Grameen is a bust
Here is a chart from the JEL showing that the much-praised Grameen Bank is a highly subsidized, unprofitable, and unsustainable institution. I have a piece on this subject coming out tomorrow but I was just visiting with BK Marcus on the subject of why is it that so many otherwise libertarian writers were so quick to buy into the Nobel Prize rhetoric about how Grameen is using the magic of credit to the poor as a means of social uplift. BK said it was because libertarians generally overvalue the idea of universalized individual entrepreneurship and undervalue the role of wages and large-scale capital in driving economic growth. Could be: but I still don't entirely understand why so many writers and thinkers on the market side of the debate didn't smell a rat here, especially when the subject has been so well exposed on the scholarly literature. In any case, more tomorrow.
Comments (2)
To this: "I still don't entirely understand why so many writers and thinkers on the market side of the debate didn't smell a rat here..."
Maybe this:
Philip Ball's recent "Baroque fantasies of a peculiar science" for the Financial Times:
It is easy to mock economic theory. Any fool can see that the world of neoclassical economics, which dominates the academic field today, is a gross caricature in which every trader or company acts in the same self-interested way – rational, cool, omniscient. The theory has not foreseen a single stock market crash and has evidently failed to make the world any fairer or more pleasant.
The usual defence is that you have to start somewhere. But mainstream economists no longer consider their core theory to be a “start." The tenets are so firmly embedded that economists who think it is time to move beyond them are cold-shouldered. It is a rigid dogma. To challenge these ideas is to invite blank stares of incomprehension – you might as well be telling a physicist that gravity does not exist.
That is disturbing because these things matter. Neoclassical idiocies persuaded many economists that market forces would create a robust post-Soviet economy in Russia (corrupt gangster economies do not exist in neoclassical theory). Neoclassical ideas favouring unfettered market forces may determine whether Britain adopts the euro, how we run our schools, hospitals and welfare system. If mainstream economic theory is fundamentally flawed, we are no better than doctors diagnosing with astrology.
It is almost impossible to talk about economics today without endorsing its myths. Take the business cycle: there is no business cycle in any meaningful sense. In every other scientific discipline, a cycle is something that repeats periodically. Yet there is no absolute evidence for periodicity in economic fluctuations. Prices sometimes rise and sometimes fall. That is not a cycle; it is noise. Yet talk of cycles has led economists to hallucinate all kinds of fictitious oscillations in economic markets. Meanwhile, the Nobel-winning neoclassical theory of the so-called business cycle “explains” it by blaming events outside the market. This salvages the precious idea of equilibrium, and thus of market efficiency. Analysts talk of market “corrections”, as though there is some ideal state that it is trying to attain. But in reality the market is intrinsically prone to leap and lurch.
One can go through economic theory systematically demolishing all the cherished principles that students learn: the Phillips curve relating unemployment and inflation, the efficient market hypothesis, even the classic X-shaped intersections of supply and demand curves. Paul Ormerod, author of The Death of Economics, argues that one of the most limiting assumptions of neoclassical theory is that agent behaviour is fixed: people in markets pursue a single goal regardless of what others do. The only way one person can influence another’s choices is via the indirect effect of trading on prices. Yet it is abundantly clear that herding – irrational, copycat buying and selling – provokes market fluctuations.
Or, this: http://www.worldslaves.citymax.com/page/page/195600.htm
provide potential answers to the query posed...
Published: November 7, 2006 5:15 AM
Perhaps it's because my CPA certification lapsed over 20 years ago, but the table to which this blog entry links does not quite persuade me that the Grameen Bank is an unprofitable, unsustainable institution (not that it shows the contrary, either).
Some of the trends in the table APPEAR favorable, if not quite rosy. That the Bank is subsidized certainly strikes a dis-chord with the current loud rhetoric that holds it out as an entrepreneurial success. Perhaps the article in which the table appeared might make it clearer why the Bank is not a going concern.
Published: November 7, 2006 8:08 PM