Renters would seem to be a natural constituency of the Labour Party in the UK. Why doesn’t Labour relax rules that limit construction, rules that primarily benefit owners? More or less, I conjecture the answer is that a huge share of rental housing is government-owned “social housing.” Despite substantial recent privatization of social housing, 18% percent of the UK population continues to live in these units, while only 12% of the population lives in private rental housing. I tend to support policies that promote universal access to affordable housing, but supporting growth of the private rental sector should be part of this strategy. Right now Labour captures renters’ votes by bolstering social housing instead.
Archive for the ‘Economics’ Category
The Political Economy of Housing in the UK
Sunday, October 7th, 2007Charity and Intermediation
Tuesday, October 2nd, 2007Kiva.org is a fascinating organization: it allows individual members of the public to provide credit to microenterprises of their choice around the world. (Disclosure: My wife and I received a gift of a $200 Kiva credit, which we lent out.) The candidate microenterprises are listed by local microfinance institutions (MFI’s) that are Kiva partners. The local MFI’s actually receive the funds, disburse the loan, and collect repayments. Kiva loans earn no interest for the lender but do entail risk: the individuals who chose to lend to a given microentrepreneur don’t receive their money back if that microentrepreneur defaults.
Kiva has many characteristics of a charity. Resources are transferred to needy individuals in developing countries. Lenders are motivated by the prospect of using their resources to do good. Lenders accept the possibility of defaults, and accept that they will earn no interest on their loans.
In addition, Kiva has characteristics of a financial intermediary, like a bank. Most banks, however, pool the deposits they receive and then make loans out of that common pool of funds. In fact, this is what is typically meant by the term “financial intermediation”: by undertaking this pooling, an institution mediates between borrowers and lenders, and shares default risks among all of the people who lend to it.
Standard economic models would imply that Kiva is inefficient: lenders via Kiva could, it seems, have their risks pooled. Since Kiva does not do this, the lenders must be compensated for the risk they continue to bear, driving down the amount they’re willing to lend and driving up the interest rate they require as compensation.
Despite these indications of inefficiency, I see two reasons the current arrangement might not be completely baffling. First, when I was in Gujarat in April, I met a Kiva representative who said that Indian financial sector regulations– which substantially circumscribe opportunities for foreign entities to operate in India– effectively kept Kiva out, too. I suspect that a variety of other regulations also act as constraints. Presumably under the current structure Kiva is not considered a US depository institution, for example, avoiding tomes of requirements.
Second, it could be the case that individual lenders enjoy the connection to individual borrowers; and/or that individual borrowers are more intrinsically motivated to work hard at their enterprises, in order to repay, when they know individual lenders have placed faith in them. This reason would be more fundamental to the Kiva approach; to the extent financial sector rules liberalize (or, perhaps, differ across country borders) and allow intermediated microlending from Western creditors to LDC borrowers, we may learn whether the intrinsic aspects are operative.
All in all, I’m not concerned about Kiva’s strategy: It’s much more important to give LDC borrowers access to world capital markets in any form than it is to protect developed-country lenders from risk. That said, it would make more sense if mainstream Western financial institutions could provide debt or equity to Kiva, diversifying lenders’ portfolios.
Culture, Selection, and Gender Differences
Tuesday, August 21st, 2007Roy Baumeister’s talk at the American Psychological Association’s annual meeting provocatively argues the following. Historically, cultures that have matched men’s higher variance in reproductive outcomes with higher-variance occupations for men have been more likely to succeed.
The article is loosely argued, poorly referenced,… and probably, in its central claims, with more than a grain of truth. It certainly has no shortage of interesting fact and anecdote. Three observations:
- Heterogeneity among men and among women may be at least as large as the differences between the genders. To the extent that’s true, it remains a puzzle why cultures would have so sharply delineated gender roles.
- One clear implication of Baumeister’s theory is that strong cultural advocacy of lifelong monogamy– which promotes gender equality in reproductive outcomes– ought to be paired with cultural advocacy of occupational equality.
- Things have changed. In the last century or so, particularly in the West, women have had historic achievements in every sphere. Baumeister doesn’t attempt to explain why.
Iraqi Sweat
Sunday, August 19th, 2007Current thinking in development policy is that recipients of aid– countries, communities, organizations, and individuals– should make direct contributions to the supported projects. One term for the idea is “participatory development” (c.f. the Participatory Development Forum), and there are many examples (among which the Kecamatan Development Program stands out for its early start, its size, and its success).
In Iraq, The Nation reports employment of 180,000 private contractors by the US, of whom 1/3 — fully 60,000 people — are not Iraqi. I find it incomprehensible that, given astronomical unemployment rates among Iraqis, any non-Iraqi contractors could be hired at all.
M&A for you and me
Friday, August 3rd, 2007An online implementation of the board game Acquire, Get Hostile provides a no-risk outlet for would-be private equity managers (thanks, James, for the hot tip!). It incorporates strategic battles between investors; strategic (geographic) complementarities between firms, uncertainty about the timing/location/control of opportunities to establish new firms, financing constraints, and windfalls for top dogs. Pretty amazing, I’d say, given the game’s tremendous simplicity.
Problems in prosperity
Saturday, July 28th, 2007My mom sometimes distinguishes between “problems that money can solve, and problems that money can’t solve.” Usually, in prosperity, she makes the distinction when discussing a costly problem of the former type, in order to reassure. Usually, in prosperity, this works.
In addition, the suggestion to think of problems this way is interesting to me. After all, money spent to solve any given problem won’t be available for solving future problems– or satisfying any other future needs or desires. Psychologically, I think the suggested distinction works because those future losses are easy to ignore. Distant and non-specific, it isn’t necessary to think of them in detail (and might not even be possible).
To put it differently, the psychological trick seems to actually reassure to the extent one thinks one is unconstrained. If the budget constraint already doesn’t bind, what difference does it make if you need to make an expenditure that moves you slightly closer to the constraint? Lacking prosperity, I bet the distinction would be immaterial– and I bet it would sting.
Net Neutrality, Price Discrimination, and the Little Guys
Friday, July 27th, 2007Suppose Senator A proposed that only a single kind of car could be sold in the United States. A government agency would write the specification for the car, and then manufacturers could produce it and set their prices for it. The Senator would be laughed out of office, right?
Suppose a wiser Senator B proposed requiring that lead paint not be used on children’s toys. Everyone would agree on this simple, prudent requirement.
Now suppose Senator C proposed standardizing the types of paper and ink that all newspapers had to use. Before (most likely) being shot down for infringing on First Amendment rights, Senator C might acquire some allies: small, hardscrabble publishers might believe that they’d be better off with the limitations on larger competitors’ flash and innovation such a proposal would engender. In addition, the growth in the market for the standard varieties of paper and ink might reduce the bargaining power advantage of the large players in negotiating discounts with paper and ink suppliers. The little guys might be better able to keep up with the standard in place.
As I see it, Senator C’s proposal shares important features with current proposals to preserve “Net Neutrality.”
According to the advocacy group Save the Internet.com, “Net Neutrality prevents Internet providers from speeding up or slowing down Web content based on its source, ownership or destination.” Traffic on the Net is made up of “packets,” and Net Neutrality requires that all packets be treated equally, implying most significantly that ISPs can’t impose charges that depend on either the content transmitted or the speed of its transmission. In practice, the likely effect of the end of Net Neutrality in the US would be ISPs offering multiple tiers of service, ie, charging more for faster packet delivery. In conventional economics lingo, without Net Neutrality ISPs might price discriminate.
Policy allows price discrimination in many settings. It’s unthinkable to insist, like daring Senator A, that all cars be of a single quality. Policy prohibits price discrimination in some settings, like where the lowest-quality goods would be outright dangerous, and only infinitesimally cheaper (consider iodized salt, in addition to Senator B’s justified cause cause against toys with lead paint).
In regard to the Net Neutrality example, (i) noone faces a health risk and (ii) in other media production, price discrimination is allowed (on the input side, as discussed above, and also on the distribution side). The (very limited) amount of economic research on Net Neutrality tends to argue that neutrality (like many other regulatory restraints) discourages innovation and decreases social welfare.
I think these analogies leave us with a question, the question on which the policy debate will and ought to turn: do we care disproportionately about the Internet analogues of Senator C’s small, hardscrabble boosters? We might, since not only do these people believe in a beautiful mythology of a free, collaborative Internet. They also contribute tremendous effort– writing and uploading free content, writing free software, volunteering time and spirit– to making the mythology true.
More on Immigration Reform
Thursday, July 5th, 2007Aligned with this earlier post, and in much more detail, Lant Pritchett’s new book, Let Their People Come: Breaking the Gridlock on Global Labor Mobility, advocates huge expansion in the freedom for people to move across national borders to opportunities.
Energy Numbers
Monday, March 5th, 2007This paper by Paul Joskow contains dozens of clear, comprehensive figures summarizing US energy prices and quantities over the last thirty years.
Incentives for Politicians, Incentives for the Poor
Thursday, December 14th, 2006Since the Iraq Study Group released its report on December 6, 2006, many of its recommendations have come under fire from the Bush Administration. Prominently among the attacked recommendations, the report recommended revoking the blank check that’s been extended to Iraqi Prime Minister Nouri al-Maliki and replacing it with promises that continuing support will be contingent on measurable progress. Put differently, the Iraq Study Group (led by James Baker and Lee Hamilton) advocated creating incentives for the Iraqi political leadership to solve the problems they face. These incentives have been decried by the Bush Administration.
Economists and conservatives generally believe that people respond to incentives. Following this line in many other cases, the Bush Administration has advocated sharp reductions in social welfare programs and spending. For example, in simplified form, the main argument for Social Security privatization is that private accounts would increase incentives for private saving. Opposition to welfare also emerged from the logic that entitling the poor to perpetual government support problematically removed incentives for them to figure out how to make it on their own.
As I see it, we have here a question for economists and a potential opportunity for Democrats: Is there good reason to oppose tough incentives for Iraqi politcians while advocating incentives for America’s poor, or is the Bush Administration being hypocritical?