To prepare for my thoughts on Noynoy Aquino’s 2012 SONA, it seems helpful to revisit a past blog entry of mine. I edited many parts of this post to make it more readable and hopefully shorter. Hope you enjoy.

The full text of the 2010 SONA is available in Facebook (Hat tip to ANC). Of course, you can always google this. The biggest chunk of the SONA is a description of what was left behind. There is plenty of blame going around. This is to be expected. Besides we can always blame the Spaniards for conquering the Philippines (One should heed the many lessons of the lack of freedom and what we have inherited from that time!). It is admirable that the new administration has found the irregularities that are to be expected once people who know the basic accounting equation ask questions.

I am not so sure that the secret of corruption or at least the true state of the economy was hidden from the people. Two possibilities: (a) The people might have deceived themselves into thinking things are going to get better or they accepted that things are going south even if things are going for the better. (b) There was a lot of manipulation of economic figures. Well, (a) is not such a bad thing, a little bit of wishful thinking is not so bad. This is what essentially fuels the entrepreneur’s dream. Besides, people have no basic trust for the state so the best thing probably is not to bitch about it but do something to remedy their individual situations and not wait for the government to take action. (b) may be true. But as we all know manipulation only gets so far. At some point, something’s gotta give.

The president also makes statements about the budget being inadequate. Of course, it is going to be inadequate! Elected officials have no incentive to stick to budgets. This is to be expected as well. The only thing we could hope for is good accounting and some transparency. Besides, money is fungible. It is very difficult to trace where a particular chunk of money goes. Regarding the advance funding for election season, this is again to be expected. We have anecdotal evidence of vote buying in the cities. Hell, candidates kill off each other in the provinces.

The president also exposes some of the large bonuses given to the top officials of the MWSS (a water distribution monopoly). The president even says that he hopes that these officials would feel enough shame to resign. They have been there for a long time–they must have a very thick skin. The president thinks shame and embarrassment are enough to sustain honest living. This would only hold if these forces are powerful enough. These shameless officials should be exposed rather than be asked to resign quietly. Besides these officials can always jump ship to showbiz, where they will be glorified and after a while come back into the political scene. This is probably the most pressing problem: Who do we seek to glorify? Who do we seek to glamorize?

Next, the president points out the bailing out of many government-sponsored projects such as the mass rail transit, electricity generation, etc. He also points out the artificial pushing down of prices for tickets to use the mass rail transit. Of course, the mass rail transit is going to have unmaintained stations and will be experiencing losses! We know from economics that even if the government has good intentions to keep mass transit at an “affordable” price, this has unintended consequences. Look at the discussion in principles textbooks about rent control. People always forget to ask the question: At the end, who is going to shoulder the burden? It does not matter whether you are rich or poor or do not use mass transit, everyone is affected by this burden in varying degrees.

Now, after exposing the many lies and deceits of the past, the president tries to offer some possible solutions. First, catch up with tax evaders. Good luck. That is why I prefer the minimal state with only the power to impose lump-sum taxation or any other form of non-distortionary taxation. Well, the president has to be tough with tax evaders by probably setting an example. Ask his enemies to do his taxes (a joke but might work in the Philippine setting). People rationalize tax evasion. They say, well the government can’t be trusted to take care of my taxed earnings to fund infrastructure. They’ll say, well, we cannot see the blessings of the tax. That is why many officials resort to large advertisement saying: This is where your taxes go. The irony there is what “this” is referring. Is it just the billboard? Some rationalize tax evasion by subscribing to a libertarian philosophy. Taxation is theft. Well, I agree with this statement partially. There are a lot of deeper issues here, like should the government be a benevolent social planner? Should it be like a father trying to prevent the people from doing harm to themselves? Or should it be like a blackbox instead: People line up at the government’s single office. Pay their lump sum tax. Government provides transfers. How I hope things are like this.

The president also calls for eliminating extralegal killings. Well, this is kind of hard because people do not trust the officers entrusted who are duty bound to serve and protect. We also have this extralegal killings because the courts are not fast enough to take action against slander. If people have nothing to hide, then truth is a defense against slander. So there really is no need to kill someone over spreading ugly truths or ugly lies. All in all, there is nothing much we can do here except to try to uphold freedom of the press. Establishing a Truth Commission only adds another layer of bureaucracy. Who will finance this??

The president has a solution for the lack of funds: public-private partnerships. He says that some private company has expressed interest in building an expressway from the capital extending high up north without ever costing the government a dime. The government is going to pay for something to make this work. The unasked question is how many have expressed interest? If no private firm expresses interest about the project, then it is probably not worth doing at all (unless there are large social benefits). Further, it would be better if there is some way of making companies reveal their valuation of the project. There is a lot of economic theory on this, especially mechanism design and implementation theory. The recent success with the spectrum auctions may give some lessons for the government. It is all about market design. How do we make sure that a company who would be asked to build an expressway does so because it increases firm value, it has large social benefits and it is least costly for the government? For one, having only one interested company is not going to solve this. Also, why did the president not release the names of the interested companies?

Next, the president wants to streamline processes in the government. This is admirable and hopefully will get rid of deadwood in government offices and put the more able and give the more able better pay. Of course, we will get resistance from deadwood. This is the problem with security of tenure and other forms of labor market rigidities that hinders optimal resource allocation. Why should someone who works better not be able to get a job just because some deadwood fills it? Should we get rid of security of tenure in government?

So essentially, the problems of the Philippines boil down to a lack of trust, a lack of transparency (in terms of good data and documentation) and a lack of both political and economic freedom.

The concluding part of the speech was perhaps the most unnerving of all. I was surprised by this part of the speech:

Napakatagal na pong namamayani ang pananaw na ang susi sa asenso ay ang intindihin ang sarili kaysa intindihin ang kapwa. Malinaw po sa akin: paano tayo aasenso habang nilalamangan ang kapwa?

In English, this means: It has long been held that the key to progress is self-interest instead of having other regarding preferences. It is clear to me: How can we make progress while taking advantage of others?

For me, this reflects a basic misunderstanding of economics. We may find it morally reprehensible that people take advantage of other people. But their decision to be “taken advantage of” is a conscious choice, a choice of free will and a choice from calculation. This is probably best illustrated by the Hurricane Charley incident where homeowners were faced with the problem of fallen trees on their roofs. Some were asked to pay as much as $10500 to remove a tree. See the cached version of the news in USA Today. (Hat tip to Michael Sandel’s very insightful book on practical morality. The book is Justice: What’s the Right Thing to Do?)

We can clearly see people “taking advantage of” other people. This is meaningless since the price reflects the relative scarcity of the good. There is no such thing as a fair price. Of course, you can always argue with me about the conditions required for this result to hold. But that is a different story altogether. There is a lot of emotion here but once one strips the emotion and lays bare the fundamentals, one can see much clearly. I have no problem with collectivism. We all do small, nice things for our neighbors, friends, family, etc. We give gifts, we give comfort, we provide support (financial or otherwise). There is nothing wrong with that. But the problem with collectivism is one that people in the past have experienced–Communism in Russia. Once one knows how communism destroys families, the basic collective unit, one can hardly speak much of the benefits communism bestows. We may not like or even despise people who take advantage of others but the solution is not to legislate love.

I was looking also at the comments to the SONA in Facebook. It was very surprising to find that some people claim that they have no idea of the extent of corruption in the Philippines. Some are also impressed by the usage of Filipino in the speech.This was a nice move as a goodwill gesture and of course to get people of all walks of life to listen. But this is not enough for people to even accept the SONA at face value.

There is also a comment about public-private partnerships being good because it will be “the key to better management of government resources”. “The sense of ownership will make the people more responsible.” This effect of making people more responsible only happens under very strict conditions. First, the partnerships are not determined behind closed doors. Second, the partnerships must be subject to a transparent bidding process. When I mean transparent, it does not necessarily have to be televised (we all know how we just love to be entertained!!). A possible requirement is that all documents such as transcripts, bid history, etc. be publicly available. This will help citizens in independently assessing the worth of partnerships and this will also help academics in applying methods to detect collusions. You can search the internet for some of the papers that outline some of these methods.

Well these are all points to be noted but as long as we do not have access to the ears of princes, we do what citizens of any nation should do. Be human. Try to live the good and virtuous life. Ancient philosophy has a lot to say about this. Live within means. One can always aspire yet be ethical. Pay your taxes even if others do not pay it. Work hard and treat people with respect. Watch less showbiz TV. There are other ways to be entertained or to entertain.