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Archive for the ‘Development Economics’ Category

The title is a reference to the guide, Mostly Harmless Econometrics, which is a staple for those without a math backbone.  Apologies for the really obscure references.  

My Terrible Procrastination

I’m approximately 8 weeks behind schedule on my public economics dissertation.  How is that possible, when we are less than 8 weeks into the Term?  It is, when you understand that the more I read, the less I think I understand about this topic.

Harmless Economics

Economics has rightfully earned a reputation for being abstract to the point of obscurity.  Theoretical physics and mathematics also practice this same level of abstraction, but unlike economics, those fields also don’t arrogantly claim that their usefulness lies in their applicability to real life.  It is this combination of both asserting relevance and simultaneously reducing complexity of real applications that leads to some dangerous assumptions about how the world should work.  For example, my research thus far;

The Many Facets of Carbon Emissions

Global climate change is an economic puzzle in that it involves a lot of different elements, that relate back to concepts of fairness and unfairness.

1) Historical Grudges

Given the amount of manmade emissions that have collectively been produced to date, it is arguably the currently rich countries that have benefited the most from this.  Carbon emissions are a by-product of industrialization, and industrialization is associated with the economic development of most of the West. Thus, climate change treaties are saddled with the burden of how to distribute future obligations based on historical responsibility.

2) Privately Produced, Publicly Suffered.  

Carbon emissions are an externality; because they are a by-product of industrialization, the benefits are economically accrued to a small group contained within national borders.  As an atmospheric gas, carbon emissions are free to move anywhere they want, and the resulting impacts of global warming will be experienced all over the world.

3) Different Costs, Different Benefits

They can be felt all over the world, but to different magnitudes.  It is arguably the poorest countries that suffer the most and have the most to lose from climate change.  The list of factors that will determine how much they suffer includes things such as dependence on agriculture, how hot it is currently, whether or not the country has the ability and technology to adapt (or buy air conditioning).

Many solutions have all been proposed but essentially they boil down to making actions that lead to pollution costlier.  How costly they will be for each country depends on a number of factors, but one of these is a relatively abstract dimension of economics called welfare weighting.  Below a commonly used and seldom understood example:

Negishi Weights: 

One general strategy for calculating how people should ration their consumption of goods and services is to look at the overall welfare they can generate from consuming these goods.  For economists, this problem looks like this: 

 

Max:

Screen shot 2013-03-04 at 12.50.58 PM

Subject to: 

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You can find the in-depth explanations here.  The first line is the welfare you want to maximise.  The second line relates both the costs (from pollution) and benefits from consumable goods.  Given that producing more goods today gives you more pollution which will affect everyone’s welfare negatively later in life, the resulting solution should give you an allocation of consumption that produces the maximum amount of welfare, globally, over a long period of time, by considering the benefits from goods and the global costs.  The only “problem” with this was that, when the calculations were completed, regardless of wealth, would be given equal consideration in terms of welfare, produced results that emphasized large sacrifices being made by developed countries for the sake of protecting developing countries from environmental damages.

The result was ” the problem of climate change would be drowned by the vastly larger problem of underdevelopment“.

How to rectify this? Economists developed a system of Negishi weights, which would weight more heavily the impact of reducing consumption on countries that had a higher initial level of consumption (ie, more wealthy countries). This prevented large sacrifices of welfare in the developing world, and the solution would maintain a large portion of initial global inequality; all balance was restored to the universe.

In the process of “solving the problem of underdevelopment,” the implications of ignoring initial inequality were masked, to a large extent by undervaluing the welfare of the poorest regions of the world.  That is essentially what Negishi weighting does, and the implications of it are lost because they are difficult to locate in the models (if you are curious, it is the w in the first equation).  

Good Models, Bad Models

The process of using economic modelling solves a host of problems that would otherwise be unsolvable, such as how to allocate responsibility of sacrifices for climate change prevention.  However, its conclusions are often far reaching and affect many people, and the models makes far reaching assumptions about morality that often aren’t justified by mathematical reasoning.  These assumptions are carried all the way through the calculations, produce a solution, which is then packaged, presented, and sold to policy-makers with the real power to use these conclusions.  The lack of technical knowledge of those using these economic tools then prevents them from acknowledging the validity (or lack thereof) of any of those initial moral assumptions.  They lie embedded in formulas, secret and misunderstood by most of the people who will use them. They also remain safe from any criticisms people may have about their implications.

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As was suggested in the study on Negishi weights, the models themselves aren’t faulty and there is nothing wrong with making assumptions in order to reach conclusions.  However, the communication of these assumptions is necessary if economics is going to able to safely assert its applicability to the greater world. Rather than having a cluster of people at the level of academics, and another cluster of people working in policy, there should be more individuals somewhere in the middle.  For all the complaining that my colleagues do about having to read books like “Mostly Harmless Econometrics,” we are the necessary missing link in the puzzle.

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*this post is so old.  I left it in a pile of drafts that I had started and simply forgot to post. I’m not even sure if it is relevant anymore and most of you have already seen the article. O well . . . *

The 7 Worst Aid Ideas

The first two examples  are especially emblematic of a flaw in aid that most people don’t understand unless they’ve taken an Econ 101 course.  Basically, whenever something is given away from free, it really *isn’t* given away for free.  With free stuff comes a displacement of the profit that someone would have made off of selling that stuff, and that profit unfortunately can come out of the communities where it is needed the most.  When I was a kid in high school, I was fortunately warned by one of my mentors against sending *anything* to Kenya (where our org was set up) but instead to just have it manufactured locally.  Except for toothpaste.  So I went to a lot of dentists asking for those really small tubes of toothpaste you get after visits in the hopes that I could ship these over with my mentor and she would be able to deliver them to some (cavity-free) children.  To this day I wonder if that was even a good idea.

 

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On my WordPress dashboard, I am being informed that lots of people are coming here searching for Brenda Song’s bathroom fellatio scene in “The Social Network.”  Wtf? Sorry to disappoint.

. . .  Moving on.

I’m working on marketing ideas for a documentary that is coming out in February called “Pink Ribbons, Inc.” and it is pretty awesome.  It’s one of the reasons that I took this job in the first place, to be able to gain access to some interesting ideas and points of view.  Here’s the link to the trailer.

Pink Ribbons, Inc Trailer

Here’s also a pretty fair description of how the Pink Ribbon Campaign started.

It’s not a novel discovery, that companies are putting a charitable face on their products in order to up sales, sometimes with very few intentions of contributing to the charity.  What’s profound is the way that this message is communicated.  I can see why breast cancer is considered the “perfect marketing charity”; it appeals to and garners sympathy from the demographic that is the most likely to purchase products in a household: upper-middle class women, often white.  Now the Pink Ribbon Campaign and other breast cancer fundraisers generate a lot of money.  A look at the BC Cancer Agency site will tell you that we still don’t know the environmental causes of upwards of 60% of breast cancer cases.  Half of these products are ridiculous looking.  No one knows how much money is actually going to research, prevention, support, etc.  Some of the marketed products actually cause cancer themselves.

I’m going to stick my neck out here and say that I rarely donate to breast cancer or other cancer fundraisers (except if a friend is doing the fundraising, but that’s more out of solidarity than anything else).  I personally know people affected by cancer, but it doesn’t stop me from thinking that things like cancer, heart disease, etc, are all first world ways to die.

From my meager second year cell biology understanding of things, cells in your body divide, die, and get replaced.  As you age, the likelihood of this process messing up at some point increases, possibly because the number of divisions causes something to go wrong in the coding (kind of like how a photocopy of a photocopy is okay for a while but will start to get blurry).  If you are a cancer patient, with the exception of childhood cancers, you likely have lived long enough for your body to develop cancerous cells, as the risk factor increases with age.  The fact that cancer rates are rising is not only associated with environmental factors like what we eat and where we live, but also is being attributed to our aging populations.

Why are cancer rates so low in a country with low life expectancy, like Swaziland (life expectancy is somewhere around 30-40 years)?  Maybe it’s because they are dying of other, earlier causes before cancer cells even have a chance to develop.  A large portion of deaths are from HIV/AIDS.

Okay, so maybe HIV/AIDS is a public health crisis isolated specifically to parts of Africa and Southeast Asia.  What about a non-African country that isn’t Thailand? The first one on the CIA Factbook with the lowest life expectancy is Afghanistan. The biggest cause of mortality there is complications from childbirth.  The second biggest cause is “lower respiratory infections.”

What about something on this side of the Atlantic?  What about Haiti?  Didn’t they have that cholera epidemic?

The list goes on.  What I’m trying to say is that lower life expectancy, in general, means a cause of death such as childbirth, or war and violence, or HIV/AIDS, or a childhood disease, or a famine or a drought, or because your living conditions do not stand up to natural disasters, or organized crime, or something that is equally undesirable.  All this money is going to funding research for cancer treatments, when cancer is primarily an older person affliction.

I’m not trying to be evil.  I’m just an economist.  With limited funds and given a choice between two groups of individuals, I’d rather see funds going to people who are less likely to have spent much time in adulthood.  I’d rather see a dollar going to a malarial net in a place where children are at risk, or to providing better water, or whatever.  If I had to distribute the (really sad) paycheck I get in a manner that I thought was fair, cancer and heart disease would not be the first place I would go.  I would start with the average age of the individuals affected and I would move my way up.  If I live until sixty in a wonderful, first world country like Canada, I will know that I have escaped the causes of death of the vast majority of this world’s population.  Cancer, heart disease, and maybe a handful of others would be the only thing left to get me.

I’m sorry if I’ve offended anyone in this post who is affected by cancer.  Many of you raise funds on behalf of someone close to you; a mother, a daughter, a neighbour.  It’s just offensive to me when all this energy is directed at saving lives from cancer when it could be better spent saving millions more in other ways.  And no one puts a ribbon on those millions and raises their voice on their behalf.  There are people who live and die without a champion.

Stuff I looked at for this post:

Canadian Cancer Statistics

WHO Mortality in Afghanistan – http://www.who.int/whosis/mort/profiles/mort_emro_afg_afghanistan.pdf

WHO Mortality in Swaziland – http://www.who.int/whosis/mort/profiles/mort_afro_swz_swaziland.pdf

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One of the first events that set in motion the birth of this blog was the Tedx Terry Talks conference way back in October (nerd-central to the maxxx).  I was so excited about being able to cross of something from my list of “UBC things I have one year left to do” that I forgot to come up with an actual idea.  Well, application to talk turnover was about 2 weeks, so with that in mind, I was pretty sure it would go horribly, and I was ready to bury it in the back of my head afterwards.   It went up today, and actually, it doesn’t look as bad as I thought it would.  I also realized that I’m getting used to seeing myself on camera.

It’s essentially the story of how environmentalism is a first world luxury.

And Shiggy’s.  I had to follow his unfortunately and was the walking non-tradiction. 😦

Now I’m awesome though.

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One of the first things I noticed when I went to Tanzania two years ago was that everyone, EVERYONE, had a nicer phone than I did.  I mean, my piece of shit doesn’t have web access.  It can hold a total of five extremely blurry pictures.  Each picture probably has about four pixels in it.  I had to borrow a local’s cell in Moshi to check facebook.

This happened again in Indonesia last year.  Everyone, EVERYONE, had a blackberry. In order to contact professors, I was expected to send email length text messages, rather than voice calling.  Emails went unchecked.  The norm was paragraph long SMS messages that I would have to onerously type out on my primitive version of T9 using a numbers-only keypad.  I couldn’t create paragraphs, nor could I indent.  For fuck’s sake, universe, I get it, my phone sucks!

One of the greatest things about loose tech regulations outside of North American (and possibly Europe?) are that it means you get access to cheap phones, cheap service providers and cheap data plans.  Abroad, the norm is not to purchase a monthly plan, but to use pre-paid phone cards.

I’m pretty stoked about what this means in terms of connecting people with each other.  One of the first social innovations built around widespread phone access that I came across came from Jennifer Gardy’s Tedx talk last year on HIV patient treatment using an SMS system.

Simple and effective.

Another thing that I found interesting was the talk by Sugata Mitra about education and self-organized learning groups in India.  When children are curious, given very little, large steps can still be made in education.

I am curious to see if we can create a system that capitalizes on both.  Effectiveness without teachers, and widespread access to primary education in areas where cell phones are cheap but education is not.   There has to be a way to create a “hotline” with podcasts, text messages, and as iphones and Androids start taking over, games, built around educating and reaching out to children who cannot attend school.  Universal primary education is still far from a reality, and it would be great to take what we have and move in a small step towards progress.

Now excuse me while I text someone about it.  This could take a while.

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It’s been a while since I read Dr. Moyo’s book, but I think the main reason she rejects foreign Aid is because it erodes the credibility of the government.  She offers them the option of issuing bonds instead.

This leaves out the tricky business of what to do about negative feedback loops.  What Dr. Moyo’s graduate thesis supervisor, Paul Collier, points out is that relationships between several development factors isn’t always uni-directional.  A bad credit rating leads to reduced economic output, worsening living conditions, more political instability and then a lower credit rating.

And it means that at some point, aid might actually be needed to get a country out of a bad situation. When, you know, lack of funding is the problem in the first place.

Tunisia’s credit rating gets downgraded by Moody’s

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Harvard Kennedy School – Exaggerating the Importance of Good Governance.

I am up at 3, trying to finish my Kennedy School Application.  This is an interesting article, and I will definitely look for her book now.

Dr. Moyo suggests that good governance is an impediment to economic growth in Africa, and calls for abolishing this type of aid model as a way to encourage growth and reduce poverty.  I had a conversation with the IR chair Dr. Allen Sens last week, and he reiterated the commonly mentioned accusation of China’s lack of any governance criteria as pro-longing the conflict in Somalia a few years ago (no, that is not a typo, not Sudan).  Bad governance in the area prevented growth because the investment that was supposed to be happening just ended up in the hands of shady individuals.

So what Dr. Grindle is suggesting, from the description anyways, is that perhaps governance is important, but the way aid agencies are describing it are too complicated.  What is governance anyways?  Does it need to be defined on 116 different criteria in order to ensure that an LDC is getting what it needs?

Perhaps it is not a question of eliminating the condition of governance that would affect the effectiveness of aid.  Perhaps, it is clearing the terms of the aid to eliminate too many distracting (and initially, not very useful) terms for defining good governance, to focus on the handful of key indicators which are actually useful.

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