Yes, the market works for the poor

In 2005, The Economist published their special reports titled "A Digital Divide." The argument was one of the main reasons for the persistence of poverty is the lack of access to market (goods, labor, or financial). Information and Communication Technology (ICT) has the potential to provide the access to market. The problem is the poor tend to have limited access to such technology. Hence, one way to help alleviating poverty is to provide greater access for the poor to ICT.

A few years ago, this idea did sound absurd. What? Internet or mobile phones for poor farmers or fishermen, while most of them still even struggle to buy food? (Even Rizal once was skeptical. Back in 2005, I asked him how ICT can help the poor. "Sell the computer, buy them rice," was his answer).

However, anecdotal evidences do show that ICT can, and does, help the poor. The Economist's this week special reports provide a series of article - one may see it as a conclusion for their 2005 reports - on how ICT, mobile phone in particular, have transformed lives in the poor world in almost a revolutionary way. It connects buyers and sellers in remote areas; helps small businesses taking orders on the spot; enables farmers to get weather forecast hence deciding whether or not to plant their crops. Amongst all, in India and Africa, mobile phones are the new financial intermediaries:

... mobile money, which allows cash to travel as quickly as a text message. Across the developing world, corner shops are where people buy vouchers to top up their calling credit. Mobile-money services allow these small retailers to act rather like bank branches. They can take your cash, and (by sending a special kind of text message) credit it to your mobile-money account. You can then transfer money (again, via text message) to other registered users, who can withdraw it by visiting their own local corner shops. You can even send money to people who are not registered users; they receive a text message with a code that can be redeemed for cash.

The question is, are anecdotal evidences good evidences? Contemporary studies seem to support the idea. This study is an example. (Of course, there is always a debate on external validity, generalization, etc.)

There is a bigger picture I'd like to point out: this is an example of how market incentives work, and work for the poor. Ten years ago, mobile phones were still a luxury. But in just a decade, costs have fallen dramatically so virtually almost everyone who wants to have a cell phone can have one. Competition and market liberalization has contributed to this falling costs.

On the other hand, (poor) people in the developing world are potential consumers. The market sends this signal to the producers and network providers, who keeps innovating their products. The innovation did not stop there; came Grameen Phone, came M-PESA, and so forth.

So, don't lose faith in the market economy, yet...

Surprising Conversion

No, I am not talking about your barista Aco who, after those years, finally uses Mac. It's Richard Posner, one of the Chicago gang's members, that became (old) Keynesian.

When it comes to macro, it is indeed hard to resist Keynes and his elegant aphorism.

HT: Greg Mankiw

Chicago Strikes Back

By way of a New Keynesian (Greg Mankiw's blog), I learn about John Cochrane's draft of counter attack against Krugman's innuendo.

I like this particular para:

(H)e argues for a future of economics that “recognizes flaws and frictions,” and incorporates alternative assumptions about behavior, especially towards risk-taking. To which I say, “Hello, Paul, where have you been for the last 30 years?” Macroeconomists have not spent 30 years admiring the eternal verities of Kydland and Prescott’s 1982 paper. Pretty much all we have been doing for 30 years is introducing flaws, frictions and new behaviors, especially new models of attitudes to risk, and comparing the resulting models, quantitatively, to data. The long literature on financial crises and banking which Krugman does not mention has also been doing exactly the same.

Which I would also like to shout at emphatically say to our friends the economics no-no (some are within the profession itself) who keep complaining about the lack of behavioural/social interaction/(insert what you want) contents of the discpline,

"Hello, where have you been?"

Addendum:
I recall a conversation with Ujang. He used different words, that is, "ke mana aje, elo?"

To Fast or Not To Fast

When Sisil was pregnant with Lintar, we decided that she skipped fasting during Ramadan. Our common sense says that it'd be healthier for the baby if the mother doesn't fast --and pay the financial compensation to the poor instead. But apparently, as seen from our friends' wall status at Facebook, our thinking differs from many who prefer to keep fasting during pregnancy.

Recently I come across two papers on pregnancy and subsequent offspring's health status. One is from Douglas Almond on the long term impact of in utero 1918 influenza pandemic in the US (JPE, 2006, vol. 114. no. 4); the other is from Reyn Van Ewijk (LSE's CEP working paper, 2009) on the long term health impact on the next generation whose mothers were fasting during pregnancy.

It seems that our common sense is vindicated. Van Ewijk writes:

Using Indonesian cross-sectional data, I show that people who were exposed to Ramadan fasting during their mother’s pregnancy have a poorer general health and are sick more often than people who were not exposed. This effect is especially pronounced among older people, who, when exposed, also report health problems more often that are indicative of coronary heart problems and type 2 diabetes. The exposed are a bit smaller in body size and weigh less.

We are aware that religious interpretation is a very personal affair, yet we still keep wondering what is the selfish true reason for insisting on fasting during pregnancy despite the available exemption option.

Flexible Professor's Wage

What makes economics professors (well, Jim Hamilton, to be precise) different from their non-economics colleagues (to be exact, the other UC's professors)?

The former is more willing to adjust their price and take salary cut (and be explicit about the term, instead of using an obscure word of furlough), when the economy goes bust, and demand for economics teaching and research down.

Of course when thing is the other way around, no difference between the two. Both would love to have a raise.

Krugman on Macroeconomics

Bias toward old Keynesianism and against Chicago school aside, Krugman writes a useful summary on the state of macroeconomics here. It'd help anyone who wants to know the difference between saltwater and freshwater schools as well who's who in the discipline.

My take is here, and for sure I don't take hostile perspective to the freshwater school the way Krugman did. Nonetheless, one thing I agree with Krugman: his opinion on the use of math in the profession that prefers beauty over truth. But it just reinforces my intention to learn more (gasp!) math. A heroically tall order for me indeed, but I just see no other way.

Democracy's Metric

In his latest book, The Idea of Justice, Amartya Sen writes:

But democracy must also be seen more generally in terms of the capacity to enrich reasoned engagement through enhancing informational availability and the feasibility of interactive discussions.

Back to current Indonesian democracy.
1. Informational availability, yes. We have various sources of information, thanks to free press, political websites, academic freedom -to mention some of information sources.
2. Interactive discussion, yes. Thanks to facebook, comment section of blogs, email threads, free electoral campaign, presidential debate, and warm warung kopi talks among ordinary folks.
3. reasoned engagement?

Many times I feel the most unreasoned too-normative arguments come from, ironically, the chattering middle class failing to fairly grasp the bigger picture and falsely believing in knowing all s@%ts --empowered by lousy journalism.