Wednesday, April 20, 2011
Today, I was listening to this EconTalk podcast.
It made me feel like I have a better understanding of the world than I did yesterday.
I have been a supporter of Kiva, because it seemed clear to me that an important way to help people lift themselves out of poverty is to make credit available to budding entrepreneurs in places where a financial infrastructure isn't available. But, in this podcast Mike Munger was explaining that aid based on this type of microfinance has not had the great effects that had been hoped for. He explained that rather than creating many productive businesses, the primary benefit of this credit help was to enable a very inefficient form of saving. In many cultures, saving up for purchases and investments is almost impossible. People who begin to accumulate savings are expected to give it away (to spouses, friends, community members who plead that they need it, etc.). The credit that must be paid back is a way for people to make the purchase before the "savings," and have an excuse for why the accumulation cannot be given away.
Saving is so difficult in these places that those who want to do it must accept a negative interest rate!
Thus, it seems that cultural norms, rather than lack of capital, pose the greatest impediment to economic progress for much of the world's population.
While listening to this, I remembered the thesis of Deirdre McCloskey, that it is the change in ideology (respect for bourgeois virtues and liberty), rather than any particular materialistic explanation, that enabled the fantastic progress we've seen in the last two hundred years. Things didn't take off until many people started valuing things like commercial activity, innovation, thrift, and the individual liberty that makes these things possible.
At first I thought that this was a significant factor, but that progress has primarily been the result of the compounding effect of the powerful benefits of trade that had been expanding for many centuries and finally hit a tipping point, in combination with scientific and technological developments that enabled the industrial revolution.
But, now, I think there's more to the McCloskey thesis than I'd thought. Cultural norms and ideology seem central to the difference between the parts of the world that have progressed dramatically, and those that haven't.
Additionally, it really seems to me that many on the left, including president Obama, are still in the clutches of the bad ideology that is keeping much of the world poor, and threatens to make the rest of us much poorer. I think they share those long-held cultural ideas that it's just wrong for some to have wealth while others have much less...that it's proper for the community to claim the earned wealth as its due, and have little respect for private property. They treat wealth as a given and have no idea what makes it possible.
This insight really makes the term "progressive" into a bad joke. "Progressives" embrace the ideology that threatens to destroy the progress that we've made.
Let's not regress. Let's continue to embrace the bourgeois virtues, and help spread these ideas to the rest of the world, so we can all become better off.
Tuesday, April 12, 2011
I'm finally trying to read all the way through Hayek's The Fatal Conceit: The Errors of Socialism (I had begun reading it years ago, but never completed it).
I know that there's some controversy about how much of it was written by Hayek himself, and how much was written by W. W. Bartley III, but however the work was divided I'm finding the book rewarding. There are lots of good ideas in it. I was familiar with the major points already, but not with this particular presentation.
I've just read the chapter entitled "Our Poisoned Language" in which Hayek complains that many of the words (e.g., Liberal, Society, Social, Capitalism) used to describe aspects of the nature of the extended order have been corrupted to the point where it's difficult to communicate about the subject because of the ambiguities and erroneous baggage that these words now convey.
One interesting issue is that of "Capitalism" (which, I didn't know, made its first appearance in 1902). I was under the impression that it was much older and had meant laissez faire economics until recently, but it seems that it's long been tainted with the notion that it's just a mechanism for serving the special interests of the few large holders of capital, rather than the mechanism that enables all people to collaborate and prosper. "Market Economy" is somewhat better but, as Hayek notes, being an economy still connotes that it is designed and driven by particular individual plans, rather than the structure of the collaboration of many different economies in which no individuals could possibly know enough to direct it. Hayek has proposed "catallactics" to replace economics and "catallaxy" to be its object of study. But, that hasn't taken off.
I was thinking about it and it seems to me that maybe something like Market Ecology might work better to describe what we mean (I see from web searches that the term is already in use, and has meanings that are different from what I intend).
The benefit I have in mind is that many on the left already appreciate that natural ecology is not a tool that we should manipulate, but it's a wonderful system of complex processes and feedback mechanisms, most of which we don't understand and shouldn't be so arrogant to think we can easily improve on it by interfering with it. Leave it alone. It works great without a designer or director.
If only they had that much respect for the market system.