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Apr 05, 2010

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David

Michael,

I like some of your examples and stories that relate the complicated issues associated with supply & demand, and the bigger picture of allocation of resources. The answer will be known when Creation and God's people are restored to his Glory in Jesus. Until then the free market system with limited control and regulation solves a host of issues for the majority of people. The poor will always be with us and one way to help that is to provide helping hands like education, necessary health care, basic food needs and housing. I don't have answers on how to do that, but I know if the "Church" did it's job we all would be better off. Especially the poor ! Can you imagine what would happen if all Church goers gave just 11% (a good starting point) of their income what the "Church" could really be and do? What an impact could be made on those who don't know Jesus.

Michael W. Kruse

Thanks David. I'm grinding slowly toward how I would address the issues you raise. Some will come in the next post. More toward the end.

PamBG

Not necessarily pertinent to this post, but on the general topic of free market capitalism, I'd be interested in your comments on this news-item: http://tinyurl.com/novultures

Do you see the action of the churches as interfering with the free market system? How would you assess vulture funds? I'm genuinely curious as I have an intuition as to where this series is moving and I think that vulture funds probably stand outside that paradigm.

Michael W. Kruse

"Do you see the action of the churches as interfering with the free market system?"

Possibly. But market systems sometimes need interference. :-)

I'm not that familiar with vulture funds. When it comes to debt cancellation, I think that has to be taken on a country by country basis. I suspect some of the same dynamic is it work.

I think a false assumption about many emerging nations is that debt is their big problem. Corruption and policies hostile to economic growth are generally bigger problems. Eliminating debt will not magically improve the lot of the poor. Too often the canceled debt is never seen by the poor but retained by powerful dictators and elites. My basic point is that is usually more complex than surface financial calculations might make it appear.

PamBG

I think a false assumption about many emerging nations is that debt is their big problem. Corruption and policies hostile to economic growth are generally bigger problems. Eliminating debt will not magically improve the lot of the poor.

Probably true. But not really pertinent to the practice of buy $X million in debt and then turning around and using the legal system to force the country to repay $XY million (where Y > 1).

I was just curious. Although you have actually dodged the question. :-)

Michael W. Kruse

Hmmm ... It wasn't intended as dodge. I thought I was giving you the standard economist answer to nearly all economic questions: It depends. :-)

"...buy $X million in debt and then turning around and using the legal system to force the country to repay $XY million (where Y > 1)"

In the generic sense, without knowing other variables, I would have no problem with this. But the other variables are critical. For instance, if the debtor nation is run by tyrant who has appropriated the borrowed money for himself, canceling debt is not going to help that country. Keeping the debt obligation in place can be used as leverage to reform corrupt behavior. On the hand a nation that suffers less from corruption and has instead encountered hardships that are mostly due to the vagaries of the global economy should simply have their debt canceled ... no debt to turn over to a vulture fund. And yet, even with some poor countries, establishing a track record of repaying debt makes them an attractive target for future investment.

So I don't have objection to the idea in principle but I might have considerable objection depending on its application.

I'm also just being honest with you. I simply don't know that much about vulture funds and haven't read up on them. A little more research might push me more on direction or another.

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