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Saturday, September 30, 2006


Global Solution to Poverty? Part 2

I wanted to respond not only to Sean's comments but also to a quite that I found in the link on Professors Eubanks link.
"This point bears repeating. Poverty has no causes. Wealth has causes."
I think if we are to take this quote into consideration we must go back to Olson's Logic of Collective Action. Both poverty and wealth have causes, what seperates them is the mentality of a large lantent group that finds a way to organize itself and become the upper class versus the group that see's nop reason for persuing anything beyond the bare essentials.
"A world characterized by "poverty" as we think of this term today really is the default position, or it really can be thought of as the starting point. It is the creation of wealth that means people can escape from poverty. People will make the choices that create wealth if government acts to enforce private property rights and contracts, and further if government avoids supporting predatory activities, people will prosper all that much more."
It is usally these nations that are plagued by war, disease, and the constant state of governament changing hands quite frequently that are said to live in poverty. I would have to agree that for the most part, poverty is the "default" mode for many of these types of countries. We can see several example from around the world of volital rise and decline in living standards. We can also see several countries around the world with an ever growing uneven income distribution. It is in this inequity that that the problem lies. But then we are left thinking, how do we distribute the income more evenly? By looking at the above quote we can see that it is all a problem of motivation. Within these poverty stricken countries it is nearly impossible for the comman man to own any private property without the new government in power siezing it. It is nearly impossible for the comman man to take any legal action against another because of the ever changing laws. The comman man in these countries amounts to a large latent group with neither the power or the desire to mobilize to achieve a common good. By the government supporting predatory actvites and not taking control of their nation, they are keeping their own citizens in the horrible poverty that has plagued them for centuries.
This takes us back to a recent class discussion and chapter 3 in The Rise and Decline of Nations. Olson talks about how a firm (or in this case a government) has two options when trying to obtain more wealth and income. It can either 1. enlarge the entire economic pie and therefore create for wealth for the entire society, or it can 2. choose to enlarge only it's piece of the pie. What the governments in these poverty stricken countries has choosen to do is enlarge only their share of the pie. Why? First of all because it requires less input and resources than it would to enlarge the entire pie. It is by far less costly and less of a daunting task to act rationally and only be concerned with how much you are recieving of a collective good. Second, if Olson is correct in his definition of rationality, a rational person would not want to provide a collective good for the entire society because he would get only a small part and would most likely have to put far more time and energy into achieving the collective good than a majority of the others who also recieved it. So by this logic, it is much more rational for those in control of these poverty stricken countries to act in the opposite way of what would actually benefit their people.
So how do we comabt this so called rationality? We find a new form of government for these nations. Here I would have to agree with Sean that we cannot hope to transfer our political ideals without our economic ideals as well. The only problem here is that, as the U.S. has found on a couple of occasions, is that not all other cultures support our ideals and our values. Democracy gives rise to materialism and wealth, but this is not something that all other nations value. This is why I think it is important that we keep economics and psychology close together. Further more it is impossible for those nations that have capitalism forced upon them to experiance the idealism that our nation felt when democracy and capitalism joined together. Even if we could force capitalism onto these poverty stricken nations would we really want to? Would we really want to force upon them the red tape, the beaurcracy, and the snake of corruption that has somehow become intertwined in our government? It is through these things that many dictators can take a guise of capitalism and turn it into a perverted authoritarian nation. We are potentially heaping upon these nations just another period of revolution and war.
Finding the right government to match a certain culture of people is indeed a dauting task; that is why many countries are still plagued with poverty today. They have all tried to make better lives for themselves and to oversome the opression, but without the correct form of government to provide the right incentives, all we have is several nations ending up back in their "default" mode. To borrow a few words from Olson, it will take a strong leader and the right circumstances to pull these countries out of opression. Until then they will remian in their "default" mode of poverty.



In Chapter 2 of The Rise and Fall of Nations: Economic Growth, Stagflation an Social Rigidities, Mancur Olson goes into great depth on what makes a strong theory. He states that a theory that explains broad phenomena is better than one that can only explain very narrow phenomena. As an example he sights Darwin’s theory of evolution. Darwin’s theory is strong because it explains the evolution of all life and not just that of mosquitoes. Olson clearly means for his theory on the nature of groups to explain broad phenomena. So, I thought I would put it to the test on a small group of pygmies living in the African rainforest.

In my anthropology class last semester we read a book entitled, The Forest People. It was written by an anthropologist named Colin Turnbull that lived and worked with the BaMbuti for several years. The BaMbuti live in small band level groups of about 30-50 people throughout the African rainforest. They are nomadic hunter-gatherers; their primary economy is net hunting (and by “economy” I mean a way to make a living – in this case food). Net hunting is among the earliest economies and is unique in that all members of a society take part. The men from each nuclear family set up the nets to form a large, continuous half circle in a particular area of forest. The women and children form a line a ways off and then start shouting and beating the underbrush with sticks to drive the animals in the direction of the nets. Once caught the animals are quickly dispatched, taken back to the temporary village and butchered. The meat is distributed among all of the families regardless of whose net actually caught the animals.

The BaMbuti live in extended family groups. One man’s family was too small to survive on its own and so had attached itself to the group that Turnbull was studying. One day Cephu decided to secretly set up his net in front of the other nets. This was not very efficient. Cephu was able to catch some animals, but the position of his net deflected most of the animals away from the other nets. When the villagers returned home after a disappointing day they found Cephu trying to hide his spoils.

By setting up his net in front of the others Cephu wanted to enlarge his “piece of pie”. He didn’t want to be limited to what was doled out after the collective hunt. In so doing he effectively made the pie smaller for everyone else. Olson would say that Cephu’s decision was logical so long as the cost of the action did not exceed the inverse of the fraction of the group represented by Cephu’s family. Turnbull did not include specific population data so I can’t say for certain that Cephu’s decision was logical according to Olson. However, empirically it seems his decision was not logical. Once the group realized what Cephu had done they confiscated his meat and redistributed it to the rest of the group leaving Cephu’s family without food for the night. (Perhaps if he had not been caught then his decision would have seemed more logical.)

The BaMbuti live in small groups and like any group they have to deal with the problem of free-riding. They offer a collective benefit in the form of meat from group net hunting. To prevent free-riding and other socially unacceptable behaviors (there was a very interesting part involving incest) the BaMbuti have strong negative incentives. The punishment for the gravest of crimes is banishment. For the BaMbuti banishment is death. A lone person or a lone family cannot hope to survive on their own. The threat of banishment helps keep the group together and ensure that everyone does their part.


Starting Over in New Orleans

The United States has become extremely complex as a country. Laws are multiplying in number and changing everyday, politics are in everything, and large groups and organizations are becoming more and more powerful and influential. The U.S. is following exactly what Olson describes in his book, The Rise and Decline of Nations. There are so many influential groups now in the US that they are affecting the economy. Large groups will rather take a large piece of a smaller pie at the cost of society as long as they are better off. Established cartels have incentives to have strong barriers to entry. People in politics do things by making more laws, which just makes things more complex. Groups are using large amounts of time and money on politics and cartel activity, and less money on production. One way this can be stopped is by starting over. For example Germany did very well and grew rapidly after WWII. I’m not saying it’s a good thing what happened in New Orleans, but maybe now they can break away from some of these complexities and become very prosperous by starting over.


Global Solutions to Poverty?

After taking a look at Prof. Eubanks most recent post, I followed the link to the original post and read a few comments. Here is one of the more entertaining:
"Poverty is caused by the exploitation of the working class by the wealthy. The rich obtained their exalted status by stealing their money from everyone else. The solution is simple: the confiscation and redistribution of existing wealth, followed by high taxation and a strong social safety net to keep such inequalities from re-occurring. No one in Sweden is poor, and no one would be poor in America if we had the same laws and protections here."
After taking a look at the income inequalities through a few nations (http://faculty.tcu.edu/jlovett/econ_data/Income%20Dist.pdf#search='US%20income%20distribution'), we can see a somewhat interesting trend, and one which Olson's work would have predicted. The US is not the number one rank of income inequality, but a look at those who outrank us does not provide much hope. Of the 14 nations with a less equal income distribution than us, 12 are essentially banana republics of South America, whose democratic history was one born of violent conflict resulting from the cold war. I cannot doubt that poverty is the natural state, but when looking at this issue in terms of political-economy, I struggle to find the solution to this problem. Even if our efficiency based model is the best chance the world has for escaping the natural state, how can we actually think that our system of government is the best, or even worthy enough to transplant? I believe Olson would have said that we cannot expect to transfer our economic model without our political model following on its heals. The only problem is that when we go to deliver democracy to a developing nation, they are not getting the same revolutionary period of fundamental idealism, but rather the democracy that we have now, one characterized by rent seeking (Olson states that as time passes, rent seeking tends to increase). Taking this into account, could anyone doubt that the rent seeking will spill over into the field of foreign issues? No matter what one thinks of the Iraq war, the very fact that the Vice President's former company is entirely responsible for the re-building effort provides strong evidence for this outcome.
This is not to say that only capitalist nations are to blame. In one class, we discussed the government that was open to outside bribe versus the one that was not. China, though moving towards economic freedom, is by no means a totally open economy, yet they rank just two positions behind the US in inequality. This must surly be an indication that even in a government that is, at minimum, subject to fewer pressure groups can still be just as corrupt. This is not to imply that disproportionate income nessicarily means corruption, however, by simply following Olson's theory, we must recognize that by the simple fact that both the US and China have stood for a long enough time period that we would predict rent seeking. I think the heart of this issue comes directly from Olson's work Logic, which makes the point that even though we may have very idealistic hopes for our social programs, the bureaucracy of achieving the end will ultimately be corrupted and ineffective. Can we not expect the same outcome from nation building? Does the model we hope to implement have any chance of escaping the mass corruption and can any political-economic system established by a foreign power truly succeed if the people prospering are mainly from said foreign power?

Friday, September 29, 2006


Poverty Is The Default Position

At the end of class yesterday we discussed poverty in our system of political economy. This morning I ran across something written by Don Boudreaux that I think is very relevant to our understanding. You might be interested in reading my short post here, and you might also want to link to Professor Boudreaux's post. Here is the bottom line:
"A world characterized by 'poverty' as we think of this term today really is the default position, or it really can be thought of as the starting point. It is the creation of wealth that means people can escape from poverty."

Wednesday, September 27, 2006


A Fable of Collective Action

While flailing around for something interesting to post for the blog, I thought about how Mancur Olson's The Logic of Collective Action might be applied to children's stories and the like.
The first one that came into my head was The Little Red Hen. Click the link to refresh your memory of the story. It seems to me that this little fable explains the problems of the small group that Olson mentioned. The group is small enough that one individual, the Hen, could act to provide a collective good for the group, without the participation of the other members. The free-riding by the Duck, the Cat, and the Dog did not really hinder the Hen's provision of the good. On the other hand, the group was not large enough for the free-riding to go unnoticed or unpunished.
Perhaps the Hen should have made it clear that the bread was not a collective good, but rather a selective incentive, from the start. Had she said "This wheat should be planted, who will help me and share the bread?," she would have saved herself some toil and motivated the group to help.

Tuesday, September 26, 2006


"The Limits of Solidarity"

In the current edition of The Economist there is an article discussing the decline of unions in America as well as legislation and legal battles questioning aspects regarding the formation of unions and how much power they should possess. The National Labor Relations Board (the politically appointed body that interprets American labor law) is about to rule on the 'Kentucky River' cases. The findings of this decision will determine which jobs may be classified as 'supervisory'-"supervisors do not have a legal right to collective bargaining (this) would broaden the range of jobs deemed supervisory (which) reduces the pool of workers who can be unionized." The consensus seems to be the rulings will be bad for unionists because "8 million people could lose the right to organize" according to the AFL-CIO. Of that unions could loose up to "2 million existing members or 13% of current membership."

Unions are fighting back with the Employee Free Choice Act which would "stiffen punishments for employers who intimidate workers trying to form a union; mandate third-party arbitration and unions if bosses cannot agree on a contract; and it would get rid of secret ballots as a prerequisite for union recognition." Unions propose a "card-check" system which requires employers to accept unions if a majority of their employees say they want one. The argument for the card-check system is problematic because it opens up the door to intimidation, bribery, and coercion by both employers and unionists. Public opinion is not conceding this problem so unions are turning to "corporate campaigns designed to pressure firms into allowing unionization by card check." They have already accomplished this goal with Cingular Wireless and Unite Here by publicly attacking the firms.

Despite the success of unionists in limited areas union membership is still on the decline. Which is partially the result of the unions ability to provide the same reliable incentives to workers as it was previously able to- "Unions can no longer protect against job losses, as Detroit's carworkers know only too well." In addition the ability of private firms to provide the same services as unions has also had a negative impact on membership. "Sophisticated human resource departments now allow employers to replicate many of the unions' traditional functions such as dealing with workers grievances."

I am against the restriction of individuals ability to be able to form and participate in any group they wish as long as it does not cause harm to someone else. However, sense unions have the coercive force of government behind them, they are more of a hindrance to the market and to those very individuals that are participating in them. When unions force wages to increase, it has to be paid for, the money has to come from somewhere. If the wages are increased in service industries, the price would be passed on the the consumer which would presumably hurt the disadvantaged. Americans seem to be understanding this phenomenon "the share of American workers carrying union cards has plunged from over 20% in 1980 to under 13% in 2005." In America, membership in unions is decreasing which seems to be a global trend across many wealthy countries.

Wednesday, September 20, 2006


Voter Apathy

Voter apathy, particularly among college aged people, has been brought up many times in class. Despite efforts like MTV’s Rock the Vote, young adults just aren’t showing up at the polls. After reading Mancur Olson, I understand that voter apathy should be expected. No individual can realistically hope to determine the outcome of a public election. However, individuals can expect to bear the costs of voting. Whether it is the extra gas necessary to get them to the polls, lost wages, or simply time that could have been spent doing something else, voting imposes a cost on individuals. So if an individual cannot hope to determine the outcome of an election and voting imposes a cost, then why would anyone choose to vote? Olson says that a rational person will not choose to vote.

I guess that makes me an irrational person because I voted in the last election. Of course that was before I read The Logic of Collective Action. However, even knowing what Olson says about large, latent groups and agreeing with his theory I will still vote in the upcoming election. I will vote because, for me, voting provides some noncollective benefits. When I vote I feel I have fulfilled my civic responsibility. For me the benefits of voting outweigh the costs. But then again, I grew up in a family that talked politics over the dinner table. When I turned eighteen, I was expected to vote. And I did. But not everyone grows up with the same expectations. Those people who are not taught civic responsibility at home must learn it somewhere else or not at all. Most people encounter the concept of civic responsibility during the course of their education. But more and more, it seems to me, the education system is teaching our youth to be free-riders when it comes to exercising their civic responsibility.

Class sizes are steadily increasing from grade school to college. This trend is easily understood from an economic perspective. At relatively small numbers as class sizes grow, overhead expenses such as buildings (and teachers if one assumes that a teacher can as easily teach fifty students as fifteen) remain relatively fixed and the marginal cost of teaching an additional student falls. However, as the class becomes larger, the contribution of each individual student to the class as a whole falls. When the teacher asks for a volunteer to work a problem on the board the pressure to volunteer and participate is less than in a smaller group. Thus it is easy for students who do not prepare for class or students that need extra help to go unnoticed in larger classes.

Conversely, in small classes, like ours, each individual’s contribution is proportionately greater. People who do not prepare for class find it more difficult to go unnoticed. It is easier to weed out free-riders and punish or “incentivize” them appropriately. Large classes set the expectation of free-riding whereas small classes set the expectation of participation.

I know that the incentive to free-ride is not a learned behavior per say. But meeting expectations is a learned behavior. Whether it is paying bills on time or voting, most people do what is expected of them even when it imposes a cost. If we expect our youth to free-ride – to sit in the back of the classroom and let the “smart” kids carry the load – then what will they do later in life when it comes time to exercise their civic responsibility?

Thursday, September 14, 2006


Gay Groups

In this article there is a type of judgement in that if someone's sexual preference happens to be that of the same sex then we shouldnt give them the equal opportunity. As we have discussed in class we see all the different types of groups.The small group in this case doesnt appear to be more efficent then say a larger group. In this situation the group tried and had no luck with attacking the problem through the legal system. The group is now having to rely on the government to use its coercive power to protect these individuals. From this policy the group has seen change for the good. In the article the facts stae that openly gay men discharges have fallen by 40 percent. When dealing with a homosexual in economic terms the right to be in the Army, Navy, etc. is a private rather than public good. This is private in the sense that if a homesexual wanted to be accepted in the military he or she could be excluded because of his or her sexual preferences. This holds true to the traditional theory is that group behavior that implicitly assumes private groups and associtations operate according to principles entirely different from those that govern relationships in the marketplace or with taxpayers.This issue is consistent with Olson's theory in that the action taking groups have the tendency to be more productive in what they want to get accomplished.

Thursday, September 07, 2006


Stationary Bandit

In class today there was a suggestion that our system of political economy could be described in terms of government acting primarily in ways that benefit a specific group or class (and the idea seemed to be this group was the "wealthy"). I expressed skepticism that our system of political economy worked in ways consistent with such a view. But, suppose for a moment I accept this "wealthy class" view of government as descriptive of our system of political economy. Given this, it seems to me that we would then want to say our system of political economy could be described as being governed by a stationary bandit, which is an idea we will learn about later in Olson's Power and Prosperity. If this view of our system of political economy as a stationary bandit is correct, what would we then want to say about the economic prosperity we would expect from our system of political economy over time?

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