Economics Works in Haiti

That's the news flash from Bob Murphy (Hat tip: MR). Businesses respond to incentives, economies of scale work in currency trade, and private individuals find ways to make do in areas where governments don't work. The main idea is that Haitians do the best they can under the circumstances and many of his ideas would not work because the prerequisites (particularly in human capital) aren't there. Although he is loathe to give possible government measures any credit for possibly helping society, the lack of public goods -- provided neither by the private market nor by the government -- is a serious cause of the constraints in their constrained optimization.

Any service that was nominally supplied by the government — including electricity, water, and garbage removal — was basically nonexistent. 

That is, the market hadn't provided it either.

One of the most amusing moments (at least in my eyes) occurred when I was talking with an older engineer from Seattle. Now this was a very cool guy; when he asked if I had read the State Department warning about Haiti, after I said yes he shook my hand and said, "Congratulations, you didn't listen to your government."

Brilliant example of responding to incentives:

it occurred to me that maybe the local government was simply nonexistent, as opposed to being merely ineffective. I asked a few people if the government collected tax revenues, and one engineer said something like, "Well I don't know the specific numbers, but they must, because you can see all the unfinished houses." Apparently the tax code was based on completed houses, and so the residents of Leogane would make sure their buildings were in a perpetual state of construction, legally speaking.

He discusses whether housing problems are caused by poverty, by insufficient regulations, by lack of human capital, or something else without coming to much of a conclusion (little surprise, whatever the answer is, it can't be insufficient regulation). He also discusses the difficulty of labor allocation in NGOs without proper incentive structures and forbidden mutually beneficial trade opportunities. (Pictured: Cathedral in Leogane)