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Charlie Stross wrote:
> On Fri, Aug 24, 2001 at 06:23:07PM -0400, Mike Lorrey wrote:
> > > Firstly, you're personalizing a nation of millions. Don't do that. For
> > > all you know, the average guy on the streets of Kingston is just as
> > > opposed to the taking out of such loans as you are. (Do I need to read
> > > you the standard libertarian "the state is not the same as the sum of
> > > its citizens" speech at this point?)
> > Depends on what context you want to give it.
> > I think you are taking my point wrong, though. If you know that someone
> > is going to lose their job (i.e. lose their case in the WTO on
> > protectionism of banana exports), its a really really dumb idea to lend
> > them money, especially money to be spent on expanding banana
> > cultivation.
> What do you think the IMF and the Word Bank are, Mike? They're not banks
> in the conventional sense of a bank that you or I might walk into and ask
> for a loan. They're international agencies backed by governments, whose
> job is to spread the risk of providing financial assistance to other
> governments, when it has been determined for political reasons that such
> assistance should be rendered. They are, fundamentally, tools for
> implementing the international relations policies of the governments that
> back them. They're not free agents in the economic sphere!
Sure, but neither do they represent just one government. Here in the US,
it has been a general consensus that the IMF has been a disaster for
decades, acting as a tool of third world dicatators (which, you may
note, outnumbered western countries for many years) for their personal
aggrandizement. It always seemed that it was one more third worlder
politician in charge of the IMF who couldn't seem to resist hiring all
of his siblings, cousins, and nephews as well (kind of like how the
International Olympic Committee is run), and continued to perpetuate
easy credit terms for third world despots to buy more weapons from
France, the USSR, China, or North Korea.
Now that we're getting the IMF back under western control, all of the
third world despots, socialist movements, and other cronyist groups (and
their enablers here in the US and europe) that are now losing out on the
gravy train are pissed.
> > The 19% rate is simply a disinscentive against borrowing for such a dumb
> > purpose.
> Nah. 19% interest rates are _low_ by the standards of British credit card
> accounts. You think the credit card bureaus are trying to discourage users
> from borrowing at those rates? 19%, from another angle, is a rate designed
> to give a decent profit to the lender, when there's some risk that the
> borrower will go bust. Yes, it's a disincentive against borrowing -- but
> if the belt-tightening alternative goes hand in glove with a revolution
> and blood in the streets, what are you going to do?
19% is generally normal for personal consumer credit cards, and it is
that high specifically to act as a disincentive against carrying a
balance for more than a few months. Intergovernmental loans between
stable and trustworthy governments and banking systems (like those
between western countries and interstate and interbank loans here in the
US) are generally in the low single digits.
> What interests me is that a 19% interest rate -- in what is basically a
> repayable loan from one government to another -- looks like a hook with a
> barb on it. There's *no* *way* that a recipient government can boost their
> economic growth, on the basis of a loan, sufficiently to repay at 19% per
Yes. Which is why it is a disincentive against borrowing. An intelligent
government would say, "Hmmm, do we borrow money at 19% to pay off a loan
we already have at 12%? No, that's a dumb idea, lets just tighten our
belts and get this 12% loan paid off without borrowing. When we do,
they'll offer us 12% terms again."
> (The fundamental difference between the way you're thinking about it, and
> the way I'm thinking about it, is that you're thinking in terms of a pure
> free market system, with transactions between individuals who are rational
> and free. I'm thinking in terms of the US State Department and the UK Foreign
> Office lurking up a dark alleyway and mugging some poor bastard who can't
> fight back, in order to cut the price of bananas.)
I look at it the other way:
The local Jamaican Posse Banana Market sells bananas for $10 a bunch,
while my cousin Pedro can sell his own bananas for $5 a bunch, except
that the Posse comes and forces him at gun point to charge $11 per
bunch, which causes everyone to continue to buy from the Jamaican Posse.
I get my own sheriff to go and make the Posse stop forcing Pedro to
charge so much, so I say "everything's gonna be alright" for everyone
now. The Posse is pissed cause they can't keep so many layabouts on the
dole for muscle in the Posse at the lower market price of $5 a bunch,
and they say "I wanna shoot the sheriff" and come to my bank to ask for
a loan for money to keep the Posse's members paid so they can go shoot
Sheriff John Brown. I say, "sure, but you gotta pay it back at 19%
interest". They say, "But mon, we ain't makin' no profit on the money we
borrow, since we're just using it to pay layabouts, how can we earn that
19% interest?" I say,"You can earn that interest by investing that money
instead in capital equipment that you can use to turn a profit for you."
> > Whether it's turtles all the way down or not is irrelevant. Keep in mind
> > I'm not too sympathetic toward the IMF either, but at least they are
> > starting to get their act together. There are plenty of measures that a
> > country like Jamaica can take to pull itself out of the hole by the
> > bootstraps. For example, they can drastically revise their banking and
> > taxation laws to encourage an influx of deposits from overseas
> > investors, and structure their social welfare programs to encourage
> > people to obtain long term birth controls like Norplant.
> To encourage an influx of deposits from overseas investors, you need to
> be able to offer something to invest _in_. Last time I looked down at the
> supermarket, bananas were cheaper than potatoes. (When I was a wee kid
> they were a luxury fruit!) That implies that if you put yourself in the
> saddle of the Jamaican government, you need to re-tool the economy to do
> something profitable. But you need to do so on a budget of approximately
> fifty cents, because you've got nothing to work with -- no skilled workers,
> no infrastructure, no high-level education system, and nothing but bananas.
The fortunate thing is that a banana is possibly the world's most
perfect food. Nobody's gonna starve in Jamaica. Or perhaps it's
unfortunate. As demonstrated in Jarod Diamond's "Guns, Germs, and
Steel", cultures which have had too easy a time producing their food
with little technology generally evolve into casual societies that are
> The Jamaican birth rate isn't a major problem; at 18.51/1000 population
> (in 1999) it's higher than the US (at 14.2/1000), but much lower than most
> of the third world; just about everywhere in Africa and the Middle East
> is in the 35-45 range, for example.
But as with any numbers that compound, small differences equate to big
differences in actual growth. keep in mind that Jamaica has a far lower
mortality rate than most of Africa...
> > I understand completely that being in a situation where you have a large
> > percent of the population who are unskilled, unemployable, and unwilling
> > to fix that, you have a major mess on your hands, one that requires
> > either war, famine, epidemic, or other natural disaster to fix.
> That's arrant nonsense. For starters, you can make just about 80% of any
> population willing to learn if you can give them a positive incentive for
> change. For seconds, you're embracing a negativistic fatalism about the
> human condition that is, dare I say it, rather at odds with extropianism.
Funny how I'm now being the cultural relativist. The problem is that
perpetual protectionism is a disincentive to change, and the result of
true negativist fatalism about the human condition. Protectionism
implies that those who are protected are inherently incapable or
unwilling to compete on an equal footing. I don't accept that, and many
Jamaicans are hard working. Those in Britain decrying 'American
imperialism' need to examine how British imperialism has hamstrung the
> If we judge Europe in the 12th century by your yardstick of "unskilled,
> unemployable, and unwilling to fix that" then it comes off a hell of a lot
> worse than Jamaica today.
Yes, it was, but a convenient thing called The Plague helped balance the
> > The purpose of the 19% loan is to send a price signal to the rulers that
> > they can no longer fix today's problems by borrowing from the future.
> Nope, the purpose of the 19% loan is to send a diplomatic signal to the
> rulers saying "we've got you where we want you, now lube up and bend
> over". The 19% interest rate wasn't dictated for commercial reasons, but
> for political ones.
For political reasons like "You folks are not going to get out of this
mess by borrowing your way out, you've got to work for it." Nobody ever
found their way out of bankruptcy by borrowing more money.
> > > Thirdly -- and this is the most important point -- conditions attached to
> > > the loans are being used as instruments of state power. That is the
> > > real bad problem here; the recipient of the loan isn't free to use it
> > > productively.
> > No, they are not free to spend it on social welfare programs. There is
> > nothing wrong with a person to attach stipulations on how THEIR money is
> > going to be used by those they lend it to. A bank would get mighty
> > pissed if I took out an auto loan and used the money on a vacation to
> > Fiji.
> Social welfare programs include building schools and training workers
> in new skills. (What was that you said about "unskilled, unemployable,
> and unwilling to fix that"?)
Education isn't social welfare, public education is simply monopolism.
> We _know_ that third world countries can develop. Look at South Korea or
> Vietnam circa 1945, and look at South Korea today. Look at Thailand. Or
> China, today, in the throes of routine 7% annual growth. Hell, even
> Poland or the Czech republic fit the mold to some extent (at least in
> comparison to Russia). The question we should be asking is why places
> like Jamaica or Zambia don't follow suit. I don't buy the argument that
> the locals are too stupid or lazy to work; hacking bananas off trees for
> piece-rate on a plantation isn't a cushy life.
I don't buy that assessment either. Note however: the economic stars you
cite never found their real economic stardom until they dropped
protectionist trade policies. Jamaica is still protected by British
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