It is said that there is a "financing gap" in the developing world. This gap represent the difference between the access to capital they currently have and the the access to capital needed to reach sustainable growth. As noted in Easterly (2003), development economists believe that offial development aid (ODA) is needed to make up the difference in capital. These economists believe that the ODA will finance investement which will in turn finance sustainable growth in the long-run.
However, Foreign Aid is a type of welfare. As noted in Easterly (2003), "aid finances consumption, not investment." The old adage still applies, "give a man a fish, he eats for a day. Teach a man to fish, he will eat for a lifetime." The developing world needs investment to sustain growth which is done by "teaching them how to fish." We can do this by advocating the policies that will encourage investment such as trade openness, privatizations, deregulation, and sound monetary and fiscal policy.
Unlike Foreign aid advocates like Bono and Sachs who believe in beaurocrats, politicians, and aid agencies, advocates of "teaching them how to fish" believe in citizens in the developing world. Giving econonic freedom to the whole country is the only road to growth in the 3rd World. Giving economic power to a few elites will only perpetuate the lack of growth and create a road to serfdom (if they aren't already there).
Thursday, March 30, 2006
New Finance Minster in Brazil (Incompetence)
Here is an excerpt from today's FT about the new "Finance" Minister in Brazil.
"Palocci’s resignation shakes Brazil’s markets"This finance minister is the replacement to the former finance minister, Palocci. People are worried that this new guy will change the market friendly policies that Brazil currently enjoys. This guy seems to not understand his new job description or he might just not understand economics. Without sound monetary policy and a free floating exchange rate, there will be NO economic growth.
By Jonathan Wheatley in São Paulo
Published: March 28 2006 21:34 (Financial Times)But during the conference and in a television interview on Tuesday there were signs that the focus of policy might shift.
“The man in the street isn’t interested in monetary policy or the exchange rate,” he said. “He wants to know if Brazil will grow.”
Our First Enemy of Global Economic Freedom (GEF) - Lou Dobbs
In celebration of our new blog, we award the first weekly award for ENEMY OF GLOBAL ECONOMIC FREEDOM to LOU DOBBS!
Benn Steil does a great job of highlighting the stupidity of Lou Dobbs and how HE is hurting America and the global economy.
Dobbsism, unintelligently designed for our times
BY BENN STEIL (Finacial Times)
March 27, 2006 Monday
"Even if the result is more profits for multinational corporations, do we truly believe that exporting those jobs will lead to a better life in this country, for our workers? . . . Or should we rely on public policy, regulation, tariffs, and quotas to protect our standard of living? Or should we share the blind faith of many in corporate America and Washington, in the power of a free market to resolve these questions?"
Lou Dobbs, Exporting America, 2004
"Faith is required in all views regarding the beginning of life, whether scientific, so-called, or whether religious . . . The fact is that evolution, Darwinism, is not a fully explained or completely rigorous and defined science that has testable results within it."
Lou Dobbs, CNN, May 12, 2005
As an economist, I feel a communal and curmudgeonly kinship with evolutionary biologists. We are brothers and sisters in a seemingly endless - and at times, it seems, hopeless - struggle to persuade others that impersonal and unseen forces shape our world in predictable ways which, though far from obvious, are eminently demonstrable. The resistance we are up against I will call Dobbsism. Dobbsism is a form of primal consciousness, exemplified by crusading American television anchor Lou Dobbs, through which people impute what they observe to intention. It is the consciousness behind belief in intelligent design, according to which biological life must have been designed by a creator, given its complexity. It is likewise behind the belief that a complex social construct like a "national economy" must be deliberately de-signed by enlightened policymakers, lest joblessness, poverty and mass bankruptcy result from the neglect.
To be clear, no biologist would claim that conscious design cannot improve on unguided evolution. Thousands of years of deliberate human genetic modification of animals and plants attest otherwise. Likewise, no economist would claim that economic outcomes cannot be improved by policy interventions. Governments that create money, spend it, and allocate and enforce property rights wisely are essential to private wealth creation. However, it is exceptionally well established that enormous and highly adaptive biological complexity can emerge, and has emerged, over periods of time that are well beyond what humans can intuitively grasp, through processes that are entirely unguided by a deliberate, thinking force. Evolution is indeed "just a theory". Gravity is as well. But evolution is a theory strongly supported by the fossil record, comparative anatomy, the distribution of species, embryology and molecular biology. Likewise, the foundation of the doctrine of free trade, that there is an inherent gain in production specialisation along the lines of comparative competence, is far from obvious but logically impeccable and empirically sound. Of this theory of comparative advantage, Nobel Prize winner Paul Samuelson wrote: "That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."
Why should we care? Well, Dobbsism is not only widespread, but can be dangerous. Take President George W. Bush's imposition of tariffs on imported steel in 2002, on which Mr Dobbs commented enthusiastically that: "It appeared that the president had decided he had a far more important constituency to serve than the members of the World Trade Organisation, the European Union, and the so-called free traders: namely, working men and women in this country". Powerful stuff. But is it true that Mr Bush faced down foreigners and free traders to the benefit of American workers?
It is a simple task to count the number of American steel workers at two different points in time, even if it is less straightforward to determine the portion of any decline that resulted from foreign competition (as opposed to, for example, new technology). Unfortunately for economists however, they must apply considerably more data and higher maths in order to estimate the effect of steel tariffs on American workers, the vast majority of whom do not work in the steel industry. Studies have found that the tariffs produced tens of thousands of job losses in steel-using industries.
Yet since statistical estimation techniques are not nearly as comforting as counting steel workers, Dobbsism would dismiss such an exercise as "just theory". And we non-Dobbsists are left with the hopeless task of arguing that tens of thousands of workers who lost their jobs to the invisible effects of protectionism have been neither intelligently designed nor accounted for.
The writer is director of international economics at the Council on Foreign Relations and co-author of Financial Statecraft: The Role of Financial Markets in American Foreign Policy
Benn Steil does a great job of highlighting the stupidity of Lou Dobbs and how HE is hurting America and the global economy.
Dobbsism, unintelligently designed for our times
BY BENN STEIL (Finacial Times)
March 27, 2006 Monday
"Even if the result is more profits for multinational corporations, do we truly believe that exporting those jobs will lead to a better life in this country, for our workers? . . . Or should we rely on public policy, regulation, tariffs, and quotas to protect our standard of living? Or should we share the blind faith of many in corporate America and Washington, in the power of a free market to resolve these questions?"
Lou Dobbs, Exporting America, 2004
"Faith is required in all views regarding the beginning of life, whether scientific, so-called, or whether religious . . . The fact is that evolution, Darwinism, is not a fully explained or completely rigorous and defined science that has testable results within it."
Lou Dobbs, CNN, May 12, 2005
As an economist, I feel a communal and curmudgeonly kinship with evolutionary biologists. We are brothers and sisters in a seemingly endless - and at times, it seems, hopeless - struggle to persuade others that impersonal and unseen forces shape our world in predictable ways which, though far from obvious, are eminently demonstrable. The resistance we are up against I will call Dobbsism. Dobbsism is a form of primal consciousness, exemplified by crusading American television anchor Lou Dobbs, through which people impute what they observe to intention. It is the consciousness behind belief in intelligent design, according to which biological life must have been designed by a creator, given its complexity. It is likewise behind the belief that a complex social construct like a "national economy" must be deliberately de-signed by enlightened policymakers, lest joblessness, poverty and mass bankruptcy result from the neglect.
To be clear, no biologist would claim that conscious design cannot improve on unguided evolution. Thousands of years of deliberate human genetic modification of animals and plants attest otherwise. Likewise, no economist would claim that economic outcomes cannot be improved by policy interventions. Governments that create money, spend it, and allocate and enforce property rights wisely are essential to private wealth creation. However, it is exceptionally well established that enormous and highly adaptive biological complexity can emerge, and has emerged, over periods of time that are well beyond what humans can intuitively grasp, through processes that are entirely unguided by a deliberate, thinking force. Evolution is indeed "just a theory". Gravity is as well. But evolution is a theory strongly supported by the fossil record, comparative anatomy, the distribution of species, embryology and molecular biology. Likewise, the foundation of the doctrine of free trade, that there is an inherent gain in production specialisation along the lines of comparative competence, is far from obvious but logically impeccable and empirically sound. Of this theory of comparative advantage, Nobel Prize winner Paul Samuelson wrote: "That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."
Why should we care? Well, Dobbsism is not only widespread, but can be dangerous. Take President George W. Bush's imposition of tariffs on imported steel in 2002, on which Mr Dobbs commented enthusiastically that: "It appeared that the president had decided he had a far more important constituency to serve than the members of the World Trade Organisation, the European Union, and the so-called free traders: namely, working men and women in this country". Powerful stuff. But is it true that Mr Bush faced down foreigners and free traders to the benefit of American workers?
It is a simple task to count the number of American steel workers at two different points in time, even if it is less straightforward to determine the portion of any decline that resulted from foreign competition (as opposed to, for example, new technology). Unfortunately for economists however, they must apply considerably more data and higher maths in order to estimate the effect of steel tariffs on American workers, the vast majority of whom do not work in the steel industry. Studies have found that the tariffs produced tens of thousands of job losses in steel-using industries.
Yet since statistical estimation techniques are not nearly as comforting as counting steel workers, Dobbsism would dismiss such an exercise as "just theory". And we non-Dobbsists are left with the hopeless task of arguing that tens of thousands of workers who lost their jobs to the invisible effects of protectionism have been neither intelligently designed nor accounted for.
The writer is director of international economics at the Council on Foreign Relations and co-author of Financial Statecraft: The Role of Financial Markets in American Foreign Policy
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