i.want.world

elasticity of deaths due to natural disasters vs. income

Going back to hammer in the topic of economic freedom, Matt Kahn has a paper on the topic of the elasticity of deaths due to natural disasters vs. income which states this in the Abstract:

Though richer nations do not experience fewer natural disasters than poorer nations, richer nations do suffer less death from disaster. Economic development provides implicit insurance against nature's shocks. Democracies and nations with higher-quality institutions suffer less death from natural disaster. Because climate change is expected to increase the frequency of natural disasters such as floods, these results have implications for the incidence of global warming.

 

The paper concludes:

Death counts differ sharply by continent. African nations experience fewer natural disasters and all else equal, suffer less death from natural disasters. Unlike other Institutions play a role in shielding the population from natural disaster death. Future research should pinpoint the mechanisms.

This paper has shown using several empirical models, that controlling for national income, less democratic nations and nations with more income inequality suffer more death. Controlling for a nation's population size and geography, I showed using OLS and instrumental variable estimates that a host of institutional quality proxies lower national death counts from disasters.

One important hypothesis that merits future research is the role of government corruption in exacerbating death counts from natural disaster. Existing corruption indices are highly negatively correlated with national per-capita income. It is quite plausible that government corruption raises death counts through the lack of enforcement of building codes, infrastructure quality, and zoning enforcement.

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Austria's Economic Freedom

No major surprise: government spending and high taxes has Austria ranked 22nd in this year's Index of Economic Freedom - right above Germany. In part due to recent unprecedented large stimulus plans, the world experienced for the second time in the history of the Index's publishing an overall decreased of economic freedom.

Terry Miller's presentation of the Index at the Hayek Institute pointed out that despite large government spending to promote growth, early evidence has shown that increase in spending has undoubtedly the negative effect -

yet another attestation of delusionary Keynesian economics propaganda.

Click here to download:

Index2010_ExecutiveHighlights.pdf (926 KB)

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Efficient Markets Hypothesis is thoughtfully Disproved

Daniel Gross writes:

This afternoon, while walking into the Congress Center, the main hub of Davos, I noticed a piece of gray paper on the floor. It looked like it might be currency of some sort—certainly not a dollar, but perhaps Swiss francs or something else. I started to bend over to pick it up, but then I caught myself. This is the World Economic Forum. It is populated by hundreds of economists and by thousands of business people schooled in the tenets of economics. This is possibly the most rational, profit-maximizing concentration of human capital in the world. These are the actors who make up an efficient market. And of course adherents to the efficient market hypothesis famously don't believe in the concept of found money or found savings...

But I'm a connoisseur of economic irrationality. And so I bent down and picked up the paper. On one side, the grim visage of Queen Elizabeth. On the other, Charles Darwin. It was a 10 pound note, worth about $16.25. Just lying on the floor, unmolested by Nobel Prize-winning economists, CEOs of Fortune 500 companies, and financial journalists.

Gross concludes the efficient markets hypothesis must be false.

I've managed to lose a 100 Euro note before and as I read this, I can think of this irrational transaction as one of many that occurs daily. Then again, EMH describes the market as a whole whereby all actors can theoretically be wrong - in this sense - throw away cash.

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Fair Trade - Just Another Scam

Nestlé has just announced that KitKat – Britain's biggest-selling chocolate bar – will carry the Fairtrade logo from next month. But how much do consumers really know about the Fairtrade movement? Is it, as some say, an essential safety net that helps poor farmers earn a better living or, as others say, an example of western feel-good tokenism that holds back modernisation and entrenches agrarian poverty?  

We might think of sub-Saharan subsistence economies when we think of Fairtrade, but the biggest recipient of Fairtrade subsidy is actually Mexico. Mexico is the biggest producer of Fairtrade coffee with about 23% market share. Indeed, as of 2002, 181 of the 300 Fairtrade coffee producers were located in South America and the Caribbean. As Marc Sidwell points out, while Mexico has 51 Fairtrade producers, Burundi has none, Ethiopia four and Rwanda just 10 – meaning that "Fairtrade pays to support relatively wealthy Mexican coffee farmers at the expense of poorer nations".

The article additionally points out:

Another criticism is over institutional inefficiencies. The vast majority of the money from Fairtrade sales remains in the west – with only about 5% of the Fairtrade sale price actually making it back to the farmers. As Philip Oppenheim says, "any intelligent person will ask why I should pay 80p more for my bananas when only 5p will end up with the producer". Fundamental to the failure of wealth transfer are issues such as the fact that while 90% of the world's cocoa is produced in the developing world, only 4% of the chocolate is produced there. Developing countries remain locked in the primary sector commodities market, while the west cashes in on their value-added conversion.

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austrian school of economics

Given that all major economies currently have a central bank supporting the private banking system, almost all new money is supplied into the economy by way of bank-created credit (or debt). Austrian economists believe that this bank-created credit growth (which forms the bulk of the money supply) sets off and creates volatile business cycles and maintain that this "wave-like" or "boomerang" effect on economic activity is one of the most damaging effects of monetary inflation.

According to the Austrian Business Cycle Theory, it is the central bank's policy of ineffectually attempting to control the complex multi-faceted ever-evolving market economy that creates volatile credit cycles or business cycles. By the central bank artificially "stimulating" the economy with artificially low interest rates (thereby creating excessive increases in the money supply), the bank itself induces inflation (often focused in asset or commodity markets) and speculative investment, resulting in "false signals" going out to the market place, in turn resulting in clusters of malinvestments, and the artificial lowering of the returns on savings, which eventually causes the malinvestments to be liquidated as they inevitably show their underlying unprofitability and unsustainability...

via - wikipedia

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