Inflation and Juan dela Cruz

By Jay Valleser

BURIED in one inside page of the Gold Star Daily (Feb. 24 issue) was the news of how inflation has gone up to 4.2%. Inflation has been pegged for several decades now at 4% (since 1982). Simply, this means that the cost of anything you bought in 1982  has increased 4% multiplied by 32 (number of years since 1982).

But it seems this is not so. Say, the price of a 50 kilo-bag of rice was P100 in 1982, it would have cost P104 in 1983. The P104 would have increased to P108.16 with another 4% added the following year. If we take the total of 32 years, a bag of rice would have cost only about P1,400 today or about P28 per kilo. Everyone knows there is no such thing as rice at P28 per kilo.

It was the Keynesian Economics that President Diosdado Macapagal adopted when he became President who  taught us that a 4% annual inflation rate is not bad. He had a Ph.D. in Economics and so it was easy for us to believe him. By adopting the Keynesian economic theory we also changed the measure of growth in our economy from Gross National Product or GNP to Gross Domestic Product or GDP.

It is also from the Keynesian economic theory that we learned what is proving to be bad for most Filipinos who have bad spending habits. It is taught in Keynesian theory that cash on hand is not that important. This is the reason why American economy runs on plastic money called the credit card.

We are taught that we can actually spend today the money we hope to earn in the future by going into credit without waiting for the money to become cash. With a 4% annual inflation rate that Keynesians say is healthy, we have what appears to be a growing economy. This is because we use the GDP as a measure of our economy.

The GNP or Gross National Product is the sum total of all economic activities and earnings of all foreigners and Filipinos in the Philippines (within). GDP or Gross Domestic Product only considers economic activities and earnings of all Filipinos, here and abroad (foreigners not included).

When GNP was used as an economic measure, the Philippines had the second most robust economy in Asia. Japan was first. Filipinos and foreigners were accumulating huge earnings within our country from industries such as logging and mining. Sadly, these industries are gone.

So our brilliant economic leaders thought that we can still say we have economically grown by throwing the GNP to the dustbin and putting on the pedestal the GDP. Let me illustrate. With GNP, it was despicable for Filipinos to  leave the country to work abroad. It was called a “brain drain.”  We hated other countries for recruiting Filipinos to work in their own economies. The earnings of Filipinos abroad were not counted as part of our economy.

Today, we pursue degree courses with best potentials of getting jobs abroad. We encourage Filipinos to leave our country to work abroad  where they can earn foreign currencies. What they earn abroad and sent back to the Philippines is the engine that drives our economy. Now, we call them “bagong bayani”!

If we use the GNP as our economic measure of growth, we would have a negative growth over the years. But with GDP and the money coming in to our country from abroad, our leaders can boast that we are growing and better.

In an issue of Philippine Star last week, President Aquino boasted that we have registered the highest growth in Asia at 7%. If we subtract the 4% inflation rate, we still register a net of 3% growth rate. What the President did not tell us is the money coming in from Filipino workers abroad is the one that actually grew by 7% and does not count into our gross national product.

That is why it is better to invite foreign capital to come into our country and participate in our economic activities––and from where Filipinos abroad earned and then they could spend their earnings here. But it is not easy to locate investments here. Foreigners are not allowed to operate mining and logging companies. No one ventures into agriculture because of Carp laws. If you go into manufacturing, investors  face a 100% producers’ tax.

The next best thing to do is amend our Constitution and laws. But that would be another story.

E-mail: tabletalkgsd@yahoo.com