Is microfinance the new subprime?

Ryan Hahn asks:

In the case of microfinance, however, it seems to me the problem of limited liability is rearing its ugly head. Poor borrowers generally have little or no collateral, so they usually have little reason to avoid a strategic default.

It is a common myth that microfinance loans have no collateral.  I sooner worry that the process of collateralization is too thorough.  Remember that microfinance loans are made to small groups of five to ten people, typically neighbors.  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.  Banks can lend to high-risk individual borrowers without themselves resorting to the illegal intimidation practices of the village moneylender.  The dynamics of cooperative behavior in the village are not always pretty but overall it works better than the moneylender; if nothing else the person seizing the collateral knows that next time around he or she may be the non-payer.  For more detail, see my Wilson Quarterly article with Karol Boudreaux.

China’s Silver Lining

An hour and a half out of central Beijing, traveling through orchards of apples and pears and still the smog blankets the fields obscuring the view.  Pollution like this I have never seen.

And yet the intensity of the pollution makes me optimistic.  Pollution in China isn’t like the demise of the snail darter or some wispy thing that might take a few weeks off your life if you live long enough.  Pollution here irritates, it chokes and it kills young and old.  Pollution like this people are willing to pay to avoid and as the economy grows the Chinese are willing to pay more and more.  James Fallows, who is living in Beijing, suggests that pollution could be China’s Silver Lining, and ours.  I read the piece before arriving but after being here a while it rings true.

High commodity prices

Guillermo Calvo writes:

Incentives to stockpile commodities stem from the combination of low
central bank interest rates (especially in the US) and the growth in
sovereign wealth funds. The latter, in my view, is the crucial factor.
Sovereign wealth funds have been created partly with the intent of
switching the composition of government wealth from highly liquid but
low-return assets to more risky but much more profitable investment
projects. Thus, their attempt to get rid of excess liquidity resembles
the econ 101 exercise in which the student is asked to trace the
effects of a portfolio switch away from money and into capital.  The answer is – of course – higher prices.

The piece is interesting throughout, hat tip to Mark Thoma.

Atmospheric Disturbances

It may be that friendship is nourished on observation and conversation, but love is born from and nourished on silent interpretation…The beloved expresses a possible world unknown to us…that must be deciphered.

That is Gilles Deleuze and it is the front quotation in the new novel Atmospheric Disturbances, by the very beautiful Rivka Galchen.  The key premise of this novel is that a 51-year-old psychiatrist suddenly believes that his wife has been replaced with an exact look-alike; he refers to her as the Simulacrum.  I read it straight through.  Here is an interview with the author.

Pay For It: Radical Water Privatization for Poor Countries

Here is my piece for Forbes.com on the privatization of residential water supply in the Third World.  Excerpt:

And no, I don’t mean a water
concession with a price regulated by the government, I mean true
laissez faire in water supply. No price regulation, no rate of return
regulation, no government ownership of assets, no political pressure to
keep prices low. Water companies should be allowed to maximize their
profits, and because supplying water is nearly always a monopoly, they
should be allowed to make monopoly profits. I know the idea sounds
crazy–to an economist, water supply is a classic "natural"
monopoly–but on closer inspection the other alternatives might be
worse.

And more:

If complete deregulation
is too radical for you, consider the interesting compromise proposed by
the economist Jeffrey Sachs, currently heading the Earth Institute at Columbia University.
He suggests that the private company be allowed to charge high prices,
but only under the condition that it allocates a minimum amount of
water for everyone, either for free or at a much lower price. Basic
water needs would be met, and the company still might make a profit.

That said, I’m less worried about high prices than Sachs. Let’s say
the new water prices were so high as to capture all the benefits that
buyers would receive from the new supply of water. We can expect much
lower rates of diarrhea and other diseases, if only because the water
supplier can charge more for cleaner and safer water. The resulting
decline in disease means that children will die less frequently and
adults will be healthier and more energetic. Those long-term social
benefits are of enormous help to poor communities, even if high prices
take away many of the initial, upfront benefits of the new water
supply. In other words, we should consider radical privatization
precisely because water is a public good and because clean water is so
important for long-run economic growth.

Read the whole thing.

Podcast of my cultural economics talk

It is here, iffy sound quality (I only tested the beginning) but I believe it is mostly intelligible.  I talk about Facebook, Second Life, Kindle, and many other recent changes in cultural markets.  I make the bold claim — true in my view — that the last five years have seen more changes in "cultural economics" than in any other five-year period in human history.

More Sex is Safer Sex

In More Sex is Safer Sex Steven Landsburg famously argued (based on work by Michael Kremer) that if more people, especially more sexually conservative people, had sex the AIDS epidemic could be reduced.  Landsburg wrote:

Imagine a country where almost all women are monogamous, while all men
demand two female partners per year. Under those circumstances, a few
prostitutes end up servicing all the men. Before long, the prostitutes
are infected; they pass the disease on to the men; the men bring it
home to their monogamous wives. But if each of those monogamous wives
were willing to take on one extramarital partner, the market for
prostitution would die out, and the virus, unable to spread fast enough
to maintain itself, might well die out along with it.

In The Wisdom of Whores (see also my earlier post) Elizabeth Pisani says that such a country exists, it’s Thailand, and the results of more sex was safer sex – exactly as Landsburg argued. Here’s Pisani’s story:

Thailand used to fit the the classic ‘virtuous girls, philandering boys’ model.  At the start of the 1990s, 57 percent of twenty-one-year-old men in Northern Thailand trooped off to the brothel to do their philandering.  More than half the sex workers who soaked up their excess energy were HIV-infected….

Then…the Thai economy boomed.  Girls were getting better educations than ever before…Educated girls were waiting longer before getting married, but not before having sex.  By the end of the 1990s, 45 percent of girls aged 15-21 in northern Thailand admitted to having sex with boyfriends before marriage, compared to less than a tenth of that in a nationwide survey in 1993.

…So at the end of the decade, we have a lot more premarital sex and not all that much condom use with girlfriends.  But now that these young, cash-strapped guys can have sex without paying, they’ve stopped handing over cash for sex.  By the end of the 1990s, only 7 percent of young men were paying for sex, and HIV prevalence in sex workers had come down too.

….In short, more women having premarital sex equals less HIV.

Pisani cites neither Landsburg nor Kremer so I believe her account is independent.  Note that Pisani also credits Thailand’s successful condom program.

Size Matters

Beijing has more modern architecture than perhaps any other city and more of it is going up every day.  Judging by the buildings you would think China is a rich country and it is but China is a rich country composed of poor people.  What China loses in per-capita terms it makes up for in volume.  We are used to thinking of total and per-capita wealth as highly correlated – the EU and the United States being key examples.  We need to rethink some issues such as inequality, power and foreign policy when they are not so correlated.

By the way, the architecture is great but hard to see!  Visibility is limited to 3 or 4 blocks after which everything is a grey haze.  I haven’t seen the sun for days. 

Also, I found a way to access Marginal Revolution using an anonymizer.  This is good since the thought that one billion could not access the wisdom at MR was deeply disturbing.

Who is the greatest modern-day thinker?

Stephen Dubner asks, his readers answer.  I say dead people don’t count and give your answers in the comments.  Can I consider Tim Berners-Lee for my nomination or Marc Andreessen — you used a browser to read this post — or whichever single person is most responsible for Google or search more generally?  I don’t intend any slight to Richard Dawkins or the others but I just don’t see how they stand up to these guys.

Addendum: Arnold Kling nominates Vinton Cerf.

Fly to Japan and ease your environmental conscience

Remember the question about the environmental impact of flying?  Air Genius Gary Leff puts it nicely:

If you’re pulling inventory out of a low fare bucket, the strong
expectation is that there’s little effect at the margin on your buying
the ticket because the airline expects to operate a flight that doesn’t
come close to filling up.

If you’re pulling inventory out of a high fare bucket, for coach
fares at the extreme end if you’re traveling on a Y fare, you can
pretty much expect that the flight will be close to sold out and that
the airline is willing to risk displacing another passenger in the
short term in exchange for your higher fare… or at least that the
ticket cost is high enough to potentially influence behavior on the
part of the airline…

Reality is even a little bit more complicated than that. Cargo has
to come into play, too. Regardless of what you pay and what fare class
you’re booking in, your travel on United between San Francisco and
Nagoya, Japan is going to have almost no effect whatsoever on United’s
decision-making. They’ve got a very large contract with Toyota and they
fill up their 747 with cargo and the flight goes out with very low load
factors yet is still profitable for them to operate.

Getting a frequent flyer seat also means that your environmental impact is likely very small.  I am pleased, of course, that I often have Gary booking my seats for me, all in the interests of a cleaner Earth.  The bottom line is that if you get a good deal on price, you should feel doubly good about it.

At the Beijing Airport

At the Beijing airport as the customs official questions you, you get to rate them – there is an electronic box, hidden from their view, that asks for your rating of service.  Damn, this is better than democracy!  I was "extremely satisfied."

On the other hand, MarginalRevolution is blocked but I can still access Typepad.

Why do we touch our mouths so much?

Seth Roberts asks:

The photo shows the full faces of 22 men; 7 of them are touching
their mouths. I have noticed something similar at many faculty
meetings. I started to notice this after I read about its observation
in a study designed to measure something else.

I’ve known about this for many years but have never read an
explanation. Do we enjoy touching our mouths – or is the absence of
touch for a  long time unpleasant? If so, why?

Here is one poker player’s answer.

The Price of Everything

Here is Ezra Pound’s Usura Canto, here is a link to Russell Roberts’s The Price of Everything: A Parable of Possibility and Prosperity, available for pre-order.  Can you guess which one has the better economics?  In fact Russ’s book is the best attempt to teach economics through fiction that the world has seen to date.

Here is Russ’s summary of the book.  Here is Arnold Kling on the book.