Hey folks – been on the road the past few weeks so haven’t had a chance to post. But, I did like this nugget from Tyler Cowen on one of the reasons Microcredit works –

If you don’t pay up, your associate has to. The reality is that the person left holding the bag — who knows you well — will come seize your TV set or in some cases the process is a bit less pleasant. Part of the efficiency of microfinance is simply the separation of the lending and the “thug” functions.

I’m a Microcredit fan overall but like Cowen, instead of seeing it as a whole new way of doing business, I see it as an interesting alternative to traditional charity for a very underserved margin. However, even at this margin, many of the old rules of capitalism still apply. So I look forward to the day when Microcredit as well as its borrowers grow up, credit becomes more formal, and hopefully the “thug function” becomes the final reserve of the state.

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The grandaddy of welfare economists, Amartya Sen, chimes in with his view on the causes of the Food Price Kerfuffle in an NYT OpEd. Sen identifies 3 factors behind the global rise in food prices (and no, none of ’em are “Americans need to go on a diet“)

(1) Short term (supply shocks) –

The recent rise in food prices has largely been caused by temporary problems like drought in Australia, Ukraine and elsewhere.

(2) Longer term (new wealth = increased demand; the argument that got dubya in so much trouble with the Indian Press & Politicians) –

The rapid economic expansion in countries like China, India and Vietnam tends to sharply increase the demand for food.

(3) Politics (US Ethanol mandate) –

Misdirected government policy plays a part here, too. In 2005, the United States Congress began to require widespread use of ethanol in motor fuels. This law combined with a subsidy for this use has created a flourishing corn market in the United States, but has also diverted agricultural resources from food to fuel. This makes it even harder for the hungry stomachs to compete.

Sen & I generally agree about these causes but differ on the solutions… probably reflecting our different political proclivities. True to his intellectual roots, Sen tends to recommend intervention on the consumption / demand side (“find effective policies to deal with the consequences of extremely asymmetric expansion of the global economy”). That type of attack could be things like food vouchers for the extremely poor, potentially rations for the rich, and other forms of direct welfare, for ex.

By contrast, I tend to focus on the production / supply side. That’s more stuff like finding ways to replicate Brazil’s food production miracle in other countries and bring down prices via the market so even the extremely poor can afford food.

In either case, it’s a good OpEd and makes a bunch of interesting points (his summation of his Nobel Prize winning theory on the Bengal famine, for ex., is particularly concise and readable).

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Last week’s Economist had an interesting blurb on the disagreements within the Microloan community around Compartamos bank in Mexico –

SINCE CompartamosBanco, a Mexican lender to the poor, went public a year or so ago, a rift has been growing in the booming microfinance industry. To supporters of traditional charitable microfinance–providing loans and other financial services to help lift people out of extreme poverty–the Compartamos initial public offering has come to symbolise an aggressive move by capitalists to profit from the poor. To its backers, on the other hand, the success of Compartamos, despite the recent lacklustre performance of its shares, symbolises how the profit motive can help lift many more people out of poverty than charity alone could ever do.

In an earlier Sepia Mutiny piece, I noted that while nearly all parties heap praise on the specific mechanisms of microcredit, there is some interesting dissonance around the narrative and goals of the system –

While I’m a huge fan of microloans in general, I fear that for many, the lesson drawn is that micro-loans somehow subvert “traditional” capitalism (whatever that may be). It’s a flame that Yunus certainly fans and that many, but clearly not all, boosters latch onto…instead of reenginering capitalism to help the poor, microloans are far more profoundly reengineering charity to help the poor help themselves. Why point out this seemingly semantic difference? It’s about identifying the long term goal and the moral high ground…. Microloans are ideally a new on-ramp helping these individuals participate in the virtues of Global Capitalism (and eventually graduate into traditional banking) rather than some sort of bypass.

And sure enough, the High Priest of Microloans, Mohammed Yunus, is one such critic who seeks the “bypass from capitalism”….

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Earlier this week, one-man blogging machine Amardeep put up a post on the Food Price Kerfluffle asking Why Do Americans Get to Eat More than Indians?

While I agree with Amardeep that there are a couple funny / snarky jabs in the piece, I’ve got pretty much the polar opposite opinion on the situation. So, I figured it would be worth writing up and tossing up my usual, contrarian view in part because it touches on so many of the meta-issues I’ve been writing about here for the past few years.

For example, the first paragraph in his piece highlights the classic Consequentialist vs. Intentionalist divide –

The Source of the World Food Crisis?

On May 2, George W. Bush explained that the current spike in food prices worldwide is primarily a consequence of rising demand from China and India: “when you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up.” The quote was widely seen in the English-language Indian media as “blaming” Chindia for the problem, and was met with outrage.

Bush’s assessment for why food prices are higher is econ centered and consequentialist — more demand, relatively static short run supply = higher prices as an emergent property of a world where millions are making independent decisions. The process is detached, impersonal, and decentralized and perhaps most importantly, true regardless of who this basket of newly richer folks are.

The Indian Media’s (& politician’s) response, however, was dramatically intentionalist. By pointing out this relatively straightforward economic model, Bush was somehow turning the issue into a Morality Play and personally “blaming” the racial other. Same facts, different frame, different narrative. So how does this sort out?

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