Monday, June 30, 2008

The Ethics of Greed

The Economist reports this week that CompartamosBanco, a Mexican bank, is making a killing in micro finance. Trail blazed by Nobel Peace Prize winners Muhammad Yunus and his Grameen Bank, micro credit loans very small amounts (a few hundred dollars) to entrepreneurs in developing countries. Usually done by nonprofits, CompartamosBanco is a notable exception.

Lending to those in developing countries is expensive because the social, legal, and physical infrastructure is so lacking. The Mexican bank spends about a $152 a year per client. No wonder its interest rates run 79%--usury to most developed countries. But the customers gladly accept the rate. CompartamosBanco has nearly one million borrowers--a far cry from Grameen Bank's seven million but impressive nonetheless.

CompartamosBanco's success encourages new entrants risking their own money (seven new competitors in Mexico alone) while Grameen continues to rely on subsidies and donations. As the economy of scales takes into effect, interest rates fall (seven years ago it used to be 115%) and yet more people rise out of poverty. Not only is this yet another example of how profit seeking helps us all, it reminds us of one of the strange lessons of economics: the only way to get low prices is to allow people to charge high ones.

Thursday, June 19, 2008

In Praise of Spectators

Diane Rehm agreed with a caller today that speculators are to blame for rising oil prices. Her guests (J. Robinson West, Athan Manuel, Stephen Power, Chris Oynes) offered no serious dissent and often repeated the concerns that these investors are acting irrationally, irresponsibly, and at the expense of the people.

Yet we should celebrate their acts. By pushing oil up now rather than later, we sooner get an accurate price meaning we sooner get adaptation to that price. As everyone on today's show recognized it takes a long time to move oil from the ground to the pump. Without spectators oil would move up slowly and sometimes dip down, making investments in production far less likely.

It is the job of an investor to gather all the information from all over the world (including places you wouldn't expect) and come up with an unbiased prediction. It's how they earn their livelihoods. That doesn't mean they never panic or are subject to emotions. We're all human after all. But their irrationality is much more rare than the uninformed panic of the voting public.

Monday, June 16, 2008

Pillsbury ND: Where the Marginal Vote Matters

Pillsbury North Dakota is a small town. So small that in a recent election for mayor no one voted, not even the candidates. Here is a case where voting definitely would have changed the election, although it might not have changed the outcome of the town rule:
The council meets about five times a year, Brudevold said. Members are each paid $48 annually, and a good portion of that goes for doughnuts at the meetings or gas to get there, he said.

Friday, June 13, 2008

Pachelbel For the Modern Rocker

Art Carden wonders if this is art. I bet it is, but I ultimately don't care. It rocks.

Welcome To the Jungle

Paul Krugman argues America's food quality is what it was a century in the time of Upton Sinclair's The Jungle. A lax FDA (and its industry cohorts) is to blame for the recent "tainted spinach, poisonous peanut butter and, currently, the attack of the killer tomatoes."

Economics is a strange discipline because it really just requires people to take lessons they follow in their everyday life and apply them consistently. The lesson here is that we don't want zero risk when it comes to food. Do you boil every glass of water that comes your way? Demand tests on meat that you get in a restaurant? Grow your own food? Avoid eating at authentic restaurants abroad? Failure to do these things puts us at risk but we gladly accept it. Avoiding that risk is too costly: zero risk is not optimal.

Ensuring consistency does a lot for a good argument. Krugman scoffs at the free-market argument against the FDA--that "private companies would avoid taking risks with public health to safeguard their reputations and to avoid damaging class-action lawsuits." And yet he warns that a lack of regulation for ensuring solid food safety is not "just bad for consumers, it’s bad for business." So firms won't ensure safety on their own because they are too greedy but if the food quality is poor then it's bad for business? I bet he doesn't take a UV light to restaurants, either.

Thursday, June 05, 2008

People Are Not Passive

Are there limits to growth? That's what people tell me while citing higher food prices, a planet of 6.7 billion, and cities often exceeding ten million. "There are too many people," they say. What nonsense.

Eleven years ago, Nobel Prize winner Norman Borlaug wrote that with current technology we could feed 10 billion people (a population we're not going to reach until around 2050). With 21st century technology we can surely feed more. Alex Tabarrok reminds us that US land use for crops has been steady from the late 1930s to the late 1980s, a trend likely continuing right now.

Whenever people make note of the resource usage of developed countries or the "carrying capacity" of the planet, they always ignore that people are not passive. We are not infants, sucking thoughtlessly away at the tit of the world. We create more than we consume. Our inventions exceed our immolations (at least in today's world). For every mouth to feed there is a mind to think, hands to work, and feet to move. We cherish our lives, our wealth, and our hope for a better future and we will lash out with every appendage to maintain our true and steady course.

Are there limits to growth? Probably, but we're not going to encounter then in our lifetime. Or even in our grandchildren's grandchildren's lifetime. History is replete with doomsayers and prophecies of cataclysm. And as seductive as their wild-eyed claims are, as invincible as they seem, they're always wrong. Never forget that.

Tuesday, June 03, 2008

When To Recycle and When To Not

There are four plastic bags near the front door of my parents' house each stuffed with a few weeks worth of newspaper bags. This is my mom's latest attempt to save the world. In her infinite foresight she's gathering these bags to "keep them out of the landfill." She plans to send them back to the newspaper company so they can reuse them. I somehow doubt they will.

Plastic bags are tremendously cheap, evidence in that are giving them away to customers. They still cost the company something but I doubt it'll be worth sorting through the bags to reuse them. Recycling's expensive and often not worth the time and effort. Though in some cases, like recycling cans, it is. People are willing to pay for the savings it brings. Note soda cans are one of the few places you are paid to recycle.

Recycling reduces space used in a landfill but so what? Is landfill space really so scarce that this is worth it? If it is, why aren't we charged per bag or per pound thrown out? Part of this is due to the city-run industry but the a bigger factor is that landfills aren't hurting for space, particularly out here in Iowa.

If you're not being charged to throw it out and if no one's willing to compensate you for your time it's not worth recycling. See a past post on this subject here.