At Modeled Behavior, Adam Ozimek rightly points out that government regulation of salt content in food as proposed by the Institute of Medicine represents a terrible infringement on personal freedom. But to illustrate one half of his slippery slope argument, Ozimek sites Glen Whitman’s point about smoking bans migrating from airplanes to just about everywhere.

In the process, Ozimek misses a fundamental difference between smoking and salt consumption and sells short his argument against salt regulation. Smoking has extreme, documented, and immediate negative externalities associated with its occurrence around others. It smells, it irritates the eyes and throat, and it causes cancer, all to people who aren’t participating willingly or enjoying any of the upside. Salt on the other hand has none of these effects. If you sit next to me swallowing fistfuls of salt, it has no effect on me.

The only negative externality of salt consumption arises if you get sick as a result and I have to pay for it, and this is a reason for me to avoid paying your healthcare costs more than a reason to force you not to eat salt. This makes the argument against salt regulation much stronger than that against smoking regulation. Linking the two only undermines former.


On Monday I posted on the Kiva Fellows blog about how Microfinance might make borrowers more fair. A New York Times Op-Ed by David Brooks indicates it may also make them happier. Brooks provides a quick overview of the current state of research on happiness. As one would expect, rising from poor to middle class has a significant positive effect on happiness (although going up from there does not).

Less obvious is the link between socializing and happiness. Brooks notes that joining a group that meets just once a month can increase happiness as much as doubling income. Microfinance is a heavily social lending model. Many MFIs use solidarity groups (that meet once or more a month) to encourage repayment, provide emotional support and facilitate information exchange. Other MFIs conduct educational classes or spiritual meetings. All in all, there are a number of ways in which MFIs encourage social interaction as well supporting income growth. The social component may well be as important as the financial one when it comes to making borrowers happier.

A terribly practical argument against organized religion? Stampedes.

The Economist points out this week that many big donors are starting to focus on the savings side of the microfinance equation. I think they overlooked the challenge of regulating and insuring microsavings. It is easy to use a light touch when regulating microlending. As long as terms are clear for borrowers and basic consumer protections are in place, the market will guide interest rates and competition will encourage efficiency. If a microlender goes out of business, there will be fewer loans, but nobody loses any money.

The same cannot be said for microsaving institutions. Except for a few of the largest, MFIs tend to concentrate on certain geographic, demographic and industrial populations. This leaves them highly vulnerable to economic shocks. If MFIs want to use microsavings as part of their lending capital base, they will have to find a way to insure those deposits in the event of a run on the bank or an economic shock that significantly hit repayment rates.With such concentrated saving and borrowing bases, I would think premiums would be particularly high.

Establishing an effective regulatory and deposit insurance framework in countries that have struggled to establish even a basic credit rating system to protect microborrowers from predatory lending and over-indebtedness seems a lot to ask. Whether or not MFIs can profitably take savings and pay insurance premiums, I don’t know, but it seems like one of the biggest hurdles to widespread and effective microsaving.

A new post for the Kiva Fellows Blog on borrowers who are not using their loans to start or grow a business.

A good summary of why microfinance interest rates are high and how they can be lowered (Asian Development Bank) and my take on why interest rates are crucial in microfinance (Kiva Fellows Blog)