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Monday, February 21, 2005

Paging Professor Keynes? An Economically Efficient Proposal for Tsunami Relief

The Book of Genesis tells a story of how Joseph---the son of Jacob acting as vizier of Egypt---purchases all the land of Egypt to fight a global famine. Having saved food from the years of plenty, Joseph is able to extend a lifeline to people who prefer to live on the land of another then to die on their own land.

This story may provide a model for raising the level of capital available to help the victims of the 2004 Asian Tsunami, perhaps the greatest Natural Disaster (in terms of number of people effected and killed) in the history of the world. The generosity of the world, and specifically the United States, has been remarkable in the months following the devastation. However, the ability or desire of the U.S. or anyone else in the world to give charity is probably finite, and probably not sufficient to fill the unparalleled needs this crisis presents.

People in effected areas need long streams of cash, but many are without the means to produce. Salt water has ruined the ability of the land to produce for three years. So, we have a situation like that which presented Egypt in days of old: The land is valuable in the long run, since it is only damaged for a short period of time, but it cannot produce soon enough to provide the material sustenance necessary to allow its owners to live.

So here's the summary: People need money now, but have only land which will be valuable in the long run but has no immediate payout potential. However, the terminal value of the land is very high (for tourism and agriculture and everything else), but the current owners will not be able to reap this value since they will not live long enough. The Western world has cash, but needs good investments to act as savings so it doesn't spend all its money now.

In times of crisis, Keynesian economics might provide a useful policy tool. Government is an institution much more stable and long lasting institution than private individuals or certain small businesses. A state can wait around to get the agrarian benefits of effected areas, because over the life of a state government, three years of zero productivity is not a deal breaker.

The solution would work as follows. Effected countries can, in the model of Joseph, buy the land from effected landowners. The current owners get money immediately and a promise to be able to repurchase the land at a fixed time in the future (to be actuarially decided based on the amount of time expected to pay off the purchase price with an appropriate interest rate, if not sooner). The government needs to promise to hold the land in trust for the heirs of the current landowners. The repurchase right can be considered a property right, capable of being past down through the generations, bought, and sold.

One potential problem is that the countries involved do not always play nice. Here, the conservative spin on Keynes can provide a solution. American and Western capital can take the place of the Asian governments, and provide the loans directly to the effected persons. The local governments need only get involved as necessary to coordinate (figuring out who is effected) and to change the necessary property laws. J.P. Morgan probably could be considered more stable than many governments in the region, and is capable of absorbing the short term outlay of cash where the long term benefits are secure. The American institutional investors could form a conglomerate to lay out the cash, promise not to sell the land to any bank which does not belong to the conglomerate, and promise to abide by the permanent buyback option which will be extended to the current landowners.

In order to establish credibility for certain of our more controversial programs, Conservatives would be wise to show how nongovernmental mechanisms, including market economics, can be used to solve private problems. The charitable instinct has been instructive (and is still necessary, our readership should do), but is necessarily limited. The market can provide great relief, and Americans who care about conservative solutions and have the means at their disposal should pursue this socially valuable while economically sound method of relief.

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