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Category: Economics

Published December 14, 2011

Payday Loans and Microfinance

Consider the fuss that people now make about microcredit — small loans, often at interest rates well above 50 per cent a year that are said to help the very poorest families manage their finances and even become entrepreneurs. That’s a story that many people are happy to accept without examining the evidence, while at the same time condemning payday loans, which appear to be a similar product. Are you sure [that’s] not just reflecting a prejudice that credit-starved Bangladeshis are heroic would-be entrepreneurs while credit-starved westerners must be trailer trash?

That’s Tim Harford, in a post on whether payday lending is wrong.

Each fall, when I teach the students in my development seminar about credit rationing, I tell them “If you think credit rationing is a developing-country phenomenon, think again.” I then encourage them to drive up North Roxboro Street north of I-85 to see how the market responds to failures of the credit market in Durham.

Published December 12, 2011

What Grinds My Gears: “Organic Can Feed the World”

In a post over at the Atlantic, Barry Estabrook begins as follows:

Given that current production systems leave nearly one billion people undernourished, the onus should be on the agribusiness industry to prove its model, not the other way around.

Let’s ask ourselves whether organic agriculture can feed the world, shall we? “The way I see it, Barry, this should be a very dynamite show!”

Well Barry, it turns out the agribusiness industry has already proven its model: It has survived the market test for several decades.

If organic is so much better, why is it that the most democratic of all institutions — the market — is not allowing it to win out? Could it be that it’s because organic is more expensive?

(Update: Johanna, a reader, made an excellent point about agricultural subsidies in the comments, which has made me change my mind about the viability of “conventional” agriculture relative to organic if we were to get rid of agricultural subsidies.)

And another thing: the one billion people that go undernourished? Their plight is the result of lack of storage and transportation infrastructures, which both add significant transaction costs to the market price of food and leave many people out of the market altogether, and not because of a lack of food to go around.

Even if we could magically motivate donors to fund storage and transportation infrastructure (because let’s face it Barry, is there anything sexier for donors than to invest in refrigeration technology or roads?) is more expensive food really the answer to chronic undernourishment?

Continue readingWhat Grinds My Gears: “Organic Can Feed the World”
Published December 9, 2011

Chronocentrism in the Social Sciences

A few weeks ago, I discussed the dangers of chronocentrism, which has been defined by British science journalist Tom Standage as “the egotism that one’s own generation is poised on the very cusp of history.” I wrote:

From Fukuyama’s The End of History and the Last Man — “History is directional, and its endpoint is capitalist liberal democracy” — to Rifkin’s The End of Work — “We are entering a new phase in history, one characterized by the steady and inevitable decline of jobs” — to Millenarians, present-biasedness and the belief that the old rules no longer apply seem insuperable for many people.

Nowhere was this clearer than when the world’s population hit seven billion a few weeks ago. Never mind the past 25 million years of human evolution, during which humans always managed to develop technologies to feed themselves. Never mind the fact that famines are man-made and not directly caused by a lack of food to go around. Never mind all that: many commentators saw fit to inform us that the old rules no longer applied, and that we were about to enter an era of starvation and famine.

Chronocentrism in the Social Sciences

Chronocentrism is particularly pernicious in the social sciences in general and in economics in particular.

Indeed, for many, it seems difficult to take a long view of the history of economic thought and admit that, much as we chuckle at some of the research “findings” of a few hundred years ago (Malthus is a particularly good example), researchers 50 years from now will find plenty to criticize about our own work — if they read it at all. Yet how many times do we seem willing to fight tooth and nail to defend research findings?

I get the impression that in the natural sciences, researchers are more aware of this particular manifestation of present-biasedness. In the natural sciences, the understanding that no paper is perfect appears widespread, and researchers seem conscious that their work can be improved.

Perhaps as a result, researchers in the natural sciences cite each other’s work a lot more than economists and other social scientists do.