free market a worse name, and makes spreading the message of freedom even harder.

Even though one may be cognizant of the market’s self-adjusting nature, it would be a mistake to entertain the thought that the market can be coupled alongside government regulation and subsidies, without a negative result. As I have said before, the only good a government does, is a not doing.

To get a real free-market perspective on the recent oil price increases, do read my earlier articles:

THAT’S why we need a government! ― Vol. 1, No. 1 ― “Vehicle registration”

Share the good news!

Sunday, April 17, 2011

THE PSYCHOLOGY OF THE FERTILIZER FUND SCAM, a.k.a. Looking back on this blog

Several months ago, I encountered one of those people facing plunder charges as recommended by the Ombudsman’s resolution no. 134 on the P728-million fertilizer fund scam. It was a quite informal gathering, and for the sake of conversation, someone asked this person what he thought of the economic crisis. This person-who-must-not-be-named-for-fear-of-libel (PWMNBNFFOL) then launched into a long-winded discussion on the peso-dollar rate, OFW remittances, BRIC (Brazil, Russia, India, China) and other topics.

Unfortunately, my companions were too polite to tell him, “Hey, take it easy, we just wanted a couple of sentences to include you in the group conversation, not a lecture on all things under the sun.”

About 10-15 minutes into it, I had to leave the group, and at that point, PWMNBNFFOL seemed nowhere close to the end of his diatribe, so I don’t know how much longer he went on. I later remarked to someone who was there as well, “Akala niya press conference.”

(Okay he might not have anything to do with the fertilizer fund scam, and his self-indulgence may not have anything to do with being a thief, but allow me to make my point anyway.)


That experience startled my na├»ve self because as much as I have been around those in the highest echelons of political power, it was only then that I saw just how some people could be so full of themselves and be oblivious to the “I don’t care but I’m smiling anyway” looks of their listeners, who in this case did not have a single interjection, not even an “Oo nga,” throughout the ‘briefing.’

I surmise that this bloated sense of importance and entitlement is related to the thefts that occur in the bureaucracy, including the fertilizer fund scam. It is the power-hungry leeches that are typically attracted to politics, and it is they who thrive, whether as actual officials or merely well-connected cronies.


It wouldn’t be so bad in itself if these narcissists were in our midst; if we didn’t like the company of, say, Joc-Joc Bolante, we could simply choose to associate with mentally healthier individuals. Unfortunately, with these bureaucrats using the government machinery, coercion comes into play, and we are subject to their dictates, whether we like it or not, and whether or not they have people’s best interests at heart.

Government intervention always comes with a regrettable opportunity cost, no matter the intentions of those in political power. But the situation is made worse by the fact that miscreants in office, both here and abroad, are the rule, not the exception.


Unlike with PWMNBNFFOL, at least you the patron of this blog can stop reading anytime you feel my rants get too self-indulgent, with no one’s feelings hurt.

It’s been three years and eight months since I first started ‘Colorful Rag,’ and I believe you can see intellectual growth in between. I began the blog in August 2007 as an avenue for venting my frustrations about my work as a government propagandist, where I usually had to write bullshit that I disagreed with, both in style and substance.


Saturday, April 16, 2011


Why is it that when the government stockpiles on a certain item, in this case, oil, it’s called “ensuring future supply,” but when a private entity does this for profit, it’s called “hoarding”? Fundamentally, the acts are no different; by buying now, one is saved from having to buy at higher prices later on.

But at least the private profiteer is not in denial as to the nature of the market. They would try to sell at sky-high prices, indeed, but to many this would be better than otherwise having no oil at all. If the government hoards this fuel and makes it available at a low price in the future, supply will quickly fizzle out anyway. A shortage will occur as long as the supply-demand dynamic is ignored.

Personally, I think this stockpiling business as announced by our hero Noynoy! Noynoy! Noynoy! Aquino reeks of poor foresight. The intention is good, of course; otherwise, how could he flaunt the May delivery of 50 million liters of diesel to the public? But there are some consequences to consider.


By suddenly increasing orders for fuel, the government helps bid up world crude prices, at the expense of Shell, Caltex (Chevron), Petron and the other oil retailers who don’t merely import fuel but refine their imports of crude.

This jump in demand will wreak havoc on the profit margins of these companies, who will have to deal with higher importing costs for crude, while unable as yet to sell their petroleum products at higher prices, assuming consumer demand does not correspondingly go up; recall yesterday’s lesson about how the value of a product is not derived by costs of production.

If consumer demand does go up, pump prices would have to go up as well. So much for the government’s purported objective. But if the government sells its hoarded fuel at lower prices, oil retailers would be further pressured into selling at a loss.

With these losing companies having less to purchase or having to reduce crude purchases, oil products will become even more scarce, and pricey ― which is precisely what the government is trying to prevent!


There are other risks to consider ― security of the tank farms where the oil will be stored, for one thing. And in the event that the Middle East situation does not escalate into an absolute nightmare, the Philippines will be left with abundant, cheap oil.

You might think, “Oh that’s great! At least oil will be cheap.” You’d be missing the point, which is the opportunity cost as a result of such government hoarding. The reason why the oil would be so cheap is because it would be unwanted; consumers would have found greater satisfaction if they had used the money elsewhere, even if this meant higher pump prices.

In the US, houses now cost about the same or lower than when last decade’s housing bubble began. Do Americans think of this as a boon? No, and the thousands of empty dwellings, many not even foreclosed, are a testament to government-induced malinvestment.


If I headed a private organization that wanted to buffer people’s pain from high oil prices, I would ask willing members to place their money in a fund (just like taxation, except voluntary). I would then have this money invested in the crude oil futures market, or oil exchange-traded funds, with the appropriate measures so as to sell my orders or shares as necessary. This may boost demand and serve to bid up crude prices, but not to the degree that government wholesale purchases for fuel would.

By making such investments, my members would still have to pay high rates of gasoline or diesel in the event of more Middle East chaos, but this would be more than offset by their gains in crude futures/ETFs.

This to me is far better than buying fuel and having it sit around in some compound, waiting for tragedy to strike so as to feel my money was worth it. Hell, the government sucks so much, but it would be far more practical for taxes to be used in the manner I have elaborated rather than this hoarding baloney.


This latest oil stockpiling scheme of Noynoy! Noynoy! Noynoy! Aquino and the PNOC-EDC is just another price manipulation gimmick that won’t solve matters. By focusing on selling “competitively priced” oil, the government stands to lose so much more in taxpayers’ money, and will destroy other worthwhile endeavors, without even eliminating the possible shortage or making things easier for citizens.

Friday, April 15, 2011


Today’s Inquirer editorial asks:
[I]t is always intriguing, during volatile periods, to find pump prices in various gasoline stations converging toward the same, higher, price level. A layman can only wonder: Do all these companies pay the same costs to bring their products to the market?...
There may be a perfectly legitimate reason for this regularly occurring phenomenon of converging high prices—but the consuming public needs to know exactly why and wherefore, and the administration can lead the way by opening up the oil companies’ books.

It is considered an open secret that the Philippines’ ‘big three’ oil companies, Shell, Petron and Caltex (Chevron) conspire with each other in raising or lowering their prices. A real ‘anti-consumer’ cartel.

Just reading the editorial, it appears that the writer is of the false notion that prices are determined by costs of production. Hence, solutions such as “opening up the oil companies’ books” are suggested.

To gain real understanding, let us ask instead, how do costs come about? Why do they settle at certain levels? If we keep trying to trace this back to earlier costs, are we not left with a senseless infinite regression?

The key is to actually look forward to understand prices. It is the certain demand and supply for the final product that ultimately determines costs, and not the other way around. I know it seems confusing because we’re used to living from past to present to future, but the entrepreneur’s ability is precisely to predict consumers’ utilities for a certain good or service, by which the entrepreneur invests his capital accordingly.

Costs might be used to determine the price of a final product. Say, if you open a pizza store, you might price your pizzas at costs + P50. You might be deceived into believing the cost theory of value. But in fact, your costs had been arrived at based on the utility of final products preceding your pizza.

Going back to oil prices, it is anticipation and concern about future availability of retail oil that has brought about such price increases. The fact that prices ‘converge’ at a certain level is not so much an indicator of connivance as it is a result of heavy trading.

If oil was traded sparsely and sporadically, we can expect a large disparity from place to place. But as more companies take advantage of the large profitability to be had, such a disparity disappears, eventually resulting in a ‘conspiracy’ price reflective of supply and demand throughout the community. We’re not all surprised that a prevailing price for stocks or bonds comes about; how is oil any different?

Provincial pump prices are actually higher, and transport costs account for this. But the transport costs themselves are formulated according to the relative scarcity of gasoline and diesel in these areas. Furthermore, the expenditure for diesel of transporting trucks does factor in all possible end uses of the oil products involved.

I guess that members of the big three cartel do communicate with each other and coordinate price changes, but this is not so much conspiratorial as it is a sharing of information by which to make wiser pricing decisions. The fact remains that no matter how wicked their motives may be, oil companies could not profit by going beyond what supply and demand allow.

Having said all this, prices of petroleum products, both in the Philippines and abroad, are indeed distorted ― but this is owing to state monopolies on crude oil, the lack of competition, and other government interferences, namely, the 12% value-added tax (VAT). This is why I’m glad that the Inquirer editorial supports a ‘rollback’ via tax abolition. I’m all for it.

To the question of “Where will we get the funding for government projects and subsidies?” I would answer: Abolish these too. People just might be surprised at how little they actually have to depend on the government, whether it’s for “ensuring rice supply” or for providing charity to the poor, activities well within the scope of a private sector unburdened by taxes.

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Thursday, April 14, 2011


If there’s anything that could have aggravated the public’s outrage towards Willie Revillame and the parents of crying macho dancing boy Jan-Jan, it is suing for libel those people who were vocal enough to express their sentiments.

As I said from the very start, the whole issue is really quite overblown, and Jan-Jan would have been better left alone than to remain news fodder for another month or so. But this is no excuse to attack those who are morally opinionated.

Joe Suan, Jan-Jan’s father, seems to be taking out his inability to deal with harassment from associates, on the internet critics. As though these bloggers’ sentiments were akin to a Mafia don’s orders to a hitman, for which the don would be liable for murder. In this case, bloggers are supposedly feeding instructions to a mindless public who have no choice but to heap mental abuse on Jan-Jan’s folks (when in fact these bloggers are merely reflecting general sentiment)!

This attempt to restrict the exchange of ideas and opinions thus has a chilling effect, and may even discourage the surfacing of opinions that ultimately ‘vindicate’ Joe and Diana Suan as being not bad parents (which is my opinion).

[On the off-chance Mr. and Mrs. Suan read this: don’t sue me! Ayan ha, I’m actually defending you guys above, to some degree.]

I hope this incident helps many people appreciate further the value of free speech ― its premises (e.g. no one legally owns their reputation) and its implications (e.g. a free exchange of ideas makes for a better-informed public).

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