The Left vs. Larry Summers

It's another of those rare occasions when I have to disagree with Digby. I am puzzled with the Left's allergy to Larry Summers; one of its symptoms is obsessively scratching and digging up the 1991 World Bank memo about the possibility of selling toxic waste to Third-World countries. Says Digby:

Jonathan goes on to point out the unpleasant truth about such allegedly "out of the box" thinking --- that the people who reap the "benefit" of such things usually don't have to live in the putrid, polluted hellhole that's created by our toxic waste.

All I have to say in response is what I already wrote in a comment to a similarly-themed diary on Daily Kos, and an important part of it was the exact mirror image of Digby's thought - the people who scream that it is horrible and evil even to consider such ideas also don't have to share the fate of the poor people in the Third World:

In third world countries there are cities where children spend all day scavenging landfills. Perhaps there is unpolluted nature 20 miles away, but that does not help to make the lives of those children any safer, healthier, or more hopeful. Some more wealth in the country might, though - provided we can make sure it is actually spent on developing the country's economy and not on the leaders' luxury.

My current opinion (which is reality-based, so it may change with new information) is that toxic waste trade would be a bad idea, primarily because we could not effectively ensure that the money would be well spent. My educated but fallible guess is that Summers holds a similar view; my million-dollar bet is that he would similarly try to base his conclusions on reality and facts.

Look, some ideas seem yucky. But dissecting frogs is also yucky, and if you can't get over it, you can miss out on learning science. Part of maturity is that we should not let the yuck factor dictate our thought process and evaluation of ideas.

C'mon, people. All Larry is guilty of is bad taste.

Trivial Economic Trivia

Dani Rodrik wastes his time and his audience's:

I asked the audience a favorite question of mine: would you rather be poor in a rich country, or rich in a poor country. I gave them the following terms for thinking about the question:

1. Assume you care only about your own consumption
2. Define poor and rich as someone who is the in the bottom or top decile of a country
3. Define poor and rich country analogously as a country in the bottom or top decile of the distribution of per-capita incomes across countries.

The audience was divided evenly between those who would choose to be rich in a poor country and those who would rather be poor in a rich country. The real answer is that it is not even close. This has important implications for how we think about poverty reduction in the world.

Sorry, but this should not be a prominent Harvard professor's favorite question. As defined, it is a question about an artificial world that has little to do with reality. First, he assumes away the value of status, power, and other non-consumption sources of utility. He also pretends that people's desires are absolute, independent of what they are accustomed to or what they see that their neighbors have; such absolute utility for consumption is a very useful concept for typical microeconomic problems, but it leads to absurd conclusions when comparing people in vastly different situations. By Rodrik's criteria, it is better to be a postal worker in the US today than a king in 18th century. But if Rodrik had taken lessons from Mel Brooks, he would know that "it's good to be king."

Second, the way Rodrik defines "rich" and "poor" for this problem is divorced from the words' meanings in normal language. In any country I can think of, the wealth distribution is skewed. Nowhere is the top 10% considered rich, but the bottom 10% is considered poor almost everywhere. The poorer the country, the more skewed the distribution is likely to be; the 90th percentile person there may be a rich person's servant.

Rodrik is right that comparisons between any combination of rich/poor people in rich/poor countries have important implications for poverty reduction, but only if the comparisons are meaningful and fair. Misleading comparisons like this will have important wrong implications.

P.S. In case you haven't guessed, the answer to Rodrik's riddle is here.