Funnier

I have heard this story a hundred times – although it is probably apocryphal.

An adviser to then president Ramon Magsaysay pointed out to him that his preferred policy course violated the law of supply and demand. Magsaysay ordered his aide to call in his leaders in Congress. He wanted that particular law repealed.

This is most likely fake news. During Magsaysay’s time in office, his detractors portrayed him as under-educated for the office he held. Although wildly charismatic and unbelievably popular, his critics tried to portray him an oaf.

For better or for worse, Magsaysay did not live long enough to commit any major policy error. He defied neither the law of gravity (he died in a plane crash) nor the law of supply and demand. He continues to be well loved by his people.

Last year, we went through a funny controversy relating to tampering with market forces.

The country was experiencing a shortfall in its sugar supply. The Sugar Regulatory Administration (SRA), supposedly on verbal instructions from the top, allowed the bulk importation of sugar (although less than the shortfall). The planters and the millers raised a howl, pressing government to wait until the harvest comes.

Under pressure from the domestic sugar elite, the administration denied allowing the importation. But food processors then raised a howl. If sugar was not imported immediately, many factories will be forced to shut down.

As the controversy raged, I took a rather long phone call from then executive secretary Vic Rodriguez. My first thought, as our conversation progressed, was that the executive secretary seemed to have a lot of time on his hands. Later on, it became clear to me the Palace was entirely clueless about the complex political economy of our sugar industry.

Rodriguez fired the bureaucrats responsible for ordering the importation of sugar. Soon enough, Rodriguez himself was fired from his post. Eventually, a senior agriculture technocrat earlier fired from his post was restored. Rodriguez lost his job in vain.

Sure enough, government ended up importing more sugar than the SRA previously allowed. The much-vaunted sugar bumper crop did not materialize.

To this day, our consumers continue to pay steep prices for sugar. The government impulse to override market forces with brute bureaucratic power proved futile. The sugar controversy saw some high-profile bureaucratic heads roll. But otherwise, the situation remains unchanged: our policy continues to favor the sugar elites at the expense of our consumers.

Our policymakers did not learn from this funny episode. Now we find ourselves in yet another, even funnier, controversy involving the same bureaucratic impulse to override the law of supply and demand.

Price caps was imposed on rice retail prices this week. The stiff penalties for violating the price caps were prescribed. The immediate victims of these penalties will, of course, be the small rice retailers.

Realizing the injustice committed by this policy on small retailers, the administration promised them a P15,000 assistance package to cover their losses. First, the policy penalized them. Now government commits to subsidize them.

The proper word is probably to “bribe” them in order to avert the outbreak of rebellion in our wet markets.

The assistance package, promised the very day the price caps went into effect, was obviously political reflex that did not benefit from any research into the real economic world. The Grain Retailers Association of the Philippines, after an emergency meeting, determined that small retailers stand to lose over P40,000 every week the price caps are in effect.

In short, the P15,000 subsidy to small retailers meant nothing. If the price caps continue for several more weeks, government will probably have to incur more debt to subsidize the losing retailers – or court the possibility the supply chain freezes. We could stumble into a debt crisis trying to tamper with the price of rice.

Over the next few days, we will all likely dig deeper into this rabbit hole.

Since the rice price caps are an arbitrary imposition, the market will find ways to operate nonetheless. Very likely, our wholesalers will shift their orders to higher priced varieties not subject to the price caps. Our overall rice price regime will shift higher, not lower. The first objective of the rice caps is doomed by the impending shortage in cheaper rice varieties. Nobody will want to deal with a commodity whose price is subject to political whim.

But the folly will continue. So much political prestige has been invested in it.

The other day, Speaker Martin Romualdez issued a hilarious press release claiming international rice prices dropped because of the price caps we imposed. That is plain disinformation. International market prices rose sharply in the days preceding, and especially after we announced price caps. The drop was clearly market correction.

The Speaker must be reminded that beggars never determined market outcomes. We are the world’s biggest importer of rice. As in oil, we do not dictate prices. We beg for supply.

This funny episode relating to rice price caps will not end gracefully. It has already taken casualties.

Cielo Magno, a talented young economist serving as Finance Undersecretary, quit her post after posting that textbook graph about the law of supply and demand. She did not resign gleefully. The Office of the Executive Secretary released a statement gloating that her appointment was “terminated” for “maligning the administration.”

A former finance secretary texted me yesterday with the thought that in government “no good deed goes unpunished.”