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.