30 January 2010

Happy peasants and miserable millionaires

Carol Graham looks at the issue of happiness across societies/economies in an article in Voxeu ' Happy peasants and miserable millionaires'

This capacity to adapt – and the mediating role of norms and expectations – poses all sorts of measurement and comparison challenges, particularly in the study of the relationship between happiness and income. Can we really compare the happiness levels of a poor peasant in India, who reports to be very happy due to low expectations or due to a naturally cheery character, with those of a successful and very wealthy CEO, who reports to be miserable – due to his or her relative rankings compared to other CEO’s, or to a naturally curmudgeonly character? This is something that I have called the “happy peasant and miserable millionaire problem” (or the happy peasant and frustrated achiever problem). On one level it suggests that happiness is all relative. On another it suggests that some unhappiness may be necessary to achieve economic and other sorts of progress. The examples of migrants who leave their home countries – and families – to provide better futures for their children, or revolutionaries who sacrifice their lives for the broader public good, come to mind. This also raises more difficult questions, such as whether we should tell a poor peasant in India how miserable they are according to objective income measures in order to encourage that peasant to seek a “better” life; or whether we worry more about addressing the millionaire’s misery or increasing the peasant’s happiness.
This happy peasant and miserable millionaire paradox also raises the question of the appropriate definition of happiness. What makes happiness surveys such a useful research tool is their open-ended nature. The definition of happiness is left up to the respondent, and we do not impose a US conception of happiness on Chinese respondents, or a Chinese definition on Chilean ones. The open-ended nature of the definition results in the consistent patterns in the basic explanatory variables across respondents worldwide, in turn allowing us to control for those variables and explore variance in the effects of all sorts of other things on happiness, ranging from crime rates to commuting time to the nature of governing regimes.

Fulfilment or contentment?

At the same time, as we think about happiness as a measure of welfare with relevance to policy – something that is increasingly in the public debate – then the definition does matter. Are we thinking of happiness as contentment in the Benthamite sense, or as a fulfilling life in the Aristotelian sense? There is still much room for debate. My studies of happiness around the world suggest that respondents’ conceptions of happiness vary according to their norms such as expectations and ability to adapt. Our priors as economists and policymakers likely suggest that some conceptions of happiness – such as the opportunity to lead a fulfilling life – are worth pursuing as policy objectives, while others – such as contentment alone – are not. Yet that choice entails normative judgements and a debate which we have not yet had.
At the very least, this conundrum will give economists food for thought – about happiness and income, and beyond – for several years to come. Moreover, despite the difficulty it poses for both method and economic philosophy, it will also force us to think deeply about what measures of human well being are the most accurate benchmarks of economic progress and human development.

What works..small is beautiful

All efforts at improving development indicators need not be scalable to make a difference. Anantha Nageswaran on how small is beautiful :

Anil Gupta of India’s National Innovation Foundation reinforced the case for small efforts in his characteristic forthright manner in a recent Wall Street Journal interview (http://online.wsj.com/ article/SB125376926792036847.html). He said that scale should not be made the enemy of sustainability.
What he said further is important: “In other words, if some solutions don’t diffuse, do they become less legitimate? Are problems of small communities less important than problems which affect a large number of people? Sustainability doesn’t mean that the same solution applies everywhere, because nature is essentially diverse. But we are trying to remove diversity by scaling up solutions… By treating it as such, it creates more problems because what was not uniform is being treated as uniform, which means the dissimilarities and variabilities became more manifest.”
This is important for public policymakers and thinkers. India’s size and the scale of poverty that remains to be tackled, combined with a Western fascination with scale efficiencies, make many of us suggest blanket nationwide efforts and interventions. They might make for neat Power Point presentations, but they mostly do not work. That is what many consumer marketing companies discover when their national marketing campaigns boomerang in some locations.
Many non-governmental organizations (NGOs) that work on a pan-India basis confirm that small and context-relevant interventions work. Such interventions help to build evidence on what works and what does not. The recognition of this reality gave birth to Poverty Action Lab (www.povertyactionlab.org), housed at the department of economics at the Massachusetts Institute of Technology.

23 January 2010

What Aid?

Today read another angle to the Haiti tragedy..Ben Ehrenreich in the Slate on why did the US aid focus on troops rather than on supplies of food and medicines.

The U.S. military did what the U.S. military does. Like a slow-witted, fearful giant, it built a wall around itself, commandeering the Port-au-Prince airport and constructing a mini-Green Zone. As thousands of tons of desperately needed food, water, and medical supplies piled up behind the airport fences—and thousands of corpses piled up outside them—Defense Secretary Robert Gates ruled out the possibility of using American aircraft to airdrop supplies: "An airdrop is simply going to lead to riots," he said. The military's first priority was to build a "structure for distribution" and "to provide security." (Four days and many deaths later, the United States began airdropping aid.)
The guiding assumption, though, was that Haitian society was on the very edge of dissolving into savagery. Suffering from "progress-resistant cultural influences" (that's David Brooks finding a polite way to call black people primitive), Haitians were expected to devour one another and, like wounded dogs, to snap at the hands that fed them. As much as any logistical bottleneck, the mania for security slowed the distribution of aid.
This leaves the more disturbing question of why the Obama administration chose to respond as if they were there to confront an insurgency, rather than to clear rubble and distribute antibiotics and MREs. The beginning of an answer can be found in what Rebecca Solnit, author of A Paradise Built in Hell, calls "elite panic"—the conviction of the powerful that their own Hobbesian corporate ethic is innate in all of us, that in the absence of centralized authority, only cannibalism can reign.
But the danger of hunger-crazed mobs never came up after the 2004 Pacific tsunami, and no one mentions security when tornados and floods wipe out swaths of the American Midwest. This suggests two possibilities, neither of them flattering. The first is that the administration had strategic reasons for sending 10,000 troops that had little to do with disaster relief. This is the explanation favored by the Latin American left and, given the United States' history of invasion and occupation in Haiti (and in the Dominican Republic and Cuba and Nicaragua and Grenada and Panama), it is difficult to dismiss. Only time will tell what "reconstruction" means.
Another answer lies closer to home. New Orleans and Port-au-Prince have one obvious thing in common: The majority of both cities' residents are black and poor. White people who are not poor have been known, when confronted with black people who are, to start locking their car doors and muttering about their security. It doesn't matter what color our president is. Even when it is ostensibly doing good, the U.S. government can be racist, and, in an entirely civil and bureaucratic fashion, savagely cruel.

When I did the post on culture, this aspect did not cross my mind at all. Security is just as important as getting supplies to the people, true. Which of Ben's possibilities is correct? Even if we go for the politically palatable first option, all it means is this is just one more example adding to the many the world over that point to the connections between geo-politics and development/growth/aid....The second would tell us that 'culture' can mean so many more things than Brooks talked about.

22 January 2010

Links to LSE public podcasts

Just found out that LSE public lectures and events are available on podcasts here
This is an amazing resource with a wide range of very relevant subjects..
Below is a list of January's events so far, which can be accessed through the previous link...happy listening!

What kind of economics should we teach?
Speaker: Professor Geoffrey Hodgson, Professor Albert Marcet, Paul Ormerod, Professor John Sutton
Chair: Professor Tim Besley
This event was recorded on 20 January 2010 in Sheikh Zayed Theatre, New Academic Building
The recent global crisis has lead to questions being asked about whether the kind of economics being taught to students in leading economics departments was responsible for the widespread failure to predict the timing and magnitude of the events that unfolded in 2008. Critiques range from an absence of historical context in mainstream teaching of economics to excessive reliance on mathematical models. This panel brings together four leading economists to debate this issue and to discuss what changes in the economics curriculum and the way that it is delivered are desirable.

Europe after the European Age: historical reflections
Speaker: Professor Mark Mazower
This event was recorded on 20 January 2010 in Hong Kong Theatre, Clement House
What forces have shaped Europe's place in the world over the past two centuries? And how do the challenges of the two 'post-European' epochs – after 1945 and 1989 – compare? Mark Mazower is Ira D Wallach Professor of History at Columbia University.

Beyond the "Berlusconi Common Sense". A New Model of Politics for the 21st Century
Speaker: Professor Paolo Mancini
Chair: Professor Terhi Rantanen
This event was recorded on 19 January 2010 in Sheikh Zayed Theatre, New Academic Building
Mostly outside Italy, there is a widespread common sense about Berlusconi and his political adventure: he has been able to enter successfully the political arena because of his television empire and because of his unclear links with illegal groups and business. This interpretation is undoubtedly true but it is also a limited one as it is not able to point out all the novelties that Berlusconi may represent. Indeed, the paper argues that the political adventure of the Italian tycoon may be interpreted as a signal of the end of the forms of politics that featured the last two centuries in Europe and that was constructed on the role of the mass parties and their ideological nature. This is not just an Italian phenomenon as many other European leaders underline striking similarities with the Italian Prime Minister. In particular three main features of the new forms of politics that these leaders represent are discussed: 1) commodification of politics; 2) life style politics; 3) televised politics. Examples from other political leaders and theoretical frameworks are provided.

Child Under-nourishment as a Social Predicament
Speaker: Professor Amartya Sen
Chair: Professor Lord Stern
This event was recorded on 19 January 2010 in Old Theatre, Old Building
This lecture is in honour of Dr Indraprastha Gordhanbhai (I.G) Patel who was the ninth director of the London School of Economics from 1984 to 1990.

The War on Drugs: an upper or downer for development?
Speaker: Misha Glenny, Michael Hartmann
Chair: Professor James Putzel
This event was recorded on 18 January 2010 in Sheikh Zayed Theatre, New Academic Building
The panel will discuss the impact of legalising and regulating the international trade in illegal drugs. They will look at whether it would curb crime and war financing, and if it would promote development in fragile states. Misha Glenny is a journalist and author of McMafia: seriously organised crime. Michael Hartmann is manager and senior adviser of the Criminal Justice Programme at the United Nations Office on Drugs and Crime.

Modernity and the Meaning of Life
Speaker: Dr Simon Glendinning, Dr Edward Skidelsky
This event was recorded on 18 January 2010 in Wolfson Theatre, New Academic Building
This dialogue will examine the resources left to us to find meaning in our modern day lives. Simon Glendinning is a reader in European philosophy at the European Institute, LSE, and director of the Forum for European Philosophy. Edward Skidelsky is a lecturer in the Department of Sociology at the University of Exeter.

Crisis as Motivation? The Challenges of Sustaining Growth in Southeast Asia
Speaker: Professor Richard Doner
Chair: Howard Davies
This event was recorded on 14 January 2010 in Sheikh Zayed Theatre, New Academic Building
Can the dynamic, export-oriented economies of Southeast Asia sustain their growth in light of the global economic crisis? Professor Doner will consider the questions economists typically overlook. Richard Doner is professor of political science at Emory University in Atlanta, Georgia.

Positive Deviance: the only strategy left for sustainability leadership?
Speaker: Sara Parkin
Chair: Andy Farrell
This event was recorded on 14 January 2010 in Hong Kong Theatre, Clement House
In the absence of an adequate response to unsustainability by political leaders, it is up to the rest of us to lead the way. Sara Parkin is a founder director of Forum for the Future.

Getting fiscal consolidation right: Lessons from Sweden
Speaker: Anders Borg
Respondent: George Osborne MP
This event was recorded on 14 January 2010 in Old Theatre, Old Building
Faced with a record deficit and an accelerating debt, the UK will have to embark on a process of massive fiscal consolidation in order to bring public finances back to sustainability. How is this best done and what lessons can be learned from the Swedish experience of fiscal consolidation in the 1990s? Anders Borg is Minister for Finance in Sweden and has chaired the ECOFIN Council during the 2009 Swedish EU Presidency. He has previously worked as an advisor on monetary policy issues at the Swedish Central Bank and as chief economist at several Swedish banks.

When China Rules the World
Speaker: Martin Jacques
Chair: Professor Michael Cox
This event was recorded on 13 January 2010 in Old Theatre, Old Building
The years immediately following the end of the Cold War gave rise to the notion that the world was entering yet another American Century. But the next century will be decidedly Chinese and the rest of the world needs to adjust to this fact fast. Martin Jacques is a visiting senior fellow at LSE IDEAS. This event celebrates the publication of his book When China Rules the World: the rise of the middle kingdom and the end of the western world.

Muslims in Modern Europe
Speaker: Professor Gilles Kepel
Chair: Professor Fawaz Gerges
This event was recorded on 12 January 2010 in Old Theatre, Old Building
This lecture will look at the complex character of the Muslim population in Europe and explain the many different ways in which they see the world around them. Gilles Kepel is the Philippe Roman Chair in History and International Affairs at LSE IDEAS.

21 January 2010

Does the resource curse exist?

A new paper on Voxeu titled 'Oil windfalls and living standards: New evidence from Brazil' by LSE economists Francesco Caselli and Guy Michaels looks at whether the resource curse exists, using evidence from Brazil. 
Their finding:
Municipalities that receive oil windfalls report significant increases in spending on infrastructure, education, health, and transfers to households. However, the windfalls do not trickle down and much of the money goes missing. Indeed, oil revenues increase the size of municipal workers’ houses but not the size of other residents’ houses.
Their conclusion? - Increased transparency, but going beyond mere transparency in accounting.

But our findings do suggest that it may be somewhat unwise to channel revenues from oil operations directly to local governments, at least if the officials are not properly monitored and accountable. For Brazil, this may be an especially important consideration as the system of property rights and royalties will probably be overhauled in response to the recent discovery of huge new offshore fields.
Indeed, the issue is clearly of political relevance, with several major federal legislative proposals to reform the royalty system currently pending. Most proposals tend to reduce both the share of royalties going to local governments and the discretion that these governments have in using the revenues. In the summer of 2009, the federal government issued its own proposals for the property rights regime of the newly discovered "pre-salt" giant oilfields.
More generally, our results may inform the debate about increasing transparency requirements both in poor, resource-abundant countries and in countries that receive aid. In particular, it is increasingly common for conditionality-based programmes to feature stringent reporting requirements from multinational oil companies and recipient governments.
Our results suggest that accounting transparency per se may be insufficient. Reporting schemes should document the actual effective disbursement of sums, and not merely their recording on balance sheets.

18 January 2010

Culture again!

In a column in the New York Times, David Brooks takes up the issue of poverty in Haiti. Unfortunately, he takes off on the issue of 'culture'.

It is time to put the thorny issue of culture at the center of efforts to tackle global poverty. Why is Haiti so poor? ....Lawrence E. Harrison explained in his book “The Central Liberal Truth,” Haiti, like most of the world’s poorest nations, suffers from a complex web of progress-resistant cultural influences. There is the influence of the voodoo religion, which spreads the message that life is capricious and planning futile. There are high levels of social mistrust. Responsibility is often not internalized. Child-rearing practices often involve neglect in the early years and harsh retribution when kids hit 9 or 10.
We’re all supposed to politely respect each other’s cultures. But some cultures are more progress-resistant than others, and a horrible tragedy was just exacerbated by one of them.

Voodoo? Well, my antipathy to the 'culture' argument comes from reading staunch defences made by Indian economists in the early 1900s to the British argument of why India was poor - the Brits chose to look at the religious and spiritual other-worldiness of the Indians, rather than at their own industrial and trade policies as the root cause of under-development in the country.
Sure enough, there are enough of reader comments below that piece refuting what Brooks is saying.

On a more academic note, there is Ha-Joon Chang's Chapter 9 in his book Bad Samaritans. The chapter titled ' Lazy Japanese and Thieving Germans - are some cultures incapable of economic development?' has a good historical account of cultures that were 'resistant' to change.

13 January 2010

Announcement: Poll Real-World Economics Review Blog

The Real-World Economics Review Blog is holding polls to determine the awarding of two prizes:
  • The Ignoble Prize for Economics , to be awarded to the three economists who contributed most to enabling the Global Financial Collapse (GFC), and
  • The Noble Prize for Economics , to be awarded to the three economists who first and most cogently warned of the coming calamity.

It is accepted fact that the economics profession through its teachings, pronouncements and policy recommendations facilitated the GFC.  We also know that danger signs became visible long before the event and that some economists (those with their eyes on the real-world) gave public warnings which if acted upon would have averted the human disaster.

With other learned professions entrusted with public confidence, such as medicine and engineering, it is inconceivable that their professional bodies would not at the very least censure members who had successfully persuaded governments and public opinion to ignore elementary safety measures, so causing epidemics and widespread building collapses.

To date, however, the world’s major economics associations have declined to censure the major facilitators of the GFC or even to publicly identify them.  This silence, this indifference to causing human suffering, constitutes grave moral failure.  It also gives license to economists to continue to indulge in axiom-happy behaviour.  Nor has the economics establishment offered recognition to those economists who were not taken in by fads and fashion and whose competence, if listened to, would have prevented the collapse.

These two silences reveal a continuing moral crisis within the economics profession . The Ignoble and Noble Prizes for Economics are being offered as small first steps towards a cure.

Poll Procedures for the Ignoble Prize for Economics

Stage One: Nominations and Evidence

Nominations for both prizes are open to the international community of economists, rather than limited to a closed and secret shop.  For each nominated economist an evidence page will be opened on http://rwer.wordpress.com/ to which people can leave evidential comments. In this way a documented case for (and against) each candidate will be built up. 

There are two ways, one direct and the other indirect, by which you can nominate and post evidence.

Direct Method

You can nominate economist X  or economists X and Y, or X, Y and Z (maximum of three) by leaving a comment on the Nominations for the Ignoble Prize for Economics page for which there is a link near the top of the blog’s home page’s right hand column.  Your comment needs only to say “I nominate X . . . for the Ignoble Prize for Economics.”

You can post evidence regarding a nominated economist by leaving a comment on their evidence page, which in most cases will be opened within 24 hours of their nomination. These pages are sub-pages of the “Nominees and Submission of Evidence” page and will be link-listed in a box near the top of the home page’s right hand column.

Indirect Method

Because of the current nature of the economics profession, some economists will fear that going public with their professional views on these matters could jeopardize their careers or those of people associated with them. Therefore nominations and evidence can be put forward anonymously by emailing them to 
pae_news@btinternet.com , preferably with the subject heading “Nominations and Evidence”.  The editor will then post the material on the relevant pages.  Strict confidentiality will be maintained.

Stage Two: Short List

After an appropriate interval, most likely one month, nominations and the submission of evidence will be closed.  Through consultation, authors of the Real-World Economics Review Blog will compile a short list of the strongest nominees, probably 10 or 12.  At this time a final dossier, based on the evidential comments posted on the blog, will be compiled and posted for each short-listed candidate.  Voting will then open.

Stage Three: Voting

The voting will be conducted using PollDaddy.  Its system uses cookies to prevent repeat voting.  A voting box showing the short-listed candidates will be displayed prominently on the home page of the Real-World Economics Review Blog.  Close by will be links to each candidate’s final dossier.  Voting is open to all interested parties. Each voter can vote for up tothree of the listed candidates.  The ballots are secret.  Voting will remain open for several weeks.  No results will be announced before closing the poll.

Stage Four: Results 

Within 24 hours of the closing of the poll, the results will be announced.  The three economists receiving the highest number of votes will be declared the joint winners of the prize.

General Rules

Only economists may be nominated, and they must have been active during part of the last quarter century.  Joke nominations (e.g., Baker, Keen or Roubini for the Ignoble Prize) or ones suspected of being motivated by malice or for which no supporting evidence is forthcoming will not be accepted or allowed to stand.  Likewise evidence submitted must be substantive, accurate and presented in good taste.

Poll Procedures for the Noble Prize for Economics

These will be approximately the same as for the Ignoble Prize, but may be adjusted in view of lessons learnt.  It is expected that nominations and submission of evidence for this prize will commence when voting for the Ignoble Prize begins.

Nominations and submissions of evidence for the Ignoble Prize for Economics are now open at http://rwer.wordpress.com/   

Industrial Policy and Comparative Advantage

Justin Lin of the World Bank and Ha-Joon Chang of Cambridge University debate whether industrial policy in developing countries should follow the principle of comparative advantage or defy it.
The debate is the first in a series in Development Policy Review

...focuses on the question of whether policies to encourage industrialisation and industrial upgrading should conform to current comparative advantage or aim to miss out steps on the ladder: textiles first or mobile phones? The first position might be thought to be associated with neo-liberal theory which eschews intervention, the second with more structuralist policies which favour government support and extended infant-industry protection. The debate is more subtle than that, however. Both protagonists favour government intervention, but in different ways and for different purposes.