Heavy Lifting - thoughts and web finds by an economist
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Wednesday, August 18, 2004

Another claim supported...

One of the great things about economics is that it is such a powerful abstract tool to tackle real problems.

Over lunch a few weeks ago, our discussion turned to the lack of development in the Islamic world. The economists around the table quickly seized on the fact that these countries have rather strict rules about profit and usury, i.e., making money. Add to that the way they treat roughly one half of their population, i.e., they can't work, purchase things online, etc., and it makes for a pretty easy analysis.

This article adds some meat to the bone and we discover that economists who have only a rudimentary understanding of Islamic economics and Islamic nationalism pretty much nailed it on the head.

A couple of excerpts are noteworthy:
In recent decades, Islamic economics has come to mean three things, all supposedly rooted in the "golden age" of seventh-century Arabia: a ban on interest, a wealth tax known as zakat, and honesty and altruism in commercial dealings.
Followed up with:
But Islamic banks learned the hard way that risk sharing does not work in countries where businesses keep false accounting records. "Many people came to borrow money with wonderful ideas, and they just walked away with the money," Professor Kuran said. The banks could not reliably audit the books, and if they took a client to court, the business would just claim a loss.

Consequently, the banks all started charging what amounted to interest for loans.

Score another one for economists.

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