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Inflate, Confuse, Oversimplify

Inflate, Confuse, Oversimplify

Jan 14, 2012

Inflate, Confuse, Oversimplify: Or how to read GMA’s economic achievements reported in her last SONA by Jenina Joy Chavez Years ago I got a gift from one of my best friends and economics thesis partner, a slim book of burnt orange cover reeking of dusty newsprint. It was written almost four decades earlier when I first got it, but I had to laugh and get reassurance from my friend that she was not trying to imply anything, because I was then connected with an organization churning out alternative economic facts and figures. In my numbers-crazed existence, mainly to highlight what was wrong with the world, that little book, How to Lie with Statistics by Darrell Huff (New York: W.W. Norton & Co., 1954), shook me with humor and gave me a newfound respect for statistics. Old-timer Huff pointed out the many ways statistics is prone to misuse through graphical misrepresentation, over-reading of trends, and faulty cause-and-effect reasoning. Sure, one does not need data to fall prey to bad arguments, but she would sound more convincing with some statistics. In her last State of the Nation Address (SONA) Monday afternoon, Mrs. Gloria Macapagal-Arroyo, was clever with her statistics – not cluttered but sparing, not comprehensive but selective, and not explaining the nasty details but ascribing trends. In short, she did well with what Huff warned statistics is used for, that is, “to sensationalize, inflate, confuse, and oversimplify”. Monday’s SONA was an attempt to cast doubt on what people know so well, and to convince them of what she supposedly did for them. What makes it easy for her to cast such doubt is her polarizing of the issues between her and the traditional opposition, which also suffers from lack of credibility. Again and again, we ordinary folks are taken only as spectators, with uncritically incomplete information thrown our way, and overlooking that we are supposed to be active participants in political and economic life, and hence know better. Mrs. Arroyo’s bold claim was that “the story of the Philippines in 2008 is that the country weathered a succession of global crises in fuel, in food, then in finance and finally, economy in a global recession, never losing focus and with economic fundamentals intact”. But do the details add up? She did not provide them, so let’s see what official data show, and look at some of her outrageous claims on inflation, poverty, income and employment: Our average inflation is the lowest since 1996. Last June, it dropped to 1.5% This is tricky, not least because people do not feel that they are getting more value for their peso. But the June 2009 inflation rate of 1.5% is as official as it gets. So what happened? Closer examination of the data reveals that major commodity groups did record price increases, the highest being in the food, beverages and tobacco subgroup, registering a 3.1% inflation rate, which is actually higher than the month ago level. The biggest contributor to the rosy figure is the 5.4% drop in the prices in the fuel, light and water subgroup.[1] Former Economic Planning Secretary Cielito Habito calls this the base effect, or the decrease in the inflation rate owing to a very high starting base due to record oil prices last year. In fact, he wonders why the price drop is only 5.4% when global crude prices went down by as much as 50%.[2] Since Mrs. Arroyo credited proper policies rather than volatile price changes, it would have been better if she cited an alternative indicator, the core inflation rate, to give a better sense of long-term inflation. The usual inflation data used is the headline inflation, which measures the rate of change in the prices of a standard basket of goods, and gauges changes in the cost of living. Core inflation excludes certain items with volatile prices, and is usually affected by monetary policy or the amount of money in circulation.[3] Core, and not headline, inflation, is the one more susceptible to policy. Whereas headline inflation is down to 1.5% in June from 11.4% a year ago, core inflation for the same period is a less flattering 3.9% from 4.4%.[4] Bumaba ang bilang ng mga nagsasabing mahirap sila sa 47% mula 59%. (The number of those who say they are poor went down to 47% from 59%.) It is odd that Mrs. Arroyo would choose self-rating statistics to which she was less open in the past. Odd too, because earlier in June, the Secretary General of the National Statistical Coordination Board (NSCB) and Chairman of the Statistical Research and Training Center (SRTC) Dr. Romulo A. Virola reported that the share of the country’s middle class shrank from 19.9 % in 2003 to 19.1% in 2006, and that based on poverty statistics released in March 2008, two to three per hundred families slide down from the non-poor to the poor in the same period.[5] Less than three weeks later, NSCB OIC-Assistant Secretary General Lina V. Castro, reported that all of the basic sectors[6] posted increases in poverty incidence between 2003 and 2006, with fishermen, farmers and children as the poorest three sectors.[7] It is true that self-rated poverty has decreased from 59% in December 2008 to 47% in February 2009. However, the Social Weather Stations explained that this was due to the scaling down of the monthly budget that poor households say they need in order not to consider themselves poor, indicating that poor families lower their own living standards (belt-tightening). For instance, median poverty threshold in February 2009 was 10 thousand pesos for Metro Manila, although it has already reached 15 thousand pesos many times in the past. The figure for Mindanao was starker, with poverty threshold halving from 10 thousand pesos in the past to 5 thousand pesos in February 2009.[8] Both official and detailed self-rating statistics belie Mrs. Arroyo’s claim. Far from being a cause for optimism, a people who say that they’re okay because they have come to expect worse is a sign of lack of hope bordering on desperation. Surely even the happiest people on earth, as Filipinos are famous for, would sooner or later realize the irony in their famed cheerfulness. GNP per capita rose from a Third World $967 to $2,051. Who could have missed the triumphant tone in Mrs. Arroyo’s voice when she mentioned improving income data from the Third World level of US$967 (in 2001) to US$2051 (in 2008)? The more than doubling of income within her watch should be cheered, had she not forgotten to say that she was quoting nominal figures, or data based on current dollars. Had she used real prices (1985 as base), it would have been clear to everyone that the improvement was not as high as she made it appear. Based on Bangko Sentral ng Pilipinas (BSP) data, GNP per capita in 2001 was US$725, growing 30% in 8 years, or less than 4% a year, to US$943 in 2008.[9] Mrs. Arroyo also neglected to mention gross domestic product, which is better as it measures only production within the country. Gross national product (GNP) includes incomes from abroad, and tends to be higher than GDP. NSCB data show that real GDP for the first quarter of 2009 even contracted by 1.5% from the year-ago level.[10] She also failed to mention that income distribution in the country is highly skewed that any spike in average incomes does not necessarily mean that the poorest of the poor are benefited. The Gini coefficient, an indicator of income inequality (with 0 corresponding to perfect equality and 1 corresponding to perfect inequality), shows some improvement but remains high. The improvement has also slowed down from 2000-2003, showing a 4% improvement, to 2003-2006 with less than 1% improvement in income distribution.[11] This skewed income distribution explains why, despite increasing aggregate incomes every year, poverty remains high as discussed in the previous section. Lumikha tayo ng walong milyong trabaho, an average of a million a year, much, much more than at any other time. (We created 8 million jobs..) In her 2004-2010 Medium Term Development Program, Mrs. Arroyo targeted to generate 10 million jobs, or 1.6 million jobs a year. It was an ambitious target considering past performance in creating jobs, but it was just enough to cover the 1.6 million new entrants in the job market every year, and to cover those unemployed in 2003-4 who numbered 4.3 million. In 2004-5, 700 thousand new jobs were generated, in 2005-6 648 thousand, and in 2006-7 599 thousand.[12] In three years until 2007, Mrs. Arroyo reached only 40% of her employment target for that period. Yet during the SONA she proudly proclaimed having created 8 million jobs! She left out one simple detail: that it was not actually her who generated those jobs, but the many destination countries our overseas Filipino workers (OFWs), all one million of them every year, trooped to. Sadly, despite her claims of efforts to create jobs internally so that going abroad to work becomes a matter of choice and not of necessity for Filipinos, the truth is that Government will continue to rely on our OFWs for their annual remittance of US$16 billion (and more) for a long while yet. We have to concede that “our economy posted uninterrupted growth for 33 quarters, and more than doubled its size from $76 billion to $186 billion” since Mrs. Arroyo assumed the presidency. But juxtaposed against growing poverty, declining incomes of the poor, stagnant income distribution and weak employment generation, it is safe to say that this growth has not been broad-based or equally shared, and in many instances ‘jobless’. As for the claim that the country has so far defied the crisis since “we stood among only a few economies in Asia-Pacific that did not shrink”, Mrs. Arroyo needs to recognize that it is more because of the economy’s failure to be more integrated to the world markets and to command as much capital as our neighbors had, than it is because of strong fundamentals. In any case, the worst is not over yet, and we can only hope that Filipinos will show more of the grit that they are already showing, because it is does not look like Mrs. Arroyo and her economic managers have learned the lesson from this crisis at all. It is understandable that Mrs. Arroyo tried to paint the rosiest picture possible when she delivered what everyone hoped was her last SONA. However, while she can be as selective with data, and with memory, as much as she wants, she does not score points for it this time. The telling details unravel her outrageous claims, and do not bode well for the dream of a republic “ready for the first world in 20 years”. There was a time when everything had to have a formal explanation, when all of the country was enamored with the economics establishment and was hanging on to its every advice. Such awe was the effect of the use of intimidating economese and tons of data supposedly generated by sophisticated econometrics. No thanks to mostly botched opportunities and rigid economic policies, the heyday of the economist has passed. More than formal economics backup, people look for results. The significant ingredient had been experience of constantly missed targets, repeated lies, and outright corruption. It turns out that even the smarts and diligence of an economist President can be used for less-than honorable ends. And to that we say “no more!”  

[1] Inflation Rates (Philippines) By Commodity Group, http://www.bsp.gov.ph/statistics/spei_new/tab48.htm [2] Cielito Habito, “Dissecting Inflation Data”, Philippine Daily Inquirer, 13 July 2009,  http://business.inquirer.net/money/columns/view/20090713-215171/Dissecting-inflation-data [3] Primer on Core Inflation, http://nscb.gov.ph/stats/cpi/primer/default.asp [4] Statistics: Prices, http://nscb.gov.ph/secstat/d_price.asp [5] Romulo Virola, “Pinoy Middle Class Before the Crisis!”,  http://nscb.gov.ph/headlines/StatsSpeak/2009/060809_rav_middleclass.asp [6] Section 3 of RA 8425 defined the basic sectors as the disadvantaged sectors of Philippine society, namely: farmer-peasant; artisanal fisherfolk; workers in the formal sector and migrant workers; workers in the informal sector; indigenous peoples and cultural communities; women; differently-abled persons; senior citizens; victims of calamities and disasters; youth and students; children; urban poor; cooperatives; and non-government organization. [7] Lina V. Castro, “2006 Poverty Statistics for the Basic Sectors” (ppt),  (http://www.nscb.gov.ph/poverty/2006pov_asof%2025jun09/Final%20-%20presentation%20on%20the%202006%20basic%20sectors,%2025jun09.pdf [8] Social Weather Stations, “First Quarter 2009 Social Weather Survey: Self-Rated Poverty falls to 47%”, http://www.sws.org.ph/ . In said presentation, only the following 8 (of the total 14) basic sectors were covered: women; youth; children; senior citizens; urban poor; migrant and formal sector workers; farmers; and  fishermen. [9] Gross National Product (GNP) by industrial origin, http://www.bsp.gov.ph/statistics/spei_new/tab42.htm and http://www.bsp.gov.ph/statistics/spei_new/tab44.htm [10] First Quarter 2009: Gross National Product and Gross Domestic Product: http://nscb.gov.ph/sna/2009/1stQ2009/2009per1.asp [11] Data computed from Gini coefficients given in Family Income, http://www.nscb.gov.ph/secstat/d_income.asp [12] Rene Ofreneo, “Job Creation Programs in the 2004-2010 Medium-Term Philippine Development Plan: Targets and Outcomes” in Rene Ofreneo et al. Trabaho, Saka, Pangisdaan at Negosyo: Ramdam Ba ang Asenso? (Quezon City: Focus on the Global South, March 2009) (Published in: Focus on the Philippines July 2009, http://focusweb.org/oldphilippines/content/view/316/6/)

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