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A powerful and interesting clip on Marxist Economics. Enjoy!

On Food Supply and Agriculture

Ivan Ante

Introduction

We can only measure so much of the destruction caused by Super Typhoons Ondoy and Pepeng, but what we cannot fully quantify are the factors that escape economic models and theories – the lost productivity of the people who died or were injured from the weeklong disaster, the potential efficiency of trade had the roads, bridges, ports and terminals been spared, the growing hopelessness and weariness on the part of those who lost everything. The two recent typhoons certainly brought the issue of climate change right to our doorstep. As a third world country, we felt the brunt of climate change in relatively sparse quantities, yet the devastation was unimaginable. Clearly, our environmentally unsound practices have proven quite damaging, especially to the economy.

Immediate Effects

An agricultural country, the Philippines depends heavily on farming to sustain its booming population. The Philippines was one of the less fortunate countries severely affected by the drastic change in climate. An estimated Php27 Billion in infrastructure and agriculture was lost at the onset of the two typhoons.

As we have seen, agricultural products such as rice, corn, poultry and pork grew scarce in supply , as we had to import rice and about 8 million chicken and poultry products to avoid a food crisis until the first half of 2010. This also meant the importation of agricultural products will likely increase until our local producers can provide for our own needs. Last year, our agricultural imports were valued at Php361.182.78 Trillion and this huge amount will likely balloon due to the shortfall caused by the twin typhoons.

At the same time, our agricultural exports suffered, resulting in a reduced agricultural income, thus increasing our trade deficit (agricultural). This made our food supply unstable and highly dependent on our trading partners who are also faced with imminent destruction from storms. They may or may not opt to sell, resulting in a food crisis reminiscent of last year’s rice shortage. The reliance on agricultural imports is fatal and unsustainable for both local producers and consumers.

Looking Ahead

Climate change is just not about huge amounts of rainfall, submerged farms and houses – it is also about drought. If there is extreme wetness (El Niño), certainly there is extreme dryness (La Niña). For instance, the hottest temperature in the country was recorded in 1998 and in that time, El Niño related events cost the country about Php828 Million. To put things in perspective El Niño related incidents at the period of 1990-2003 cost the Philippines about USD370 Million or a whopping Php17.390 Billion! This kind of extreme weather continues to affect our agriculture as we fall further behind the ideal sustainable and inclusive growth.

For example, think of a household of two people and their only food source is what they plant in their backyard (for this example, let’s use corn). In the first month, they harvested 3 units of corn and their monthly consumption is 2 units of corn/month. So they have an extra supply of corn. In the 2nd month, the couple adopted a child who eats 2 units of corn/month, and they harvested 3 units of corn again. That household consumed 4 units of corn that month (2 for the child and 2 for the couple) using up their corn surplus from the previous month. During the 3rd month, the couple adopted another child who eats 1 unit of corn/month. Unfortunately, this month they only harvested 2 units of corn due to an unexpected storm that destroyed one corn. So they have a supply of 2 units of corn and a demand for 5 units (2 for the couple, 2 for the 1st child and 1 for the 2nd child). So what will they do? This simple household shows that a high population rate coupled with an inconsistent food supply is not sustainable even for such a simple household.

What Have We Learned From The Great Depression?

by Mikhail Onate

The Great Depression : Then and Now

The breadth and depth of the Great Depression in the United States is dictated by the standard story of the press, released in newspapers and broadcasted over radio stations, as opposed to the consensus of macroeconomic specialists. While stories may vary as to what caused the Great Depression of the 1930’s and what eventually cured it, much is known about the events that transpired before this period. The period of 1923-1929 saw the birth of the “Stock Market Boom”. The 1920s saw the widespread introduction of an amazing range of technological innovations including radios, automobiles, aviation and the deployment of electrical power grids. In 1929, the first downturn in the U.S. economy was attributed to the following: (1) The Crash of the Stock Market, (2) The worsening banking problem, which eventually led to (3) a dismal macroeconomic depression.

There were several viewpoints by  experts and politicians that sought to address the unstable economy of the 1930’s: President Roosevelt’s fiscal policy involved getting the United States out of the Gold Standard and devaluing the U.S. dollar. Two economists, Harold Cole and Lee Ohanian blamed Roosevelt’s Administration for rigidities in the setting of price and wages. Dr. John Nye, a professor of economics at George Mason University, also believed that Roosevelt did little or nothing  and instead prolonged the recession.

The findings presented by Dr. John Nye in his paper supported the following claims:

1. In the case of the Great Depression, aggressive monetary policies proved to be more advantageous than fiscal policies. Fiscal policies, according to Dr. Nye, were inaccurate. Moreover, the fiscal response of the 1930’s, as Dr. Nye argued, was systemically biased and was powered mainly by political agenda.
2. The response of the Federal Reserve lacked the necessary “Impetus” to stabilize the economy. No one is quite sure why monetary policies were not utilized mainly in the crisis of the 1930’s. The speculation is that most mainstream macroeconomists were busy debating over the possible “cures” that no immediate solution was adopted by the policy makers.

Both fiscal and monetary policies have vital roles to play in the functioning of a stable economy, according to the Keynesian Model.

Too much tightening of the Federal Reserve, or monetary contraction contributed to the severity of the Great Depression. Ben Bernanke, current Chairman of the Federal Reserve System, argued that poor policy making caused money supply measured in M2 to shrink by one-third from 1929-1933. If the Federal Reserve bought bonds on the Open Market, and increased the Money Supply, then there would not be trouble with the banks. This decrease in money (shifts the LM curve upward) decreases output while increasing interest rates.

On a lighter note, President Roosevelt adopted Keynesian Ideas which were apparent during the massive military spending in World War II. War spending resurrected the American economy as capital had to be continuously built and labor supplied. In relation to the Great Depression, deficit spending of the government during wartime restarted the production mechanism. Unemployed workers found themselves with jobs and unused capital was re-employed. During the period of military spending, a fiscal expansion ( IS curve shifts to the right), the budget deficit increased, output levels increased, interest rates increased and prices relatively increased by a small percentage in the short run.

A government’s crisis response therefore should be a mix of both monetary and fiscal policies. There must be a balance between both leverage mechanisms such that the economy is optimized. Bad monetary policy, such as that mentioned above stunted the economy and even contributed to the Great Depression. Meanwhile prolonged fiscal policies may not show any effect in the economy at all, as they should be swift, targeted and predicted. In the case of Roosevelt’s attempt to weather the Great Depression, his prolonged policies in the “long-run” only made the recession worse. It must be stressed that policies to cure the economy must be fast-acting and immediate.

There are several implications one can make using the IS-LM model with regards to the global economic crisis. First, the global economic crisis was fuelled by several factors namely: (1) Sub-Prime Mortgages, (2) the pursuance of the American Public of the “American Dream” of home ownership, (3) Risky Behaviour on the part of banks and lending institutions driven by profit incentives (4) politicians that dismantled financial safeguards.

Going Back

Around 2000, the dotcom bubble burst and sparked a recession.  Then the terrorist attacks of September 11, 2001, a serious blow to the U.S. economy. To stimulate spending, then Federal Bank Chair Alan Greenspan cut interest rates to very low margins. Lower interest rates made it easier for banks to lend and consumers to borrow. It was like borrowing money for “virtually” nothing in return. To satisfy the “American Dream”, millions of Americans went shopping for homes. Demand for real estate and housing kept on rising as more Americans decided to put their money in newly built or bought houses. Mortgage brokers meanwhile, offered houses to people with risky portfolio. More and more people in low income brackets bought houses through loans. Due to a “Hands-off” regulatory environment, millions of securitized loans were sold to firms abroad, 20% of which were high-risk mortgages. The financial community believed that the housing prices would keep rising, but eventually fell. Banks stopped lending, and credit that circulated in the economy ran dry.

To save the U.S. economy, and subsequently the World Economy (which depended heavily on the United States), a sweeping financial stimulus was passed by the House of Congress and has been adopted by the recent Obama Administration. Yet as Dr. John Nye argued, the stimulus may be too little, too late. For a stimulus plan at least have an effect, it must be swift, targeted and must not be distributed over a long period.

In the IS-LM model, an increase in government spending shifts the IS curve to the right resulting in an increase of output and a positive movement of the interest rate. But in the medium run, when the government engages in deficit-spending, there will be no effect in the change of output, price levels will continue to increase and interest rates will continue to steadily increase. Therefore, for a stimulus package to have any effect, it must be done in a manner that will outrun the natural adjustments of the economy.

Climate Change is Serious Business

By Mariel Sadang

In the last few years, we have been hearing and reading about climate change, destruction of the ozone layer, global warming, waste segregation, reforestation, from people who are referred to or call themselves as “environmentalists”. Very few listened. It was not part of their daily agenda. It was not urgent, as far as they were concerned.

Yet, in the last two weeks alone, the Philippines has been hit by a storm that brought rainfall that has never been experienced before in Metro Manila. There were two strong earthquakes in Indonesia, a series of tsunamis in Samoa, and landslides in the Swiss Alps. And how could anyone forget that in the not too distant past, a hurricane battered New Orleans in the United States. Neither can the giant tsunami in Indonesia be erased from memory.

These are but a few of nature’s major challenges to mankind. In all instances, not only were lives lost by the hundreds, not only were properties destroyed in the millions of dollars, but everyone who knew was made aware of the power and might of nature and the extent of the devastation that it can inflict upon all of us.

It was timely that the warnings about climate change were again pronounced during the KamalAEAn talk barely three days before the worst typhoon was experienced by the present generation, and possibly the worst in the country’s history.

Tropical storm Ketsana, locally known as Ondoy, came as a shock to everyone, even to those who did not experience its fury. No one was prepared for its ravaging intensity; even the rich and the famous were not spared. It was an indiscriminate and unprecedented destruction. Lives were lost, homes and properties destroyed, and almost everything on its path left in complete ruin.

Now, it seems to me that we should all sit up and take notice of all the talk going around about climate change, global warming and environmental destruction. If we have been complacent or indifferent before, we should now be more attentive, more involved, and pro-active. This is no time to be noncommittal on issues relating to the environment.

Now that these great calamities are upon us, we realize that these have actually been foreseen by environmental experts. The effects of climate change, as KamalAEAn talk guest speakers Dr. Rosa Perez and Mr. Jose Tan stated, include increase in overall temperature, frequency and intensity of extreme climate events such as rainfall and river flow, coastal instability and upland instability. These factors then result in decreasing crop yields (translating to billions worth of losses to agriculture and industry which are sources of livelihood), unclean water resources, an endangered biodiversity and health problems such as widespread diseases.

Flash floods, tsunamis, landslides and even some earthquakes are related to climate change and variability. Climate change is not solely attributed to natural processes; it is triggered more significantly by anthropogenic activities and a much denser population. It is reasonable to believe that calamities are proof of how powerful Nature can retaliate against the people who neglect or abuse it. Everything that we are experiencing now is a consequence of the wrongful acts and practices that we have committed against Nature.

We now face a reality that challenges us to act immediately in order to save future generations from more catastrophes. Mitigation and adaptation policies have already been followed and agreed upon internationally to address the threats of climate change. It is now a matter of how domestic institutions execute and implement these policies. The Philippines, unfortunately, has not yet fully progressed in terms of establishing energy-efficient technologies, infrastructure and market mechanisms that help reduce or capture greenhouse gas emissions and make use of renewable resources. The government must not only focus on economic growth, business or politics, but must zealously work on protecting the environment.

Preventive measures that lessen or decelerate the impact of climate change should not only be undertaken by governing bodies – it has to be a concerted effort of all. Every grand solution starts at the level of the individual, and therefore each one of us should do our part in helping promote a more eco-friendly environment. Changing our practices and adopting a more energy-efficient means of doing things may entail some costs in the short run, but the benefits from these efforts are beyond measure and will be enjoyed by generations to come.

Surely, we can no longer bring back the lives that were lost, but we can save a million lives tomorrow thru acts of restoration, conservation and preservation today.

James Kenneth P. Gudito

Cost – Benefit Analysis and Opportunity Cost: Practical Use of Economics

The broadness of economics makes it difficult to distinguish its practical uses. For Economics in a sense, is used on a daily basis by anybody who makes decisions: from the common fish ball vendor to the lustrous financial managers.

This article focuses on the practical use of economics in our everyday lives. The topic is actually quite ironic, in a sense economics is used on a daily basis by every living human being (living meaning being able to make his or her decisions). Economics is not exclusive to the Economics majors out there nor is it reserved for those in the stock market and the government. It is applied and used by everyone- the ‘Masa’ as we commonly refer to them.

It is the 15^th day of the month. Mang Pandoy just got his 5000 Pesos earnings from the construction firm he is working for. Mang Pandoy has a wife and 8 children to feed at home. He needs to buy dinner tonight, his options are sardines or noodles but he can also buy lechong manok. Surely lechong manok can make his family more satisfied, although will he risk wasteful spending on a delicious dinner. He could also opt to go with noodles to save more money; after all raising 8 children requires a lot of resources. He must weigh the benefits of the two choices – in this case lechong manok or sardines. Does it not sound more like a short run problem and a long run problem?

In this case Mang Pandoy has to choose between the short-run happiness of his family and the long-run financial stability of his family. Their 250 pesos they may spend on lechong manok can also be Junior’s ( Mang Pandoy’s 7^th son) school supply allowance. It can also be their monthly electric bill.

But Mang Pandoy is not very fond of weighing his economic options and chooses to make his family happy for the night and goes ahead to buy lechong manok. Mang Pandoy’s family is satisfied for the mean time. And have I told you of Mang Pandoy’s philosophy that “life is short”? His short run benefits have more value to him. But it does not necessarily mean that he chose the lesser option.

Junior might be motivated because of his father’s good intentions and gets high marks in school, gets a scholarship and graduates a cum laude. These unforeseen events are what we may call externalities. They are things of which we have no control over, but are consequences of our economic decisions.

Junior gets a good job working abroad. He sends his brothers and sisters to school. They all graduate and Mang Pandoy and his family is better off economically. And all these because of the day they ate lechong manok.

To identify one by one the usefulness of economics

First things first, what is Economics really? Surely it must be something more than a course to take in college, something more than what determines the poorness and richness of a country. It is more than a social science with its many theories, and certainly more than supply and demand. Economics is a way of life. We live it in our everyday lives.

Going back to the basics, history has its own definition of what economics is. The term economics comes from the ancient Greek word oikonomos (οἰκονομία), oikos meaning household and nomos which means law, putting them together we come up with household law or law of the household. Households are the smallest units of our economy and laws are fundamental regulations imposed on us by society. Wait, does that not sound too simplistic? No. As a matter of fact households represent a fundamental aspect of the economy, inasmuch as they are economies themselves.

Are these households the very same residential areas we live in? The answer to that question is a very loud YES! Day in and day out people make economic choices on many categories in life and most of the decision-making begins at home. What shampoo to use? How many kilos of pork to consume? What type of refrigerator to invest in? Buy a Plasma TV, or a Regular one? Spend millions on a sports car or buy a smart car? The list goes on. These many little decisions, insignificant as they seem, have an impact on the overall economy. It may not be obvious to the normal person but through the trainedl eyes of an economist, these details come to life.

If economic decisions do in fact occur in every household, then it is also true that every person “out there” makes economic decisions on a daily basis. The fact that a person has money and spends it or either saves it contributes to the whole of the economy. He or she does not have known any complicated economic theories. He or she does not even have to have an economic degree of any kind.

Remembering Mang Pandoy

Mang Pandoy was our normal Filipino masa. He was unaware of any economic theories. Oblivious to the ups and downs of the economy, and yet he suffers from every economic woe and rejoices at every economic gain. Put simply, everyone who lives in this world is affected by the economy. The same thing can be said in another way: anyone who lives in this world performs economic decisions knowingly or unknowingly.

Projects for SY 2009-2010

VIA |1st Semester

VIA is a weeklong event to be held together with Mall of AEA on the third week of August 2008. It aims to raise funds for the organization and hone the entrepreneurial skills of AEA members. Instead of following the tradition where AEA members work in harmony to raise funds, this year VIA will have major changes. The first two days of the week will be allotted for student volunteers in selling flowers, cards and chocolates. On the other hand, the next three days will be allotted for participants willing to join the contest. The game is simple. Three teams will be chosen to participate. This year’s VIA will be a battle of economic principles and marketing strategies. Thus, each team must come up with their own strategies/gimmicks /promos for the goods to be sold. The team with the highest profit wins and will receive certificates & a cash prize. Tentative theme for this year’s VIA is Awesome Threesome.

Oikonomos | Quarterly

For the coming Academic Year 2009-2010, Okionomos will be a a newsletter released every quarter. Discussion of current economic issues will dominate the content of the magazine but members will also be updated on AEA’s activities. We will try to lure everyone to read Oikonomos by changing the mood of the layout from serious reading to something fun but at the same time informative. Oikonomos will serve as ground where students and faculty can discuss current economic issues. This magazine will try to give light on events to prevent people form being misled by erroneous information.

UBE

UBE is no longer a week-long event. Starting this academic year, around 7-10 UBE’s will be held throughout the year. UBE designed as a supplement to the GA in terms of bonding the members and getting to know each other through fun activities that are designed for the members to enjoy. Planned UBE activities include TambAEAn, SAEAssions, Dept. Talks, Magic Sing Competitions, mUBE Day, etc.

1st GA | 1st Semester

The 1st General Assembly will be the first meeting of all the members of AEA both old and new. The event will give opportunity for the members to know the new ExeCom of AEA, know the upcoming projects for the 1st semester and finally, volunteer for projects.

2nd GA | 1st Semester

The 2nd General Assembly will be held at the end of the 1st semester. The event will give members an opportunity to be updated on what has happened for the past semester. Furthermore, this will be the time to celebrate and champion the accomplishments of AEA for the past semester.

3rd GA | 2nd Semester

The Ateneo Economics Association 3rd General Assembly will serve two basic objectives: one, the reinforcement of previously instilled values, principles and visions presented earlier in the year during the 1st General Assmebly, and secondly, as a year-ender Christmas party for all AEAns.

KamalAEAn

KamalAEAn creates a venue for people to express their opinions about current issues in the Philippines. Through a series of talks, this project aims to raise social and economic awareness to everyone in the Ateneo community. KamalAEAn tries to steer away from the usual type of seminar, as it gives more time for the audience to interact with the speakers.

Culmination Night | 2nd Semester

The Culmination Night will serve three purposes: (a) Induction of incoming Executive Committee of AEA, (b) Awarding of Best Thesis, and (c) a Benefit Dinner for Alumni. Current students, alumni, and professors will gather over dinner to celebrate the achievements of AEA and the Economics Department for the past school year. Furthermore, it shall also be an income-generating activity for AEA.

YES | 2nd Semester

Ateneo Youth Economics Summit is a conference for third fourth year high school students all over Metro Manila. The conference will consist of talks, group dynamics, a quiz bee, and an extemporaneous speech competition provided by the Economics Department and Ateneo Economics Association. This event shall serve as a venue where tomorrow’s economists are pitted against one another in healthy competition, and as a means of encouragement for the youth to take up Economics and be aware of its relevance and application.

Ec102 Quizbee | 1st Semester

The Ec102 Quizbee aims primarily to test the knowledge of interested undergraduate students of Ateneo de Manila University who are taking ECO 102 at the time of project implementation using application questions of practical economic theories and concepts learned in class.

EcoTours | 2nd Semester

EcoTours is an observation tour of the BSP and the ADB conducted for all Ateneo Eco102, Macroeconomics, and Money and Banking students who are interested in the workings and technicalities of the country’s premier bank—the Bangko Sentral ng Pilipinas; and the development efforts against poverty of the Asian Development Bank which is based here in our country. Moreover, it provides a first-hand experience that would allow the students to explore the comings and goings of the BSP and ADB.

AEA Tutorials

The AEA Tutorials hopes to instruct interested AEA members and Ateneans who find certain Economic subjects, theories and concepts difficult. The project is exclusively oriented towards EC102, EC111, EC116, EC112, EC117 and EC115. Other economic subjects can be granted tutorials upon request.

tAEAms | 2nd Semester

tAEAms or Trainings for AEA members is a daylong activity wherein members who are interested in running for a position Execom could harness their potenial as student leaders and to be able to grasp more knowledge on what being part of the AEA Execom is all about.

The Ateneo Economics Association on HR 1109

House Resolution 1109 (HR1109) calls upon the members of congress to convene for the purpose of considering proposals to amend the constitution. The Ateneo Economics Association (AEA) stands firmly on the side of public interest and strongly condemns the brazen manner in which the House of Representatives forcefully pushed for the convening of a Constituent Assembly aimed at revising the constitution. The Ateneo Economics Association (AEA) believes that amending the constitution, particularly the provisions for House Resolution 737 on specific economic amendments is an essential movement towards a more effective and efficient system of trade and government, but that the hasty passage of HR1109 threatens not only the economic, but also the present socio-political dynamics of the country. The Ateneo Economics Association bases its decision on the following grounds:

1. The untimely passage of HR 1109 is not in the best interest of the country and its people. While an inquiry into the workings of amending the constitution may be beneficial in the near future, more urgent bills pending in the House of Representatives are being set aside for HR 1109.

2. In the face of the Global Economic Crisis, the legislative body of the Philippine Government must focus its attention, resources and energy in a long term effort to alleviate poverty, raise the standards of  living of the urban-poor, generate sustainable employment and support small-medium enterprises (SMEs).

3. The objectives of passing HR1109 remain clouded in controversy. While proponents of the HR1109 have stressed repeatedly that no extensions will be made to the terms of office, particularly to the President of the Philippines, the manner in which the resolution was passed and the evident use of numbers present a certain scenario worthy of the public’s vigilance.

4. The railroading of HR1109 is considered “baseless” by many and has sparked several heated debates both in the plenary and on the streets plunging the nation in a state of suspended confusion.  It is the duty of Congress to serve the public through meaningful and effective legislation, free from vested interests and personal biases. While public opinion is never a basis for passing resolutions, public interest is.

5. Political inefficiency translates into economic instability. Political turmoil, disagreements in Congress and anti charter-change protests scare away foreign investors, international trade agreements and local entrepreneurs damaging the already fragile state of the economy.

Oikonomos is a year-long select collection of the Ateneo Economics Association’s work and research which captures and highlights the different economic issues that have transpired during the course of S.Y. 2008-2009. The very essence of this magazine encapsulates AEA’s thrust of initiating socio-economic awareness, leading to the development of a community with a firm understanding of pertinent economic issues.

We have provided this free 2009 issue in our downloads section in pdf format for you to read. Enjoy!