In her column discussing the results of the 2006 Family Income and Expenditure Survey (FIES), Solita Monsod asked:"The bottom line here is that if the FIES tells us that poverty must have increased from 2003 to 2006, what with average incomes of the bottom 30 percent decreasing, why is it that our National Income Accounts estimates for the same period tell us that real per capita gross domestic product has increased? How are these conflicting statements to be reconciled?"
The divergence between GDP per Capita and Annual Average Family income is indeed odd because they are both supposed to measure income per given unit of population, i.e. per individual in the case of GDP and per family in the case of the FIES.
In the chart below, i have compared the above FIES result, as well as that of the previous three reports ( 1994 to 1997, 1997 to 2000, and 2000 to 2003), with the per capita GDP change for the same reporting periods.
(click on image to enlarge)
It turns out that except for the 1994 to 1997 reporting period, the two measures of income have diverged. From 1997 to 2006, if one looks at the per capita GDP, the story is of one of continuous improvement in incomes. By contrast, if one looks at FIES, we get the opposite picture, one that shows consistent deterioration in incomes.
As i commented over at Manolo's blog (here and here), one possibility is that GDP is being overstated because of smuggling which understates imports. I also mentioned other possible reasons i could think of:- Use of different population figures as a divisor, but this is unlikely since the figures come from the NSO.
- Consistent under-declaration of income by the survey respondents of the FIES. However, assuming a true random sample, this effect should already have been cancelled out across time periods compared (i.e. 2006 and 2003).
Any advice explaining the above discrepancy would be most welcome.
Update Feb-01-2008 4:10am: Here's a chart taken from Poverty in the Philippines: Income, Assets, and Access showing the nominal and real (i.e., in constant 1985 prices) FIES Average Annual Family Income from 1985 to 2003:
(Click on image to enlarge.)
Looking at the line depicting the Average Annual Family Income (in constant prices), it's alarming that the average seems to be falling back to levels last seen in the late 80's.
Update Feb-04-2008 12:32am: Monsod's fellow ex-NEDA Chiefs Cielito Habito and Felipe Medalla have also expressed similar misgivings as early as last July, 2007. At that time, this was the NSCB's response (thanks to commenter INE for the link.) This response points to a more detailed explanation (pdf file) by NSCB Secretary General Romulo A. Virola. IMHO, the explanation still sounds lame to me as it is just a more elaborate way of saying that the two measures are different, without providing actual numbers to back it up.
Side Note: I stumbled across this simplified circular flow model which is useful for visualizing investment, income and expenditure flows between the business and household sector.
If the current financial turmoil leads to a full blown crisis, future historians will likely include last year's Subprime Mortgage Financial Crisis as one of its main precursors. The above video provides a clear and concise explanation of that key episode. Watch to get an insight on what the U.K.'s former Chancellor of the Exchequer and current Prime Minister Gordon Brown calls "the ingenuity of the market".
Update Jan-25-2008 4:09AM: To reinforce the above, via the comments section of CrookedTimber, a pointer to David Einhorn's remarks a few months ago on the credit market crisis:
"What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn't an accident. We didn't get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas. Securitization is a mediocre idea. Re-securitization of securitized assets into a CDO [Collateralized Debt Obligations] is a bad idea. Re-securitization of CDOs into CDO-squared is really a bad idea...And as I will get to in a moment, it is a horrendous idea to delegate most of the responsibility for assessing credit risk to a group of credit rating agencies, paid for by the issuers rather than the buyers of bonds."
On Securitization
"Avocates of securitization say it disperses risk. However, it does so by separating the loan originator from the eventual outcome of the loan. The originator gets a fee up front. The risk is held somewhere down the line in an alphabet soup of structured vehicles called CDOs, CMBs or CLO..."
On Credit Rating Agencies
"Why would anyone blindly lend to an opaque structure full of loans or pieces of pools of loans that they didn't underwrite or even evaluate? Because the structures come with credit ratings from Standard & Poor's, Moody's and Fitch."
Read the whole thing here (PDF file).
I've written about EDSA Dos from the point of view of someone who went out to the streets (here and here). It goes without saying that this is not the only perspective. In keeping with fellow blogger Anna's call for remembrance, i am reposting Mike Arroyo's personal account of the backroom conspiracy that took place* (in an interview published in the March 5, 2001 issue of The Philippine Graphic).
"She [Gloria Arroyo] had really left the Cabinet at the right moment: the timing was perfect. If she had tarried a moment longer, she would have been too late for EDSA: she would have made it there as an opportunist. And as for the ill-feeling in Metro Manila, we tackled that by going back to the door-to-door campaign: she went from barangay to barangay explaining her motives, outlining her program. And it worked. Then came the impeachment trial, and from there, tuloy-tuloy na."
"There was a time honestly, when I felt I erred in advising her to resign from the Cabinet. The masa in Manila apparently wanted her to stick it out with Erap. And when she started attacking him, everything fell on us - grabe!- everything! But I told myself: it's now or never; if we lose here we're totally destroyed and it's goodbye to her political career - but if we win here, she becomes President! So we really fought."
"We got all those Erap tapes from Ramon Jacinto and distributed them all over. We bought one million and a half million copies of Pinoy Times to give away so the public could read about the Erap mansions and bank accounts. "
"And when EDSA happened, we texted everybody to go running there. EDSA, EDSA: everybody converge on EDSA! Panalo kung panalo. Patay kung patay! Jinggoy had already announced what they would do to us if they won."
"Chavit Singson had Plan B involving elements of the military to strike the first blow. They would kindle the spark by withdrawing from the government, and one by one others would follow: Class '71 would also withdraw, then Class '72, and so forth. But General de Villa warned that the timing had to be precise because one untimely move against the government and the military would automatically defend it. The move must be made at what De Villa called a 'defining moment."
"You see, General De Villa had his Plan A, which was better than ours, because his was focused on the Chief of Staff and the Service Commanders. At past one o'clock p.m. January 20, Chief of Staff Angelo Reyes defected but we knew that already the night before, when negotiations had lasted until the small hours. By past 2 a.m. we knew Reyes had been convinced to join. His only condition was: 'Show us a million people on EDSA so it will be easier to bring in the service commanders.'"
"And they asked when the crowd was thickest; we told them: from three to five in the afternoon. So they agreed to come to EDSA at around that time. But while hiding in their safehouse, they got reports that General Calimlim could not be located and their first thought was: "He's out looking for us!" So they decided to rush to EDSA right away. When they got there, why there too at the Shrine was Calimlim! He had been looking for them all right, but join to join them, not to arrest them!"
"Our group there was a back-up strike force. In fact, it was our group that won over to our side the PNP first. If Panfilo Lacson had resisted, he and his men would have been repelled: there would have been bloodshed, but not on EDSA. In every place where Erap loyalists had a force, we had a counter-force to face it, with orders to shoot. And not only in Metro Manila. Carillo had already been sent to the provinces; and in Nueva Ecija, for instance, we had Rabosa. This was a fight to the finish. That's why those five days that Erap was demanding were so important. He was counting on counter-coups and baliktaran."
"I was negotiating with Pardo up to three o'clock in the morning: niloloko lang pala kami. But I told him point-blank: "If by six o'clock this morning you haven't given us the resignation letter, we will storm the gates of Malacañang!' But they insisted on more talk: with De Villa up front, and my back channel debate with Pardo, which even became a three-way contest, with Buboy Virata pitching in."
"But the threat to march to Malacañang was for real. And so was the danger of bloodshed. I wasn't telling Gloria everything: I didn't want her alarmed. So she didn't know about the orders to shoot."
Update Jan-20-2008: Remembering the above becomes especially relevant in light of Malacanang's call to "Forget EDSA II".
*Also posted in the blogs of Manilabaywatch, Schumey, Manuel Buencamino, John Marzan and in the column of Ellen Tordesillas.
