Police versus Education, War versus Hospitals

The 2011 World Development Report has been released. Here's a bit form its web site:

More than 1.5 billion people live in countries affected by violent conflict.
The World Development Report 2011: Conflict, Security, and Development examines the changing nature of violence in the 21st century, and underlines the negative impact of repeated cycles of violence on a country or region’s development prospects. Preventing violence and building peaceful states that respond to the aspirations of their citizens requires strong leadership and concerted national and international efforts. The Report is based on new research, case studies and extensive consultations with leaders and development practitioners throughout the world.

Some are arguing that this report represents a major change in the way the World Bank is advocating aid resources be allocated. Indeed, it appears that the Bank is advocating resources be used in building stable governments, justice and police... rather than emphasizing education and health. From the BBC:

The report says if there is not a major refocusing of aid in this direction, then other targets on poverty, health and education will not be reached.

There is far more spent on alleviating the effects of conflict than preventing it from breaking out, and conflicts tend to be repeated.

The "Heart of Economics"

I'm currently teaching a course on "the economics of social problems." It can be a tricky course because I need to communicate to students that, for example, poverty is about more than low income. Its also about opportunities, happiness or well-being, cognitive adaptations (i.e., beliefs) and more.

With this in mind, I found today's piece in the NY Times by Ed Glaeser interesting. He writes:

Teachers of first-year graduate courses in economic theory, like me, often begin by discussing the assumption that individuals can rank their preferred outcomes. We then propose a measure — a ranking mechanism called a utility function — that follows people’s preferences.

But then we turn to welfare, and that’s where we make our great leap.

Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices.

When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice.

Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another, or with Keynesianism and its emphasis on anticyclical public spending.

Pay Day Loans in Alberta

In the book Why the Poor Pay More, Gregory Squires discusses how predatory lending occurs via pawnshops and payday loans. Now, it looks like Alberta will begin putting controls on the fees and interest rates that payday lenders charge ("Alberta trgets payday lenders," Calgary Herald, May 18, 2009).

In some cases these lenders charge as much as 60% (once fees and interests are calculated and included into the short-term nature of the loan). While these services are of value to those who use them (many low income people can't access more familiar types of credit), the high rates of interest charged by these lenders impose significant costs on these individuals.