Funny You Should Bring That Up

Madeline Albright has been reported in the FT pointing out the following:

Put in perspective, the $31bn (€25bn, £17bn) donation announced this week by
Warren Buffett, the investment guru, to the Bill and Melinda Gates Foundation
exceeds annual US government spending on foreign development and humanitarian
assistance.

There are two points I must make. First, the comparison of one individual to one bloated US government is interesting. However, the donation is spread out over many years as opposed to annual foreign aid expenditure which happens to be spread over (believe it or not) one year. Second, while Ms. Albright was making the above point to push America to spend more on foreign aid, the above point actually highlights why foreign aid is a failure.

Foreign aid finances consumption (if it reaches people) and corruption (if it does not). On the other hand, charity (in Buffet's case, $31 billion) is carefully monitored by the donor to make sure his hard-earned money is spent wisely. Furthermore, as evidenced by Buffet, rich people almost always give away millions and in this case billions to charity. These people would probably give even more to charity if they were not taxed as much. While Ms. Albright would like to see more aid money wasted on BMWs for Robert Mugabe, America should instead end its aid programs and start doing the only thing a government can do to alleviate poverty in the third world, move forward with trade liberalization.

Aid CAN work, but it must be voluntary. If it is mandatory and handed out through a bureaucracy, the money will be useless and in come cases harmful.

Kristof does it again

(Please note: the below article that I refer to is located here if you have a nYT subscription. If you don't, email me at jaredkotler@hotmail.com and I will send you a copy.)

In today's New York Times, the leftist writer at the paper, Nicholas Kristof, has a wonderful expose of how leftists think. The title of his piece is 'Foreign Aid has Flaws, So What?" The piece is a critique of the superb economist's, William Easterly's, new book that points to how foreign aid does NOT help the world's poor.

First, Mr. Krsitof acknowledges the following…

Don't tell anyone, but a dirty little secret within the foreign aid world is
that aid often doesn't work very well.

Well there is a shock. As I have written before and Kristof cites in his piece, the countries who are flooded with aid wind up poorer in the future (Niger) and those who are not wind up rich in the future (China). Next he points to the left's disregard for the facts…

Mr. Easterly… has tossed a hand grenade at the world's bleeding hearts -- and,
worst of all, he makes some valid points.

God forbid, a conservative economist is actually correct!

Mr. Kristof then tells us on the right that we shouldn't read it.

Let me say right off that stingy Republicans should not read this book. It might
inflame their worst suspicions.

Mr. Krsitof exposes the left's dirty little secret. The argument that leftists always fall back on is that conservatives are stingy and greedy. We don't want to spend money on foreign aid or for local welfare programs because we do not care for poor people's welfare. However, the truth is that we believe welfare and aid actually hurts people. On top of this, we feel that US citizens shouldn't be forced to fund programs that destroy communities and small countries in Africa. In fact, foreign aid finances consumption (as opposed to investment) which makes those countries dependent on foreign aid or it finances corrupt dictators who allow his/her people to starve on the streets. Welfare also has disastrous effects. It discourages ambition and innovation at the same time it promotes inefficiency and laziness.

Mr. Kristof continues his piece by agreeing with all the flaws of foreign aid discovered by Easterly, Rajan, Subramanian, and other economists. Kristof admits that…

All these findings can be pretty shattering to a bleeding-heart American.

But Kristof tells the lefties to cheer up because…

Some other studies indicate that aid does improve growth (economists don't agree
about this any more than they agree about anything else). And whatever the
impact on economic growth rates, aid definitely does something far more
important: it saves lives.

Interesting that he now chooses to stop citing ACTUAL economists or ACTUAL studies when he wants to make HIS point.

He goes on to point out that all Americans should do as the righteous Mr. Kristoff does…

For my whole adult life, I've sponsored children through Plan USA, and in
visiting my ''adopted'' child in places like the Philippines and Sudan, I've
seen how the kids' lives are transformed by American sponsors. Aid is no
panacea, but it is a lifesaver.

This is my favorite part because, without realizing it, Mr. Kristof has proven the point of Milton Friedman and other conservative economists. The point is that PRIVATE charity is the best form of help for the poor in the world. Private charities have efficient practices that make sure aid is not abused by kleptocrats because the money is dependent on donors seeing results. This is the result of people having the CHOICE to give. Forced charity will never work and we must all continue to state this fact so that Mr. Kristof and his ilk do not continue to try to steal from the rich and give to the poor (which, unfortunately, is a transaction that hurts all individuals involved).

Foreign Aid Is Not the Key to Growth

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).