Don’t miss this Connie Bruck/New Yorker article on Muhammad Yunus, the Bangladesh banker and economist who was awarded this year’s Nobel Peace Prize for his development of microcredit, which is simply the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans (a recent WSJ ($) op-ed by Yunus is here). Interestingly, an unexpected force is competing with microcredit:

[Microcredit promoters] say that the biggest obstacle to commercialization of the sector is philanthropic capital. They say that it distorts the marketónot only by filling channels that might otherwise draw commercial investors but also by keeping unsustainable programs alive.

On the other hand, philanthropy is also a key source of capital for microcredit:

The idea of reaching billions of the poor by achieving ìscaleîóa word invoked ceaselessly in the microfinance communityóhas enticed foundations, rich individuals, even investors into channelling millions into microfinance. The $1.2-billion Michael and Susan Dell Foundationóestablished by the founder of one of the worldís largest computer manufacturersóhas begun making grants to microfinance institutions in India, a country of 1.1 billion people, most of whom have no access to financial services. In October, 2005, Google established a philanthropic entity called Google.org, with seed money of about a billion dollars, to fight disease, global warming, and poverty; microfinance is expected to be a key component of its poverty portfolio. And last April the Bill and Melinda Gates Foundation announced that it would devote an undisclosed amount of money to expanding financial services for the poor in developing countries. Dr. Rajiv Shah, who oversees the new Gates program, said of microfinance, ìThis can reach hundreds of millions of people, and do so in a way that helps them move out of poverty and that sustains over time.î

Hat tip to Tyler Cowen for the link to the New Yorker article.

In this clever and lively lecture, University of Chicago Economics Professor Steven D. Levitt of Freakonomics (Morrow 2005) fame explores his research into the economics of gang members selling crack cocaine. Levitt’s description of the way in which some gang members added the correct answer to the initial multiple choice question that the field researcher posed to them is priceless.
Hat tip to Greg Mankiw for the link to Levitt’s lecture.

Russell Roberts over at Cafe Hayek points us to a remarkable Open Mind video from over 30 years ago of Milton Friedman discussing principles of economics and limited government. The entire video is about a half hour, but if you watch nothing else, take a moment to marvel at Professor Friedman brilliantly responding to an inflammatory opening question that suggests he lacks compassion for his fellow man. Professor Friedman calmly refuses to take the bait and turns the issue around to question the motives of those who advocate the cure-all of government intervention:

INTERVIEWER: Professor Friedman, I wonder if I might begin the program by saying that you’re a kind gentleman, yet you’re identified by many with those who seem — to those who make that identification to want us not to do kind and gentle things — perhaps not provide for the poor, perhaps not provide for the aged — and I wonder how you’d reconcile these phenomena and whether you feel it’s fair to characterize you as a conservative economist.
FRIEDMAN: Well, let me start at the end of that first. I never characterize myself as a conservative economist. As I understand the English language, conservative means conserving, keeping things as they are. I don’t want to keep things as they are. The true conservatives today are the people who are in favor of ever bigger government. The people who call themselves liberals today — the New Dealers — they are the true conservatives, because they want to keep going on the same path we’re going on. I would like to dismantle that. I call myself a liberal in the true sense of liberal, in the sense in which it means (inaudible) and pertaining to freedom.
Now, that brings me to your second point. One of the great mistakes is to judge policies and programs by their intentions rather than their results. We all know a famous road that is paved with good intentions. The people who go around talking about their soft heart — I share their — I admire them for the softness of their heart, but unfortunately, it very often extends to their head as well, because the fact is that the programs that are labeled as being for the poor, for the needy, almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have.

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