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The impoverishing effect of doles

THE NEXT PAGEWhen the government first conceived of a dole system during the Arroyo administration, its objectives and amount, real or underlying, were less than a quarter as ambitious as its resurrection under the current dispensation.

Arroyo was a legitimate and an infinitely more skilled economist than those in today’s Executive branch. She understood both the political, as well as the economic impact of a raw dole program as a tool to alleviate poverty and compel modest productivity.

For the former, it was a waste of time and money. Doles do not alleviate poverty. For the latter, it did nothing for productivity, save for a minute increase in consumption. When her then-social welfare secretary proposed such, Arroyo knew enough to calibrate its magnitude and choose the timing of the cash releases for optimal political effects. To an astute politician, doles had a definitive utility.

Arroyo was, after all, the head of the Department of Social Welfare and Development (DSWD). And while she had not instigated a dole program at the DSWD, she readily agreed to a moderated program under her successor.

The partnership between the two—master economist and political operator—made sense from a political perspective.

Arroyo understood how economics could lead to political advantages. Essentially a dole program was that—an economic program on the outside, a political play on the inside. A political lie, if there was one.

Political operators, however, understood crowd mentality and what strings to pull to get the hungry, the despondent and the starving to do as a puppeteer pleased.

Where crowds were needed to show support for programs that many did not even understand, all it needed was the correct kind of doggy biscuit. Doles, gift bags, relief goods, medical clinics—all these were variations of the same theme. The Pavlovian experiment worked on two-legged animals as well as it did on dogs.

Under Benigno Aquino III, the dole program known as a conditional cash transfer (CCT) more than quadrupled and has since been getting exponential appropriations, despite constant criticism that ranged from bungling and operational inefficiencies to insidious corruption and outright squandering of the public’s precious taxes.

Aquino, as is typical, has so far lent a deaf ear. Never mind that the doles have not been productive. And never mind that poverty has continued to worsen in tandem with other economic indices that prove without a doubt that the doles have been a definitive failure.

What happens when CCT allocations increase? A recent Philippine Statistics Authority report showed poverty incidence at 25.8 percent, based on studies conducted in mid-2014. For the same period in 2013, this was 24.6 percent.

Ludicrously, like a cruel joke, officials spun these on their head to justify even more substantial doles for the coming election year. Note that Malacañang now claims additional funds set for 2016 are due to inflation. Check out the Palace’s verbiage.

“If the (CCT) budget is limited…with the example of (a) 5-percent inflation (rate), it decreases the capacity to buy food and primary goods.”

How dumb is that?

CCTs are hard-cash releases into the monetary system direct from government coffers drawn from productive sectors of the economy. As doles, these are not the fruits of the labor or productivity earned by its beneficiaries. Technically these multi-billions increase money supply or what economists count as M1, the most liquid of money-supply components.

By bloating M1, inflationary pressures substantially reduce the value of goods and services relative to the amount of money needed to pay for those. In effect, more money is needed to pay for the same value of goods and services, thus increasing aggregate prices all around.

The CCT, therefore, impoverishes rather than enriches by decreasing the capacity of the poor to “buy food and primary goods.” This explains increasing poverty.

The CCT is that dumb.

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