Whither Aquinomics? Or Why Habito Got it Wrong

The self-proclaimed professor of Aquinomics, Cielito Habito, in his column yesterday sought to foreshadow today’s announcement of second quarter GDP figures for 2011. Unfortunately for him, it turned out to be what kids nowadays like to call an “epic fail”. Here’s why.

Citing elements of his pitik theory, Habito sought to herald the triumph of Aquinomics. Pitik stands for presyo (prices), trabaho (jobs) and kita (income). It also is a Filipino term for flick which is an entirely appropriate way to describe his analysis as I am about to point out below.

At any rate, Habito given the NEDA’s own projections for a 5% growth in Q2 was confident in declaring Aquinomics (the term he coined to describe the Aquino administration’s conduct of austerity measures in government spending by stealth in order to “crowd in” private investments) a success. He writes

On balance, then, we can say it’s so far, so good for ‘Aquinomics’— and that is probably an understatement.

How could he have made this claim without waiting for the official statistics? He justifies this by saying

(E)ven without the official growth figure, one can already make an updated assessment of the state of the economy based on other data that have already been recently reported. Growth in output, after all, is just one yardstick among many. And for many, it is a highly inadequate measure, especially if one is interested in the state of well-being of the people making up the economy.

That may be so, but it is useful to compare quarterly and yearly figures to see how one period stacks up against another and to qualify that around however many limitations one would like to cite about the measurement itself.

Especially in light of today’s report by the NSCB of a weaker than expected 3.4% growth in the second quarter (Sec Gen Virola rightly called it a deceleration), Habito’s exuberance is unmasked. He gave less weight to pronouncements by trade officials signaling a retreat in exports and by extension a slowing of the economy overall as I had noted here last week when I said that the government was “lowering expectations” in anticipation of today’s announcement.

Certainly, Habito’s triumphalism regarding Aquinomics now seems misplaced in light of these figures. How could he have gotten it so wrong? Well, firstly he cites the movement of prices as indicative of a relatively benign environment as far as inflation is concerned. He states

(t)he latest reported annual inflation rate is 4.3 percent, slightly higher than the 3.9 percent last year, but actually slower than in some of our more dynamic neighbors of late. The good news is that food price increases have been slower than overall, suggesting that inflation is not hitting the poor (for whom food is the dominant part of their budget) as hard as the rest.

The first sentence should have set off alarm bells. Inflation rose from last year when the economy was going gangbusters because of election-related spending. Normally an overheating economy nearing the peak of its capacity ought to result in higher inflation. Why would inflation be higher when growth is weaker?

Also, the fact that our more dynamic neighbors have higher inflation is of no consequence given that they presumably are nearing peak capacity in terms of their workforce unlike the Philippines. Lastly, I don’t know why the poor should take comfort in food having slower than overall inflation if the level of inflation overall is higher than last year’s. So not only are they to put up with less growth, they have to deal with higher prices?! The logic just doesn’t add up.

Secondly, Habito cites the jobs figures for April 2011. He presumably took these from the Bureau of Labor and Employment Statistics. He says

The latest official jobs data show that over 1.4 million net new jobs were generated in the year between April 2010 and April 2011, well exceeding the average of one million new workers who join the labor force yearly. As a result, the unemployment rate fell to 7.2 percent from last year’s 8.0 percent, which is a substantial drop. Even better news is that agriculture saw a net gain of 645,000 jobs, indicating improved welfare (and likely reduced poverty) in the rural areas, where the jobs are needed most given our high levels of rural poverty. Services and industry generated 632,000 and 132,000 new jobs respectively, suggesting that improvements have been felt across the board.

Ok, let’s break these figures down. The fact that employment grew by 1.4 million in the year to April compared to 974 thousand overall in the previous year is definitely a positive development. But before we celebrate this as an unqualified success, it might be worth examining where the growth occurred.

The biggest growth of 645,000 net new jobs was in agriculture compared with a decline of 87,000 jobs on average from 2009 to 2010. The growth of 632,000 net new jobs in services in the year ending April 2011 compares unfavorably with an increase of 757,000 in the previous year. The growth of 132,000 net new jobs in industry in the year ending April 2011 compares with an increase of 306,000 in the previous year.

In other words, the growth of jobs in the more productive industry and services sectors declined by 299,000 this year compared to last year. We created fewer new jobs here, but made up for it in agriculture which benefited from favorable weather patterns in the first semester of the year.

All that this means is that structurally, our workforce shifted to the less productive agricultural sector away from areas where wages are better. Now it may be that this was just a correction from previous years when drought occurred, but still it would have been better if the industrial sectors expanded to provide a floor for wages in the agricultural sector.

Thirdly, on the third element of Habito’s ‘Pitik’, kita or incomes, Habito stated

(a)s for the output/income yardstick, we will know the official data tomorrow. But the above jobs data are already suggestive of what to expect. One can be reasonably confident that more jobs are indicative of more production.

Again, another major (dare I say major, major?) boo-boo committed here. Industry actually contracted by 0.6 percent and it accounts for 32% of GDP compared to agriculture which grew by 7.1% but accounts for about 10.5%. This means that their combined growth was only one and a half percent! Luckily, the services sector rose by 5% which is why we ended up with a 3.4% growth figure.

The coup de grace to Habito’s paean to Aquinomics was delivered by the NSCB statement released today which made the following conclusion

(w)ith projected population reaching 95.6 million, per capita GDP grew by 1.5 percent but per capita GNI stood still…

Stated differently, with a population growth rate of 1.9%, our GDP growth of 3.4% translates to a per capita growth of a mere 1.5%. When you factor in compensation and property income from abroad, that per capita growth in income goes down to ZERO! In other words, our economy grew enough to keep Juan de la Cruz none the better from his position last year (with the effects of inflation and population growth factored in).

No wonder our economic managers had all but consigned the first half of the year to the “don’t go there” pile (Habito apparently didn’t get the memo) and switched instead to looking ahead to better prospects in the second half, as I had earlier pointed out.

If one looks at the GDP figures by expenditure, it becomes evident that the capital formation that Habito had celebrated in the first quarter seems to have mellowed down registering a minuscule growth of 0.9 per cent (within the statistical margin of error, meaning it was flat compared to last year).

Government expenditure grew by 4.5% making up for the contraction in the first quarter of this year (where is the argument against “crowding out” now?). Household consumption grew by a healthy 5.4%. Meanwhile, exports declined by 0.3 per cent even as imports grew by 4.1% (that’s a good thing since imports are a precursor to increased production activity in the next quarter, given that our export production is import-dependent, and the reason why trade officials seemed optimistic about the second half).

So, whither Aquinomics? I think, perhaps…back to the drawing board, or as Habito suggests, just give it the flick!

Some related articles:

  1. Back to the Future with Aquinomics 101
  2. The Surplus Fetish
  3. Lies, Damned Lies and Statistics: Or why De Quiros is a bit of a crank

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.


  • I realize that a few egos may have been bruised by recent events. To add salt to their wounds was possibly unnecessary albeit irresistible at the time. But for those who fault the use of such flowery words as “major boo-boo”, I would suggest that they concentrate on the larger point which is…

    You wouldn’t consult a doctor who pronounced you fit and gave a clean bill of health to you without waiting for the final result of tests, would you? But that is exactly what Messr Habito did. He gave the seal of good housekeeping to the government’s stewardship of the economy without awaiting GDP figures. It was unnecessary to wait for it, he said, although his Pitik analysis on which he based this claim seemed to have a few holes in it.

    For delivering that message, I was given ZERO credibility. I get it. Kill the messenger! Or label him, “the enemy” or “the opposition”. Instead of addressing the substance of the message, let us look at the “tone” of it. OR at the very least, let’s make it a case of your views not “jibing” with his views, even though there is solid evidence which indicates the correct view.

    But, this is all consistent with what I would call a faith-based pseudo scientific way of thinking in that when the world does not conform to your model, it is the world that is wrong, not the model. Aquinomics was right regardless of the outcome. Evidence based policy? What’s that?

    My point is that the elements of this so-called theory were not the explicit policy of PNoy’s govt to begin with. There was a way to pursue transparent, accountable, good governance without hampering or delaying the roll-out of budgeted and approved appropriations. Having a reasonable regime of both pre- and post-disbursement auditing and evaluation would have done that. No need to point any fingers now. Simply learn from your past mistakes and avoid repeating them in the future. To do that though, one has to be “teachable” and willing to admit mistakes.

    • GabbyD

      ” OR at the very least, let’s make it a case of your views not “jibing” with his views, even though there is solid evidence which indicates the correct view.”

      at this point, this corresponds to my own position. its not clear he is wrong, or you are wrong. indeed, you are talking past each other.

      he is interested in employment — where ever it comes from.

      you are interested in the type of employment — something he doesnt have anything to say about.

      you two arent talking about the same things. so the mocking tone is truly strange.

    • I’d invite anyone to read Solita Monsod’s column today on this (there’s a link cited below by J_AG) and see what sort of tone she uses there. It goes beyond just mockery. She said that economic managers and analysts sabotaged the economy by ignoring the ample evidence that pointed to a deceleration (the Leading Economic Indicators (LEI) that both NEDA and the NSCB have agreed on). They could have changed course much sooner, but they didn’t.

      She can afford not to mince words (calling a spade a spade) and to take a tougher tone than me because she’s been there, done that. I can only take pot shots from the sidelines. Her remarks were down-right damning of the government and by extension those who should know better than to devise some Mickey Mouse formula like pitik in lieu of a more solid system like the LEI.

      As I said though, it’s not worth pointing fingers now. Better to take a more reasonable approach. No one can predict where and when corruption will take place. No one can create a full proof system. We are simply fooling ourselves if we think we can. What’s required is a reasonable level of protection to catch malfeasance either before it happens or after.

      As Monsod suggests there is a space somewhere in between the extremes of letting the plunderers have a field day and allowing economic saboteurs to undermine the economy: a middle path which we need to tread.

  • uP NnnN grRd

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  • uP nNN grRd

    To be nmocking is foul because it hits the amor-propio.

    And one has to consider that Hsabito was writing, not as an economist, but as a media person and Habito was “peddling a message”.

    • So we shouldn’t mock peddlers dressed in academic garb? Propagandists who couch their bias in technical jargon and pass it off as objective analysis?

      • Bert

        Ah, Doy, if our own analysis does not jibe with another person we should mock him and call him peddler and propagandist specially if we think we are more academic and properly dressed in academic garb, is that it?

      • Well, it’s not just my view that disagreed with his analysis, it was actually and more importantly reality. So who does more damage, the person who lulls you into complacency or the person who tries to shake you out of the trance you are in!

        For goodness sake, the results are in. Don’t judge us by our creative use of language (all I said was major boo-boo for heaven’s sake), but by how accurate our respective forecasts were. I mean if it’s not just our reputations at stake. In the case of these senior experts, it could be the fate of PNoy’s presidency.

        • Bert

          You mean, Doy, we who have trust in what this government is doing we are lulling the president into complacency and that therefore the president should trust his fate instead to the hands and analysis of the opposition, is that it? And that’s because you think the present dispensation was doing pretty badly so should listen instead, and do, what the opposition is saying, is that it?

          • uP nNNN GrD

            Bert…. what is the opposition saying that PresiNoynoy should do?

            Other than postponing farm-to-market roads and elementary- and secondary school construction, I have this feeling that PresiNoynoy is in fact comporting to over 70% of the practices of those who believe that Noyi-noy was the lesser-qualified to be president (including being friendly and accomodating to — what else — BFF’s).

  • J_ag

    Like I had earlier posted…Watch the trend in income flows from abroad. When this flow slow down the entire economy will slow..

    Mother nature has been kind to the agricultural sector and it responded with the pro active policies of the DA for the last few years.

    The immovable force that looks to be the Republican party in the U.S. and the German government will all but guarantee sluggish growth in the world economy.

    The Financial Crisis Part 2 may soon break out in the Euro zone and spread all over the world. YTM on short term Greek paper is now at 60%.

    Real Growth rate in the U.S. of only 1% in 2012 will guarantee a new President by 2013.

    Can the Chinese save us?

    The inclusive or shared growth mantra of PNoy will come crashing down with his “daan matuwid” economic policy.

    We simply do not have the capacities to absorb all the grandiose plans to become an emerging market power in the next five years.

    • Your views regarding the resilience of the US economy after the downgrade now seem to be tempered by recent events, J_AG. I recall being disparaged for suggesting earlier that a full-blown economic storm was headed our way.

      Now that it truly threatens to engulf us, we shouldn’t catastrophize the situation with words like “crashing down”. Just as I have written before, a crisis can be seen as an opportunity for the government to enact reforms. A crisis is a terrible thing to waste!

      I just hope that those who disparaged my forecast earlier this year take a more open minded view regarding the policy prescriptions I gave in response to unfolding events which have more or less conformed to these projections.

      • J_ag

        Once again your verbiage of engulfing us and terms like a perfect storm are completely far from being the reality.

        The problem with the West is one of policy paralysis driven by politics. Obama is paralyzed by his delusions and a Republican party that smells blood and Merkel is hemmed in by the reluctance of her party and most political parties in Germany against any attempt to move towards any type of fiscal union… (Transfer payments)

        http://jaredbernsteinblog.com/the-recovery-act-worked-in-a-few-easy-charts/

        FYI bond holders of Greece debt are already getting together for a 20% haircut in exchange for new debts that will be rolled over but will be governed by European laws and not LAWS IN Greece. The problem remains to be that it may be too late in the day… The Debt to GDP ratio is worsening since the EU has been dithering on the proper policy. Check out the way both monetary policy and fiscal policy reversed the downturn in just a few months. However they saved the banks and $300 billion for 2009 and $300 B for 2010 were obviously not enough of a fiscal stimulus. Now politics have stopped any more stimulus.

        The Philippine economy is about a point to a point and a half from its normal trend… PNoy’s government is not spending..

        The daan matuwid is gonna crash down (not the economy) as next year the government will have to open the spigots regardless of whether the capacities for oversight are in place or not…

        No my friend there will be no crash of the economy… Pragmatism will prevail in handing out contracts… Elections are coming…

        • “Obama is paralyzed by his delusions . . .”

          Best line I’ve read in a long time, even though I’m an Obama fan. That cast of characters lined up on the Republican side is a bunch of nuts missing only the fruitcake.

          Your last paragraph is well put. What would you say your economic leaning is, “realist”, “Freudian” or what?

          • J_ag

            Joe A. I honestly tend to be swing between being pragmatic realist and or what.

            My reality though on economics is more political economy as stand alone economic belief systems are inherently dangerous.

            Right now the economic moralists who believe in austerity rather than on solving the complex problems that technological advances have on differing human societies may lead us all to global hell.

        • Don’t be too sure that “Daang Matuwid” aka Aquinomics will crash. There seem to be quite a few hardliners around here who refuse to face up to reality and to the lessons of the first half of this year.

          • J_ag

            Yup you are right but the “daan matuwid” is responsible for cutting back on infra spending not only during the last quarter but for the last three quarters before it.

            I grant you that the man is good intentioned but these intentions alone also tend to bring us to hell..

            We are not a Singapore or HK with a single political authority. Just look at the number of LGU’s, congressman and hardened constituencies in these areas combined with the hardened constituencies in national government agencies that have been feeding off the system for generations.

            You cannot simply stop feeding the system of funds to be able to clean it up… These guys know they can get away with murder…

            The system of laws & rules in this country is broken…

            The top alone cannot reform the system.. It takes citizens to step in but under present circumstances a large percentage of people feed off the system.

            http://opinion.inquirer.net/11201/caught-between-plunderers-and-saboteurs

            “Bottom line: Instead of trying to mitigate the expected slowdown, our government economic managers exacerbated it. Per the national accounts, public construction expenditures decreased by 51 percent in the second quarter of 2011. And this pulled down the country’s GDP growth rate by 1.4 percentage points. The GDP would have expanded by 4.8 percent, rather than 3.4 percent, that it is.”

            “Their defense? That it was all part of good governance. They wanted to make sure that there was no graft and corruption.

            “I accept that. But surely it should take only six months for the reforms to be instituted? Public construction contracted by 23 percent in the third quarter of 2010 and 14 percent in the fourth quarter. Okay, that’s the price for trying to tighten procedures. But decreasing by 38 percent in the first quarter of 2011? And 51 percent in the second quarter?”

            “Prevent plunder? Maybe. But there is economic sabotage in the process. What a choice Filipinos are faced with: between ill-intentioned plunderers and well-intentioned saboteurs.”

  • GabbyD


    Again, another major (dare I say major, major?) boo-boo committed here. Industry actually contracted by 0.6 percent and it accounts for 32% of GDP compared to agriculture which grew by 7.1% but accounts for about 10.5%. This means that their combined growth was only one and a half percent! Luckily, the services sector rose by 5% which is why we ended up with a 3.4% growth figure.”

    i dont understand your mocking tone. one thing thats puzzling is “luckily, the services…” as if discounting services growth? why?

    actually, i dont get your mocking tone in general. in a down world economy, there is both good and bad news.

    i dont care that you choose to look at the bad. but why disparage the good? it makes ZERO SENSE to me.

    • GabbyD, when I was predicting the deceleration, I was mocked then for being too pessimistic. Where was your indignation then? Habito’s mistake I believe was proceeding from the conclusion that he wanted and seeking any evidence to support it while disregarding any evidence to the contrary. That is what cognitive scientists call a Confirmation Bias.

      Now that reality has jarred many into the realization that things were not as rosy, their hypersensitivity to criticism has become evident. Read the rest of the column, and you will find that I tend to agree with trade officials that there is relief coming in the second semester of the year. The unbridled optimism and unwavering belief bordering on ideology with respect to the approach in the early part of the year (Aquinomics) was what led us here. That view is worth mocking in my view.

      While I was calling for a more realistic approach, then, I am not catastrophizing the current turn of events. I warned that this would happen and got criticisms heaped on me. Now that what I warned has happened (including the uncertain global economic environment), I have been forthcoming with advice on how to take advantage of the remainder of the year, since next year, the effects of events in Europe and the US will start to reach our shores. There is a limited window here. No time for pointing fingers or seeking scapegoats.

      • manuelbuencamino

        Aquinomics is about spending public funds wisely, making sure that economic growth is not limited to a few pockets.

        There was a slowdown in public expenditure hence economic growth because housecleaning had to be attended to first.

        Now the administration can start spending taxes. And hopefully, the economic growth that you expect to happen as a result of public expenditure will prove true.

        If despite increased spending economic growth does not happen as fast as one expects, then I guess you will find something else to shake your stick at.

        In the meantime, the country moves forward.

        • Habito did a huge disservice to PNoy by coining the term “Aquinomics”. Was it the government’s intention to contract public investment in the first half? Or was it an unintended consequence of pursuing “Daang Matuwid”. Methinks the latter, since the budget papers were the government’s statement of intent and they didn’t reflect a contraction (a slowdown in non-debt related spending perhaps but not a contraction).

          The fact that housecleaning by line agencies led to project delays was unintentional. The fact that they are now trying to catch-up in the second semester proves that it was never their intention to engage in austerity measures.

          Habito used a specific (monetarist, Reagan-era, supply-side economic) lens to interpret what was going on and punted on its success. What occurred in the first half was never meant to be an explicit policy by this government though. That is why we need to give the term Aquinomics the flick.

          • manuelbuencamino

            Got it. Your advocacy of “moderate the Daang Matuwid” reminded me of Neri’s “moderate the greed” philosophy.

          • You can pursue your righteous path without moderation. But first makes sure that there are no unintended consequences which might hamper your agenda for reform in the long run. There is more than one way to skin a cat.

            Please don’t lump me together with the Neri’s of the world. I share in your dream for an honest government, but I think you fail to apprehend the fact that there are real lessons to be learnt here.

            Just when I thought, this past week provided a “teachable moment” for this administration…

          • justwondering

            GMA was perceived to be on a righteous path when ERAP got a boot due to allegations of corruption.. and GMA proceeded to enforce her policies and economics without moderation, including, but not limited to public infra spending.. most of which ended up smelling like a rotten fish to the core by the current daang matuwid government.

            how are reforms achieved if one cannot consider that at some point during the process, unintented consequences happen? is it enough to stop the process because the effect was slowing down the economic growth? does the reform initiated have a short or a long run effect? how does one make an accurate evaluation of the timeline of the unintended consequences?

            oh well, when one is asked what is a fruit, which is a better answer? a fruit is like apple? or a fruit is like an orange? hahaha so what is the exact science in interpreting economic data vis-a-vis policy reforms?

      • GabbyD

        who was mocking you? when someone is mocking you for trying to analyze something inherently difficult to analyze, its their problem, not yours. clearly, they are the dumb ones.

        also, from what i’m reading, you got somethings right, and he got it right. does that mixed bag really deserve a mocking tone?

        • DoySantosSucks

          Mukhang kulang sa pansin lang yata si Doy.

          • uP nNnN GrrD

            that’s cute!!!!

            Baka sa 2014, ang iyong nom-de-guerre : GMA-TalsikDiyan-Noynoy-Pareho-Din

          • Thanks for proving my point!

            I’ve been called OA (over-acting) for citing leading indicators of a souring economy. Now that what I predicted came true, I’m being called KSP (kulang sa pansin)!

            Let’s use a mocking nom de guierre while we’re at it! Charming!