Saturday, February 18, 2006

Charity in crisis

Reuters Alertnet reports on a mudslide in the Phillipines that has claimed entire towns. Fortunately this awful crisis has a good chance of attracting the international aid that can help those living in the area survive and rebuild. The most successful aid appeals of recent times have been following the Asian Tsunami and the earthquake in Pakistan. These crises attract public support far better than the every day hardship of the Third World. This is probably a result of the availability heuristic, this is the psychological tendency for people to disproportionately remember large and shocking events. A good example is the popular misconception that there are more murders than suicides. Fortunately the availability heuristic is, in the case of charitable giving, producing the correct result.

Economists, following the lead of Bauer, are usually cautious about the effects of development aid on the Third World. No country has ever got rich on the good will of others and aid can actively hurt the process of development as entrepreneurial activity is diverted from creating successful businesses towards attempting to seize as large a share of aid receipts as possible. Another problem is that poverty in the developing world is often due to corrupt states and high barriers to legal business; aid cannot cure these problems and may aggravate them if it provides enhanced powers of patronage to corrupt governments. This logic is important when considering claims such as those being promulgated by the 'Make Poverty History' campaign that poverty can be ended if $X is donated by the First World.

Fortunately, the economic distortions of aid in the event of disaster are far less important. Emergency aid is usually distributed directly to those concerned by international aid agencies and, hence, is less likely to feed corrupt regimes. It is also inherently temporary which means that it cannot do long term damage to the incentives facing those talented citizens who, in their search for wealth, are crucial when Third World countries get wealthy. As the negative effects are less and the positive effects, lives saved, offer a huge and unambiguous reward for each aid dollar spent it seems quite clear that the objectives of aid should be simple and direct. Save lives.

Friday, February 17, 2006

Reductio ad Hitlerum in the Guardian

The Guardian today carries an editorial entitled "Denmark's new values" which, as evidence for the dominance of the far right in Denmark, includes the following:

"Where else could liberal politicians get away with saying that one of their party's main aims is to stop Turkey joining the EU?"

Now, I support Turkish entry to the EU enthusiastically but to suggest that anyone who opposes their entry with any force must be a fascist is bizarrely absurd. Plenty of people oppose the entry of the Turks due to their own problematic labour markets, difficulties in reconciling such a large and poor country with policies like the CAP and regional funds and the Turkish human rights record. None of these concerns make someone a fascist.

The author (apparently a Danish musician) also believes that the statement "Freedom of speech should be used to provoke and criticise political or religious authoritarians" is indicative of a desire to tell others how to live. To see the encouragement of free criticism of authoritarianism as indicative of a desire to control requires a bizarre leap of logic.

How does the Guardian find these people? Why does it publish their work?

Tuesday, February 14, 2006

European Central Bank row

The Financial Times reports that smaller countries are up in arms over the appointment of a German to the ECB's executive board. At the moment this is a row about politics, influence and pride, rather than economics but there is no reason for it to stay that way. The relative sizes, and hence importance, of the small and large economies in the eurozone will mean that ECB policy should be set with the interests of the large economies as its main objective.

At the moment this implies an expansionary policy as the German and French economies see growth slip once again. This is being mitigated thanks to the intellectual inheritance, particularly in the German representation, from the Bundesbank of monetary caution. "Uberhawks" such as Mr. Stark reduce the danger of ECB policy overheating the better performing economies in countries like Ireland. The smaller countries might, therefore, be wiser to welcome his appointment.

The situation where the fortunes of large and small economies are reversed and ECB policy depresses the smaller states would lead to a far uglier political situation. The large countries can be expected to push ahead with interest rate rises to slow their own economies while largely ignoring the pleas of smaller countries for expansion; ideology would cease to work in the interests of small countries.

The long term future of EMU is still in question despite the massive costs of leaving. Without convergence in the performance of the eurozone economies there are big political battles to come.

The Cartoon crisis rumbles on

The crisis over the Danish cartoons is returning to some kind of dismal norm. Protests continue around the Muslim world, Reuters reports on new protests in Pakistan, while Europe is returning to its default, disinterested, stance. Despite this the crisis is unlikely to end as one more case of "Muslim world sees rioting, burning embassies, mass rage; Europe sees argument about EU budget". While European politics is already moving on there does appear to have been a change in public opinion, certainly in the UK as reported by the Times, towards a new willingness to confront radical Islam. Tolerating lunatics such as the one the Sunday Times uncovered is, thankfully, becoming less and less politically shrewd.

The Economist's coverage on the cartoons was just right. The main point I would add is that the strength of protests lends credence to the need for newspapers to show solidarity in the face of violence.