Is Decentralization Desirable?

In the last three decades, decentralization has been rather global norm than exception. Indonesia’s inherent features are definitely compatible with such global trend towards decentralization. These features include stage of development, the size of the country, the population diversity, and the “crisis effect”. Indonesia used to attain consistent high economic growth during the late 1980s and the early 1990s, accompanied with much improved social-economic indicators, yet with relatively high inequalities among regions. This pattern of development assures Indonesia as a good candidate to embark decentralization route. Next, with high population and cultural diversity, decentralization may allow the Government of Indonesia to accommodate regional differences and to commence development program that meets local preferences in better ways, as the distance between policy maker and policy target will diminish. Bulk of evidence suggests that such distance will only distort information needed to formulate and implement policy and will eventually erode its suitability and effectiveness. The evidence gives insight that major portion of the causes of Central Government’s failure to deliver public services that best suit local needs is due to high transaction costs concurrent with distance. Finally, the economic crisis that hit Indonesia in 1997, followed by political crisis in 1998 after the downfall of President Suharto as well as turmoil and resurgence of separatism tendencies in some provinces, such as Aceh and Papua, seemed to trigger and accelerate the process of decentralization. In this regard, decentralization basically acts as potential device to restrain separatism resurrection and ultimately make it cease. Moreover, unlike federalism, decentralization does not violate the vision of unitary state (i.e. Negara Kesatuan Republik Indonesia, NKRI) which has been founded and kept as final commitment since 1945 and valued as integral part of Constitution.

For Indonesia, decentralization is basically radical reform on state governance. It is a converse form of a centralized system under which Indonesia had been governed since 1950s. In this new governance sphere, for example, a city mayor is no longer a subordinate of a provincial governor. The latter will only act to mediate some possible conflicting interests between the former and the Central Government. To anticipate controversy and to confine resistance, two original decentralization laws (i.e. Undang-undang No. 23/1999 and Undang-undang No. 25/1999) envisaged a transition phase. The duration of the transition took two years (i.e. May 1999-May 2001). It allowed both regions to devote efforts in preparing their new functions and the Central Government to finalize coherent protocol deemed necessary for decentralization. To refine decentralization frameworks, two laws that replace the original laws was issued in 2004 (i.e. Undang-undang No. 32/2004 and Undang-undang No. 33/2004). These two new laws consist of more number of articles to incorporate and unify many views and recommendations from various preliminary assessments regarding the first three years of implementation. The articles and its supplement of explanations are also written in more rigid ways. By this approach, the articles and the supplement coincide to keep possible multi-interpretations minimal.

Despite there have been numerous presidential and ministerial decrees, circular letters, and other regulatory guidelines related to the decentralization laws, there is still lack of coordination that creates both contradiction among regulations at various levels and contradictions between decentralization-related regulations and departmental laws. The underlying causes of these problems overlap the technical capacity of bureaucracy. To deal with this matter, many associations of city governments and local and regional parliaments have been established as medium to coordinate policies and to develop mutual understanding. It can be hardly said that there is no improvement on this issue. Many sophisticated qualitative and quantitative studies commonly suggest that such improvement is in intermediate level. Apart from several flaws, the impacts of Indonesia’s decentralization are not as bad as previously feared. Neither is Indonesia’s decentralization experience mature yet nor temporary. It means that, on behalf of the spirit of reform, Indonesia can not suspend decentralization, but to keep learning, completing, and perfecting the manual and ethic of its implementation.

Development Aid or Economic Bait?

Contrary to classic paradigm, recent empirical studies during last a couple of decades have been converging to deny the notion that development aids are free from donors’ interests. The interests comprise, broadly speaking, political and economic ones. Those who advocate this thesis suggest that the ultimate goal of such aid release is to convert potential threats into strategic allies or at least to guarantee that the recipients are not becoming protectionists for their markets or hard liners against the aid providers’ exports or foreign policy. The donors include major industrial countries or international agencies backed by those developed nations. They are indeed few super powers in the global economy. Like a Trojan horse, the development aid is the main, if not sole, channel for these few super powers to intervene in other countries’ affairs, to extract whatever resources they may need, be it political, natural, or other economic resources.

In addition, various econometric models, based on dynamic longitudinal cross-countries data, have also attempted to simulate the long-term impact of development aids on economic growth, domestic saving, capital formation, and some other common development indicators of the recipients. Unlike common believe widely stated on popular media, these models whose won publication outlet in major top-tier academic journals predict that aid dependency indeed reverses the direction of development and the quality of development. The aid scheme often prohibits government to put public needs on the priority of their development agenda. Instead, the government focuses on donors’ agenda. The services made to debts or agenda that the donors insert on the aid scheme which they submit to the government eventually deteriorate the grade of development. Despite growth accounting records some positive numbers, unemployment among adults and malnutrition among children are steadily rising. It means that aid fails to add public goods, improve infrastructure, induce capital inflows, and create jobs. This picture is not a unique case of particular country, but apparent phenomenon in many economies. A quote from a pundit says that “aid is rather a mode of dependency than of development”. Those scientific predictions appear to confirm it, though the undesirable impacts may not be easily visible.

One can infer two main lessons from the discussion above. First, the end of Cold War era is definite, but the battle for seizing hegemonic power over the globe is not finite. It appears that the very basic foundation of real global politics remains the same, what is known as the principle-agent hierarchy. The asymmetric relations between the few super powers and the rest somewhat still survive. In other words, it suggests that not every animal is equal, as the power among players is not identical. Many say that comprehensive review and reform should be done to rectify these imbalance relations. Developing countries need to work together to innovate current practices of multilateral or unilateral actions that are not favorable to their own development agenda or not undertaken on a voluntary basis. However, pessimistic views suggest that the successor of the current system is not yet to come in the foreseeable future. Second, it is therefore only limited choice available to the weaker countries, that is adapt with or die by such less desirable system. It means that they must be able to isolate the malignant impacts of development aids and to fully exploit its benign values. They must be able to differentiate the harmful aid proposals from the necessary and useful ones. Yet, doing so is not as easy as separating chemical substances in sterile and controllable laboratory. Hence, the government of developing countries must equip development policy-making process with good skills in planning. Without it, government hardly succeeds to dispose effective and corrupt-free implementation in taking the best out of development aid.

A Postdoc in Larvaeic Rush

A witty short feature on a senior postdoc in evolutionary genetics at University of Lausanne in Switzerland appears in Nature (2008, Vol.452, No.10: 778). The feature basically portraits typical worries and dilemmas of those in academic world, struggling to move up in academic ladder to deserve professor title by means of constant publications. He thought himself like damselfly larvae (Lestes Viridis) that, like academics, have deadlines, and it stresses them out. Facing the deadlines, there will be shift on cost and benefit balance. In Larvae’s life cycle: feeding in the face of predation, trade off between mobilizing fat reserves versus reducing immune response. In academics’ life: aim lower and ensure quick publication versus aim high but accept more risks, e.g. rejection (He’s used to the ups and downs in academic publishing. Still, he finds rejection a bitter pill).

Adam Smith Was Right

Last Monday evening (7/4/08), I gave a talk at TVRI Jatim on the conversion of kerosene to LPG. When TVRI asked me to be a resource person, I was at first reluctant, because I felt I was not quite fit yet and many paper works had been piling up during my bed rest, so I would rather spend the evening to start sorting out the homework. But on the second thought, I couldn’t afford to refuse the invitation for these reasons: 1) it’s a call of duty; 2) it’s time to pay forward to others many opportunities that I’ve received and some knowledge that I’ve gained ; and 3) it’s a simple job, a labor of love, with noble values. Morally speaking, did I do something good? I don’t know. But it’s obvious I did serve TVRI request as it served my interest too. The interest needs not be a financial interest, to “feel better off” by doing or not doing something is also an interest. In this regard, even when someone is saving a prayer, he/she’s basically pursuing his/her self-interest, if by doing it, that someone feels better-off.

Adam Smith is right when he said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”.

Do We Need More Public Holidays?

Again, Indonesians enjoyed another long weekend as there were two subsequent public holidays on last Thursday and Friday (20 and 21 March for Maulid Nabi Muhammad SAW and Easter Day). In 2008, most Indonesians enjoy 26 public holidays, similar to Myanmarians, Filipinos, Cambodians, Saudis and Iranians. Citizens of other developed economies and even of Vietnam (that just embraced market system recently and would like to be the next China) don’t have such high luxury. Vietnamese may think that too much holidays will slow down the rate of convergence process they’re now working on. While Indonesia’s level of inward investment has yet to reach the pre-crisis level, Indonesia doubled its number of public holidays during the period of 1997-2008. Do we need more or less public holidays? What is the optimum number of public holidays? First glance at the table below suggests that the association between number of public holidays and countries’ level of development may not be straightforward.


Country/Economy # of Public Holidays
1997* 2008**
Vietnam n.a. 10
United States 10 11
Spore 12 11
Taiwan n.a. 12
South Korea 17 15
Israel 24 15
UK 8 16
Brunei Darussalam n.a. 17
Malaysia 14 19
Hongkong 16 19
Irak 19 20
Thailand 16 22
Japan 20 22
China 9 22
Australia 10 23
Filipina 12 25
Saudi Arabia 19 25
Indonesia 12 26
Myanmar 18 27
Cambodia n.a. 31
Iran 24 31
India*** 11 43
*, Source: www.unesco.org
**, Source: www.qppstudio.net
***, India actually has three national public holidays, the others are regional in
nature or limited to certain religious/ethnic/linguistic groups.


One may argue that more public holidays will yield higher social capital which is good for society. Joachim Merz and Lars Osberg (2006), using the variation in public holidays across German Länder (regional unit), argue that public holidays have beneficial impacts on social life and there is a case to be made for more public holidays. Critics would say that the empirical work may suffer of endogeniety problem. In addition, nowadays, where people’s social knits are largely work-based social networks, more public holidays might reduce or, at least, hinder the accumulation of social capital. More public holidays should not be regarded as infinite addition. Suppose, there’s no such problem of endogeneity and social capital indeed takes place outside business realm, (i.e. more public holidays indeed add more social capital linearly), and there will be another problem: what is the optimum level of social capital? Social capital in itself also contains inherent defect, that is negative externality that possibly reduce trust to external members, the outsiders of the group. In total, it may act like zero or even negative sum game for the society. Next, in a country like Indonesia which is presumably more social capital abundant country than Germany, do we really need more social capital? Or, are more public holidays worth taking to have more social capital? Why not through other means to accumulate more social capital?

One may also argue that more public holidays will solve, in economic jargon, coordination problem (among family members or at least, between working spouses) to have some more time together. It may be true, but, what about coordination problem among business partners? More public holidays may actually delay the execution of business plan on hand.

Social capital is always necessary for Indonesia or for every society. Yet, Indonesia is hungry for and in severe competition with other countries for inward investment to add its capital stock. Otherwise, economic growth can not be sustained. Also, it’s too early for Indonesians to be a leisure society. We need to learn better how to be working class society. In local dimension, public holidays can spur local economic development, especially in places that to be favorite vacation destination. But, overall, we need more working days (and better quality of work) and less holidays. Don’t let Brian May write another song for Indonesians: “Too Much Holiday Will Kill You”

Regression: Economists' Favourite Toy

I just ran four million (growth) regressions.
Xavier Sala-i-Martin

Correlations are common in economics. Yet, it doesn’t mean that identifying whether the correlation between two or more variables represents a causal relationship is always an easy task. Countries who invest more in infrastructure would also have higher income levels or growth. Does it mean infrastructure raises income levels or is it the case that richer countries can simply invest more? To answer this sort of questions, economists employ regression analysis to quantify the relationship between one variable and the other variables that are thought to explain it. Regression analysis can also examine how close and well determined the relationship is. Nowadays, running thousands of regressions has become commonplace and easy. In fact, any empirical economic study appears to have a regression in it.

Despite its benefit, regression analysis is also subject to drawbacks and abuse. People like to use it, misuse it, or deliberately mislead other people with regression. Exhaustive, if not mortal, difficulties in performing regression analysis include the following: ommitted variables, reverse causality, mismeasurement, and too limited a focus. These difficulties make regression analysis suffer of inherent wounds, namely: First, It’s inductive. You can’t be 100% sure; Second, It suffers of some kinds of black box in explaining the mechanics of the observed relationships between variables.

Regarding growth regressions, Pritchett (2006) identifies other wounds commonly found in growth regressions:
1. Growth regressions never satisfactorily resolved the "symptoms versus syndromes" problem.
2. Growth regressions were widely seen as producing estimates of gains from policy reform that were orders of magnitude larger than the microeconomic estimates of those gains—without any particularly convincing economic explanation.
3. Growth regressions have a tough time dealing with the huge differences in country experiences.
4. Growth regressions cannot predict turning points— either accelerations or decelerations—and we know that developing country growth rates have these turning points.
5. Growth regressions did not help policymakers anticipate either the disappointments or the surprises of the experiences of the 1990s.

Should we abandon regression? It's indeed a tool. Like a pencil among many other tools in a carpenter's tool box. An amateur carpenter, someone who thinks that he can saw straigth without a pencil line, may not need a pencil. A professional carpenter, someone who thinks that he never be that good, will always find a pencil helpful in one way or another. Many things a pencil can't do, but a pencil surely can do something.

In Front of The Stage: Toto, Skid Row, and Price (Non) Discrimination

From each according to his ability…
Karl Marx

I’m not sure whether Tommy Pratama from Original Production, an Indonesian promoter who organised Toto concert in Indonesia, is Marxist or an adherent disciple of Microeconomics textbook. One thing for sure, he charged different prices for the Concert. It cost Rp. 350,000; Rp. 250,000; and Rp. 150,000 for VVIP, VIP, and Festival class, respectively. On the other side, Log Zhelebour, who was responsible for Skid Row concert, charged show-goers equally, i.e. Rp. 35,000. Why did they apply different pricing strategy? Apart from Log’s long well-known sacred mission (to make all metal-head happy by giving them world class or good rock ‘n roll show at affordable price), was there any economic reason for him to charge low price?

Many businesses, including show business (remember the saying: there’s no business like show business), price discriminate through customer self-selection. Businesses often use self-selection to induce different groups of consumers to respond differently. By getting consumers to voluntarily self-select into separate groups, businesses can enhance their profits through price discrimination. So, by applying price discrimination strategy, it is possible for producers to extract maximum rent from their consumer. They, however, should do it carefully, since each individual consumer, in principle, will always resist paying more than another. So, how will a producer play this pricing game? First, a producer needs to know whether the market is heterogeneous or homogenous. Next, a producer must identify which customers are the most price sensitive or he/she must devise a mechanism by which price-sensitive customers self-select.

Tommy knows that market for Toto is rather in stratum. It goes across types of people: from music freaks or practicing musicians who want to watch the playing of Steve Lukather and to observe the sound system to beautiful metro sexual people who want to be seen; from those who grew up with Toto music but now they are young or working adults to teenagers who don’t want to miss any show in the town. On the opposite, Skid Row fans are more homogenous. Regardless of their social economic status, they are basically all the same: metal-head people. The range of price sensitivity across consumers of Toto concert is likely much wider than that of Skid Row concert. In addition, in an open door concert like the case of Skid Row show, it is harder to separate entry door or divide space according to different classes of ticket. In short, Tommy has a larger room to price discriminate than Log does.

Log charged low price to induce more people coming. Given the design of the show (more cities and open door), this lower price was offset by higher expected volume of sales. Tommy’s mode price was higher than Log’s uniform price by the factor of ten. But, it was reasonable to expect that Log’s sales volume was at least ten times larger than Tommy’s. So, it is not the case of the sane Tommy versus the insane Log. Log simply took different path and his path was also economic sensible.

Advice to Fellow Consumers

When you’re traveling by airplane, never ask how much a person sitting beside you paid for the airfare. You may feel worse off if he/she paid cheaper than you did. But, if you don’t bother not being a VIP in a rock concert as long as you love the band and its music, just pay for a festival ticket. During the show, you could feel better off than those who paid much higher price. It is often the case the band will ignore all rules of price discrimination. Rock stars don’t like their fans being segregated by the promoter. On stage, they may shout like this: “ C’mon everybody, kick those seats, everybody come closer to me, stand up and shout…let’s rock together”. It was the case of Toto concert. I paid for a festival ticket, but I enjoyed the position of a VVIP ticket holder. I felt so much better off for paying less. Thank you, Steve!

Behind The Stage: TOTO and Logistics Quality

I was ready about to rock this Wednesday evening (12/3/08) in Toto concert, at Empire Palace, Surabaya. No need to worry about “to do list” until Friday (as I am also planning to act like “Youth Gone Wild” in Skid Row concert the following evening, i.e. Thursday), I have done all homeworks in advance. In short, as in Edane’s song, these two days are “Time to Rock”. What a rock city Surabaya is (Kiss ever wrote song called “Detroit Rock City”, so did Superman is Dead with “Kuta Rock City”. I hope that Boomerang or Power Metal does the same one day). However, some monkey business got me and other hundreds of people disappointed. The band’s equipment was not cleared yet by the Custom Office. It was left stranded somewhere in Sukarno-Hatta Airport. While I don’t know who was the culprit - the promoter, the local event organizer, the logistic partners, the Toto management itself, or the government officials? – This case reminds me on an international annual report so called “Doing Business”.

Overall, the ease of doing business in Indonesia has improved, from rank 133 in 2007 to rank 123 in 2008. In “Trading Across Borders” category, Indonesia actually jumped even higher in the international ladder, from rank 61 in 2007 to rank 41 in 2008. It’s pretty good. Yet, when better is expected, to be good is not good enough. Look at the further detail picture. In terms of monetary costs, it is true that Indonesian cost to export and cost to import (US$ per container) are lower than those in other countries in the region or in the OECD countries. However, in terms of time (days), it takes at least twice longer time for both export and import in Indonesia compared to best practices. So, if you agree that time is money, (time-adjusted) costs for export and import in Indonesia might be actually much higher than they firstly appear. Further, the “Doing Business” report hasn’t take into account more complete logistics indicators like the following (proposed by Hausman, Lee, and Subramanian) :

1. Time. Total time for a trade transaction; document processing time; custom clearance; technical control; vessel turnaround.
2. Cost. Total cost for a trade transaction; port & terminal charges; document processing; custom clearance cost; inland freight.
3. Complexity. Signatures for a trade transaction; number of documents per transaction; percent of containers inspected; level of inspection; criteria for inspection.
4. Efficiency. Number of containers loaded per berth hour; port shutdown days; inland transport speed; frequency vessel calls at port.

(Note: while these indicators are originally observed for and derived from trade across borders through seaport, I think they are also applicable for good flows through airport).

So, while various forms of tariff and non-tariff trade barriers are obvious and easier to manage, I think Hummels (2001) was right, time (and also efficiency and complexity) are invisible barriers for trade. It is thus harder to manage and to remove. Private enterprises and government agencies should collaborate to improve logistics performance and to reduce logistics friction in order to foster trade. They, government especially, should let us rock; instead rock us again and again.

Why Are Economists Often Right Too?

On the other hands, economists are often right too. Reasons include:

• Economists offer many opinions by which one or more of them can be expected to be, at least partially, true and correct. It ever happened that two economists who say opposite things, Myrdal and Hayek, can share a Nobel Prize. What they say must be worth some truth.

• Economist study many things. Like profession in medicine, profession in economics is also highly specialized. The JEL Classification System identifies 20 economics fields that are also further divided into sub and sub-sub fields. From theory to empirical methods, from monetary economics to labour economics, from health economics to behavioral economics, and from international economics to urban and regional economics. Altogether, the works in these fields must be helpful to find some truths, either by offering answers or, importantly, posing good and challenging questions. Surely it may incur costs. One pundit ever says that “the price of being right is being wrong for a while”. In Samuelson’s famous quote: “Funeral by funeral, theory advances”.

• Economists have notion of sunk costs and opportunity costs. These notions have created some innovations, such as: EVA (Economic Value Added). In examining companies’ healthiness, the EVA approach has some advantages than standard financial ratios.

• Many fields are compatible with or have been inherent part of economics. To name a few, these include psychology, sociology, mathematics, physics, computer, biology, geography, and statistics. Gravity model in international economics comes from physics. The concept of agglomeration economies combines some notions from geography and sociology. Mathematics and statistics make possible for economics to quantify even the most abstract notions, so people can manage things better. Is’ it that right that one can’t manage well something that he/she can’t measure? With many allies in scientific world, economists' quest for truth is becoming easier.

• One of economists’ genuine talents is their ability to model the real world’s complexity. Supply-demand curve, indifferent curve, and Edgeworth Box are simple but powerful tools. People like Krugman are so good in modeling and understanding how things basically work in both mathematical and verbal, without being verbose, languages (Think of his seminal technical paper on increasing returns to scale or of his funny baby sitting coop analogy in explaining recession). Without basic understanding on how things actually work, we may go into wrong direction.

Why Are Economists Often Wrong?

“We can get it wrong some of the time. I think, non-economists get it wrong a lot more often than economists. But, this isn’t a precise game. There are gonna be a number of occasions in the future that we will get things wrong too”
- Nicholas Stern (World Bank Chief Economist 2000-2003), in an interview with John Pilger

(The New Rulers of The World, 2001)

You may ever wonder why economists, many of them have had very good trainings and amazing academic background, are sometimes nothing more than fortune teller without crystal ball (if there were such thing). Some cynical observers or an economist-phobia may even say that economist is a person who makes a living by producing bad prediction: telling worriedly that something gloomy will happen, but it actually does not; promising that a particular policy will bring about some good impacts, but most people are becoming worse-off. Why do economists sometimes get it wrong? Here is a list of some possible reasons.

First, Positive vs. Normative Economic Analysis. Positive economic analysis seeks to explain the economic phenomena that are observed, while normative economic analysis deals with what “should” be done. Considering political acceptability, normative analysis may recommend something different from what is proposed by positive analysis, quite often, in the expense of economic efficiency or even social desirability. Also sometimes, economists easily surrender to popular beliefs. Remember the case of Asian Miracles and the debate whether these are due to, what Krugman calls, “inspiration or perspiration”? Alwyn Young are among the very few who is brave enough to present hard facts against the popular views. Yet, it took quite sometime for his works to get attention.

Second, Self-Interests. Like members of any other professions, economists themselves are actors whose self-interests or sometimes working to serve vested interests and change their views accordingly. It relates to the first reason. Several examples are available. A formerly independent university-based economist once said that subsidy removal will boost inflation. However, right after he’s hired by government as an expert staff, he estimated that inflationary effects of fuel-subsidy removal would only be tiny. Laura Tyson, an economic professor at Haas Business School, UC Berkeley and the first female Dean at London Business School, surely used to preach about the virtue of free market and trade liberalization in class, but she was widely criticized by her fellow economists for being harsh protectionist when she served in the Clinton administration as Chair(wo)man of the President’s Council of Economic Advisers. Gregory Mankiw, one of best economists, a Harvard professor and text-book writer, used to criticize Bushonomics (supply-side beliefs, etc.), but turned to be the defender during his assignment as Bush’s Chief Economist.

Third, Over-Simplifying. Market-framework is useful benchmark for economic analysis. Yet, it has inherent limitations, including market failures and the absence of transaction costs in the framework. Also, economists tend to focus on objective, choices, and constraints of individual actors. In reality, peer-effects, bandwagon effects, demonstration effects, neighborhood effects or other forms of interdependencies among actors or spillovers between adjacent places often matter. In addition, it is also the case of “old ideas die hard”, adopting particular theory without sufficient examination on different context and time frame. For example, one may simply refer to Philips Curve in proposing deficit spending or higher interest rates to lower unemployment rates. Yet, it may not work in some places. Instead, the action could lead to stagflation. Careful analysis should recognize that Philips Curve is more a historical relationship between inflation and unemployment than a model with solid underlying theoretical foundation. Dealing with unemployment goes beyond monetary and fiscal policy.

Fourth, Being Political or Ideological. Many analysts for whatever reasons try hard to maintain some ideological or political label. They are more worried on their status as “member of the family” than on the rigor quality of the analysis. Because of this attitude, they became more a politician than an economist: trying to convince people to believe something that they themselves do not. They are blind to see that there are various models of successful development; there are both cases of success and failure in privatization. While there is a lot of (seemingly) conflicting school of thoughts, these schools reach intellectual agreement in a number of issues. Are Austrian School and Chicago School Foes or Friends? Many great economists will say that they are both foes and friends. Friedman refers to Keynes when he was asked who is another great economist after Smith, Ricardo, and Schumpeter. Friedman also once said that there is no such thing as left-economics or right-economics, there is only either good or bad economics.

Fifth, Being Abusive. Many economists do well in empirical works, but others intentionally or, worse, unintentionally abuse empirical methods. Many simply use a time-series model to forecast for “infinite” time, regardless of the size of the sample used to build up the model. For the sake of a mere statistical exercise, it is just fine, but it is meaningless in economic sense. Prediction is hard, especially when it comes to the future.


Nevertheless, even though economists often make mistakes, they are still useful in one way or another and economics is highly regarded in scientific world. Nobel Prize for economics, so far the only field in social sciences that has Nobel, is apparent evidence.

Why Politicians are Richer Than Professors

Postulate 1: knowledge is power
Postulate 2: time is money

Further, everyone who has graduated high school knows that
work : time = power (1)

Taking into account the two postulates, we can re-arrange equation (1), as follows:
work : money = knowledge (2)

Solving for money, we'll get:
work : knowledge = money (3)

Thus, as knowledge approaches zero, money approaches infinity, regardless of the work done.

Conclusion:
The less you know, the more money you make, as long as you talk much, like those all most politicians. However, since talk is cheap, supply exceeds demand.

Paris Hilton Effect

It's not uncommon if someone/something is getting (more) famous of being famous, getting richer of being rich. Let's call it Paris Hilton effect, if you will (Well, Fans of Dian Sastro may prefer to use terms Dian Sastro effect, intead).

Such tendency was keenly observed by Sherwin Rosen in his seminal paper, "The Economics of Superstars", published in American Economic Review on December 1981, even when Ms. Hilton was only ten months old. Superstars here may include individuals who work as actress, musician, athletes, academics/scientist, and other professions or may include institutions, organisations, or business entities. Rosen explains why few people earn much share of the pie and dominate the field in which they engage. The superstars do it either by charging higher prices, though their (actual) talents might be only marginal to the next best performers, or, selling more services/products due to the increasing demands for (perceived) "superstars". Princeton's economist, Alan B. Krueger notes that "the top 5% of revenue generators took in 62% of concert revenue in 1982 and 84% in 2003", as demand for "superstar" performers increased"("The economics of real superstars: the market for rock concerts in the material world", NBER Paper, April 12, 2004).

However, I think, the definition of superstars is sometimes hardly obvious or at least, more exact in some fields but is not in other fields. Leave alone the role of crafted campaign to make someone to be superstar. No one will refute that Rolling Stones, Pink Floyd, and U2 are superstars in music; Sharapova, Beckham, and Rossi are the rulers in the sport world; and no more than five people including Paul Krugman are the top in international trade theories. But, how we can explain that Radja or Peterpan sells more concerts than the real deal ones like Edane, Discus, Simak-Dialog?; how we can explain a popular commentator is cited more frequently by the media and dominates public seminars (which means money) than a serious scientist rigorously dealing with particular issue? Krugman (1994: 8) once said, "neither Robert Lucas, without question the most influential economist theorist of the 1970s, nor Paul Romer, arguably the most influential theorists of the 1980s, has ever appeared on any public affairs program".

After all, we're now talking about the market aspect of the superstars, not merely the virtuosity or the technical expertise of them. Popularity or income may go hand in hand with virtousity, but quite often, they don't. At least, economists, like Rosen, have been working to explain either economic sense or non-sense. In what category does Paris Hilton belong to? We may need not to care about it. Raise your glass and cheers: Long legs, Paris!