foreign aid

Fuzzy Math on Foreign Aid Shows Why Spending Cuts Are Difficult

by Ryan Young on December 6, 2010 · 1 comment

in Economy, International

According to a new poll, the average American thinks that 25 percent of the federal budget is spent on foreign aid (or, more accurately, government-to-government transfers). They would like it cut to about 10 percent.

The actual figure is under 1 percent.

As Aid Watch’s Laura Freschi points out, that means most Americans want to increase government-to-government transfers ten-fold from current levels while also cutting them in half.

That most people think like this is a major reason why cutting the federal government’s $3.5 trillion budget is so difficult. The issues that people get worked up about tend to be small potatoes, in budgetary terms.

Besides transfer payments to other governments, earmarks are another lightning-rod issue. But even if earmarks were abolished entirely, that’s only about 2 percent of the budget. It would put the smallest of dents in spending.

Entitlement spending is the single largest driver of current and future deficits. That’s where the battle is. Aid spending and earmarks are not threatening to bankrupt the country. Social Security and Medicare are. And those programs are extremely popular. No politician with an eye on 2012 would be willing to cut them.

The government has made promises it can’t possibly keep. But most people refuse to believe that. So they don’t. As a guarding mechanism, they instead make grand assumptions about how much things like transfer payments to other governments and earmarks cost.

“Model” Foreign Aid Recipient Uses Foreign Aid to Repress Its Citizens

by Hans Bader on November 23, 2010 · 8 comments

in Deregulate to Stimulate, Economy, International, Personal Liberty, Politics as Usual, Property Rights, Sanctimony, Trade, Zeitgeist

Ethiopia is considered a model recipient of foreign aid by international aid agencies, since it uses much of the aid on its people, rather than just to fill the Swiss bank accounts of its rulers (as is often the case with foreign-aid receiving countries). But it uses the aid to promote political repression, by giving – or denying – such aid to hungry villagers based on whether they support the ruling party, as a recent article in the New York Review of Books explains. By solidifying the Ethiopian government’s control, foreign aid gives the government the ability to put off doing things that would expand economic growth — like letting farmers own their own land.

Most Ethiopians are subsistence farmers, and 85 percent of all Ethiopians live in the countryside. Land was collectivized in the 1970s during the Red Terror of the Marxist Mengistu regime, and today, Ethiopian peasants lease rather than own land.

Ethiopia is one of the world’s hungriest counties. In its percentage of chronically malnourished people, it’s edged out in Africa only by a few war-torn countries like the Congo and Liberia, and its misgoverned neighbors, Eritrea (which is governed by a Stalinist control-freak) and Somalia, which is in a state of anarchy. Ethiopia is also the most populous country in Africa after Nigeria, with more than 80 million people.

On paper, Ethiopia’s backward economy supposedly grows by 10 percent or more per year. In reality, those statistics are cooked, and its economy probably grows by no more than 5% annually — barely enough to keep pace with a population growth rate of at least 3.3%.

Ethiopia’s economy is more government-controlled than most of Africa (with government monopolies over things like telecom), although admittedly its government is not as incompetent as many Third World governments in running what it does control. Billions in foreign aid allow the government to artificially achieve modest economic growth despite outmoded, state-controlled development policies and a stunted private sector. In the absence of the aid, the government might be forced to liberalize the economy to create genuine economic growth — the way countries in East Asia like South Korea that were once incredibly poor became rich after they pursued a free-market path.

Ethiopia is also the home of teff, a nutritious, drought-resistant, high-protein grain that could easily be exported and marketed to health nuts and greenies if the country had a decent transportation system or modern trade infrastructure. (Health nuts will eat even things that aren’t grain, like quinoa, if you call them “organic whole grain cereal” and trumpet the fact that they are grown by Third World peasants). Because of its economic backwardness, Ethiopia is missing out on this kind of marketing. So are fat people, who could perhaps lose weight if they ate the teff grown in the Ethiopian highlands, rather than starchier, less nutritious grains.

Photo Credit: WikiMedia User Andro 96

New Federal Interference With Oil-Spill Clean-Up: Feds Stop Louisiana From Dredging Needed to Create Protective Sand Berms

by Hans Bader on June 23, 2010 · 2 comments

in Agriculture, Economy, Employment, Energy, Environment, Ethanol, Global Warming, International, Labor, Legal, Mobility, Natural Resources, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere, Trade, Zeitgeist

A TV station in New Orleans reports that “the federal government is shutting down the dredging that was being done to create protective sand berms in the Gulf of Mexico.”   Louisiana planned to create the sand berms to prevent the massive BP oil spill from polluting its coastline.

Earlier, a federal judge blocked Obama’s drilling ban on offshore drilling, citing deception by Obama administration officials.  The ban applied mostly to oil companies with radically better safety records than BP.  (BP’s executives gave lots of money to Obama and lobbied for his legislation.)

Obama delayed the clean-up of the Gulf of Mexico by blocking foreign crews from operating sophisticated clean-up vessels.  The Jones Act bans foreign vessels and crews from working in U.S. waters, but it gives the President the authority to completely waive that ban if he wishes.  Obama refused to lift the ban, even though American shippers who generally support the ban said they wouldn’t object to lifting it to fight the spill.  As a result of the ban, the U.S. rejected a lot of foreign aid from counties with expertise in fighting oil spills, and accepted only a small amount of foreign equipment to fight the spill.

The federal government has routinely been a thorn in the side of Louisiana as it seeks to fight the huge oil spill.  It recently used red tape to force Louisiana to stop using 16 barges that were cleaning up the Gulf of Mexico by sucking thousands of gallons of oil out of Louisiana’s oil-soaked waters.  Earlier, four oil skimmers needed to clean the Gulf were blocked by EPA officials.

The oil spill has been called “Obama’s Katrina,” but Gulf Coast resident Paul Rubin says this is unfair to George Bush, who was not nearly as incompetent as Obama has been in dealing with the spill at BP’s Deepwater Horizon.  In the Wall Street Journal, Rubin notes that the oil spill occurred in federal waters and thus was a federal responsibility, while Hurricane Katrina occurred mostly on state land and thus was largely a state, not federal, responsibility, enabling incompetent local officials in cities like New Orleans to “interfere” with federal relief efforts:

In many respects, the Deepwater Horizon disaster and Katrina are mirror images of each other. The harm from Katrina was on state land—mainly Louisiana, but also Florida, Alabama and Mississippi. As a result, President George W. Bush and the federal government were limited in what they could do. For example, Homeland Security Secretary Michael Chertoff wanted to take command of disaster relief on the day before landfall, but Louisiana Gov. Kathleen Blanco refused. Federal response was hindered because the law gave first authority to state and local authorities.  State and local efforts—particularly in New Orleans, and Louisiana more broadly—interfered with what actions the federal government could actually take. New Orleans Mayor Ray Nagin was late in ordering an evacuation and did not allow the use of school buses for evacuation, which could have saved hundreds of lives. President Bush had no power to change that decision.  The Deepwater Horizon oil spill is on federal offshore territory. The federal government has primary responsibility for handling the situation, while state and local governments remain limited in what they can do. For example, the Environmental Protection Agency has repeatedly changed its mind regarding the chemical dispersants that Louisiana is allowed to use. . . .As opposed to Katrina, state and local attempts to address the oil spill have been hindered by an ineffectual and chaotic federal response.

Obama is now using the BP oil spill to push a corporate-welfare-filled global-warming bill crafted partly by BP’s lobbyists.  Obama’s global warming legislation expands ethanol subsidies, which cause famine, starvation, and food riots in poor countries by shrinking the food supply, and also result in deforestation, soil erosion, and water pollution. Subsidies for biofuels like ethanol are a big source of corporate welfare: “BP has lobbied for and profited from subsidies for biofuels . . . that cannot break even without government support.”

The $800 billion stimulus package is using taxpayer subsidies to replace U.S. jobs with foreign green jobs. It is also destroying jobs in America’s export sector.

New Paper Shows Staggering Cost to Americans of Waxman-Markey

by Iain Murray on September 9, 2009 · 2 comments

in Economy, Environment, Global Warming, International, Politics as Usual

There’s a new cost:benefit study from New York University Law School’s Institute for Public Integrity that, its authors claim, shows that, “From almost any perspective and under almost any assumption, H.R. 2454 [Waxman-Markey] is a good investment for the United States to make in our own economic future and in the future of the planet.”  A good investment for the US? Really?

The authors recognize that the benefits they find are global, while the costs are located in the US.  So let’s see what benefits accrue to US citizens and at what cost. (I am working with the authors’ figures here, which derive from the EPA, and are significantly different from the figures provided by such groups as the Heritage Foundation or the American Council for Capital Formation, which find much, much higher costs.)

Highest possible benefit = $5.2 trillion / 6 billion people = benefits of $866 per person

Cost to US citizen = $660 billion / 300 million people = cost of $2200 per citizen

That means a best possible benefit to cost ratio for a US citizen of 0.4:1.

The report talks about thinking of the Waxman-Markey costs as a “highly effective, highly leveraged form of foreign aid.”  One has to doubt that, given that the benefits that accrue to the developing world do so mostly in the far future, while the developing world is in desperate need of greater wealth – and better access to energy – today.  Even if it were true, however, one wonders whether the American public will accept a de facto tax increase of around $1300 per person, or $400 billion total, to pay for such climate aid.

Yet that’s assuming that the “high end” benefits scenario is what occurs.  The global low end benefits are actually far outweighed by the American costs, leading to a benefit:cost ratio to America of something in the order of 0.05:1 (or a cost:benefit ratio of 20:1).

And, of course, there’s no guarantee that a reduction in American emissions will amount to a reduction in global emissions.  We have seen the response to European cap-and-trade schemes being the relocation of facilities to other jurisdictions.  If so, the effective foreign aid program of Waxman-Markey might actually be a loss of American jobs to be replaced by developing world jobs, with no emissions reduction at all.  That would be very generous of us, but not quite what the authors of this study have in mind.

To summarize, the authors of the study have conclusively demonstrated that the Waxman-Markey bill is actually a very bad deal for the United States, and their attempts to claim otherwise are just spin.

Obama to Cut Off Aid to Honduras, Based on Legal Mistake and Misreading of the Law

by Hans Bader on August 29, 2009 · 13 comments

in International, Legal, Personal Liberty, Politics as Usual, Sanctimony

The Obama Administration is about to cut off aid to Honduras, one of the poorest countries in the Western Hemisphere. Earlier, the Obama Administration blocked travel to the United States by the people of Honduras.

Both actions are foolish responses to a recent ruling by the supreme court of Honduras refusing to approve the return to power of the country’s bullying ex-president and would-be dictator, Mel Zelaya. Zelaya was earlier arrested by soldiers acting on orders of the Honduras Supreme Court, which had ruled that he was no longer president. He was then replaced by his country’s Congress with a civilian successor, and forced into exile. Zelaya’s removal came after he systematically abused his powers: he sought to circumvent constitutional term limits, used mobs to intimidate his critics, threatened public employees with termination if they refused to help him violate the Constitution, engaged in massive corruption, illegally cut off public funds to local governments whose leaders refused to back his quest for more power, denied basic government services to his critics, refused to enforce dozens of laws passed by Congress, and spent the country into virtual bankruptcy, refusing to submit a budget so that he could illegally spend public funds on his cronies.

State Department lawyers, who are not experts on Honduran law, plan to declare the ex-president’s removal a “military coup” to justify cutting off aid, even though Honduras has a civilian president, and the ex-president was lawfully removed from office (although his subsequent exile may technically have violated Honduran law).

Journalists nonsensically refer to Honduras’s removal of its ex-president as a “coup” even while admitting that it was approved by the country’s supreme court. But if it was legal, by definition, it cannot be a coup, since a coup is defined as “the unconstitutional overthrow of a legitimate government by a small group.”

The ex-president’s removal was perfectly constitutional, say many lawyers and foreign policy experts, including attorneys Octavio Sanchez, Miguel Estrada, and Dan Miller, former Assistant Secretary of State Kim Holmes, Stanford’s William Ratliff, and the Wall Street Journal’s Mary Anastasia O’Grady.

Moreover, the ex-president’s removal was not a “coup” because it was not committed by a “small group,” as the definition of “coup” requires. The removal of Honduras’s president was supported by the entire Honduran Supreme Court, an almost unanimous Honduran Congress, and much of Honduran society. Honduras did not lose its government, but merely replaced one illegitimate part of it: its overbearing president. And his removal from office (as opposed to his subsequent exile) was clearly legally justified.

The fact that solders, not police, enforced the removal of Honduras’s ex-president does not make it a coup. Because soldiers, “instead of the police,” carried out the court’s orders to remove the ex-president, the removal has been falsely called a “military coup” by liberal journalists, the Obama Administration, the Carter Center, and the leftist regimes that now prevail in much of Latin America. But soldiers’ participation made sense. Only soldiers, not police, would have enough manpower to remove a would-be dictator who was the most powerful man in his country, with his own bodyguards. More importantly, the Honduran Constitution expressly vests the military — not police — with the power to enforce Constitutional guarantees like term limits, in Article 272. The president forfeited his right to rule by proposing an end to term limits (Honduras has had such a problem with elected presidents later becoming “presidents for life” through vote fraud and intimidation that Article 239 of the Honduras Constitution strips presidents of the presidency if they even “propose” an end to term limits). And soldiers have occasionally been used to enforce court orders, even in the U.S., such as in the 1957 Little Rock desegregation order.

The State Department staff are reported to have a ridiculous response to all this. The State Department is apparently well aware of the constitutional provisions that justify the ex-president’s removal, but believes that they are irrelevant because they were not cited by the Honduran Supreme Court prior to the President’s removal. The U.S. Embassy in Honduras argues that because the court did not cite Article 239 in its order removing the President, Article 239′s provision stripping presidents of their office for proposing an end to term limits (as Honduras’s ex-president did) is an irrelevant after-the-fact “post-removal” rationalization.

The State Department staff’s position reflects a basic misunderstanding of how courts operate in the real world. It is quite common for courts to rule first, and issue an opinion explaining their reasoning later, especially in election disputes and other cases where courts need to rule rapidly (like removing a would-be dictator). Many of the court rulings in the Bush v. Gore litigation, for example, were issued first, with the court opinions explaining them following only later. When the Second Circuit Court of Appeals upheld the federal government’s bankruptcy plan for Chrysler, it ruled first on June 5, and issued its opinion explaining its order only two months later, on August 5. When the Seventh Circuit Court of Appeals overturned Georgia Thompson’s conviction and ordered her release from jail in United States v. Thompson, 484 F.3d 877 (7th Cir. 2007), it did so from the bench, “without waiting until completion of a written decision,” and explained its decision only 2 weeks later. Thus, the fact that the Honduras Supreme Court did not explicitly cite Article 239 in its decisions leading to the ex-president’s removal is of no consequence.

Confronted with the sound legal basis for removing the ex-president under his country’s constitution, the Obama Administration has responded with a series of increasingly weak rationalizations for stubbornly seeking to force his return on the Honduran people.

For example, President Obama has erroneously suggested that people have a “universal right” to keep the presidents they elected in office — even, apparently, if they violate their country’s constitution, as Honduras’s ex-president did. That is certainly not true in the U.S.: Richard Nixon was reelected in a landslide in 1972, but was forced to leave office 2 years later after he attempted to cover up the Watergate burglary.

Obama’s nominee for assistant secretary of state has erroneously argued that presidents should not be removed without unspecified “judicial process.” That argument is at odds with our own Constitution’s provision for legislative impeachment; Honduras’s constitutional provision automatically stripping presidents of their office if they even propose changes to constitutional term limits, without the need for impeachment or conviction; and the fact that Honduras’s ex-president was in fact removed through a “judicial” order, that has now been reaffirmed in a “judicial process.”

The Obama Administration earlier ignored bedrock constitutional principles by taking actions predicated on the erroneous idea that Honduran legislators and judges lost their right to hold office when Honduras’s ex-president was removed. That’s like saying that after Richard Nixon resigned in Watergate, all of his judicial appointees (including the 4 Supreme Court justices he appointed, such as Harry Blackmun and William Rehnquist) should have automatically lost their posts, and the entire Congress should have resigned. In an effort to pressure Honduras’s legislature and courts, Obama’s State Department earlier rescinded the visas of a Honduran Supreme Court justice, the leader of Honduras’s Congress, and its human-rights ombudsman, who had criticized human-rights abuses and intimidation by the ex-president. State Department spokesman Ian Kelly justified the taking away of the visas by saying that “We don’t recognize Roberto Micheletti as the president of Honduras. We recognize Manuel Zelaya.” U.S. Ambassador to Honduras Hugo Llorens similarly explained the revocation of a supreme court justice’s visa by saying that “the Supreme Court justice was part of the ‘regime.’”

But Congress and the Supreme Court are co-equal branches of government that do not lose their right to hold office merely because the president leaves his office. Presidents are not emperors. They are not the government, but merely part of it. President Obama was not taught this bizarre theory of imperial power at Harvard Law School, which he and I both attended.

Obama’s demand that Honduras reinstate its would-be dictator has emboldened other elected leaders in Latin America to try to make themselves dictators. (Even the liberal Washington Post, which has not endorsed a Republican for president since 1952, admitted in an editorial by Deputy Editorial Page Editor Jackson Diehl that the Obama Administration has shown a “willful disregard of political oppression” by left-wing dictators in Latin America).

Obama’s demand that Honduras’s ex-president be returned to office has been supported by the Cuban communist dictator Castro and the Venezuelan socialist dictator Chavez, who counted Honduras’s deposed president as an ally, despite his background as a wealthy and corrupt landowner.

But allying with Castro and Chavez to force the return of Honduras’s would-be dictator has not even improved U.S. relations with their countries. The dictators Castro and Chavez continue to attack and oppose the United States at every turn, and oppose all of its Latin American initiatives, like its plans for bases in Colombia to fight drug trafficking. Obama has received nothing in exchange for his appeasement of Latin America’s left.

The Growing Chorus against Foreign Aid

by Ivan Osorio on April 6, 2009

in Culture, Economy, International, Trade

In today’s Wall Street Journal, Mary Anastasia O’Grady takes on the Obama administration’s approach to foreign aid, which, she argues, amounts merely to maintaining a failing system — specifically, giving more cash to the Inter-American Development Bank (IDB):

Does it follow that poverty persists because the amounts have been just too measly to do the job? It does for Mr. Geithner and the foreign-aid brigades. But rather than rely on those with vested interests, it’s more useful to look at the empirical evidence. A 2006 paper titled “Foreign Aid, Income Inequality and Poverty,” from the research department of the IDB itself, looked at the period 1971-2002 and found “some weak evidence that foreign aid is conducive to the improvement of the distribution of income [sic]. When the quality of institutions is taken into account, however, this result is not robust. This finding is consistent with recent empirical research on aid ineffectiveness in achieving economic growth or promoting democratic institutions.”

So now that we know it doesn’t work, Mr. Geithner wants more of it. This is what the late, great development economist Peter Lord Bauer called “the disregard of reality.” In a 1987 essay in the Cato Journal, he called the claim that poverty is a trap that cannot be escaped without external aid an “obvious conflict with simple reality.” “All developed countries began as underdeveloped,” Bauer wrote. “If the notion of the vicious circle were valid, mankind would still be in the Stone Age at best.”

She may be speaking of Latin America, but the problem is true everywhere Western donor nations ladle dollops of aid to poor countries. The notion that public policy problems cannot be solved by throwing money at them should not be controversial — yet when it comes to poverty in developing countries, that remains the largely dominant approach.

Thankfully, however, Mary O’Grady’s critique appears part of a growing chorus, as the media attention that Zambian author Dambisa Moyo is receiving for her new book Dead Aid: Why Aid Is Not Working and Why There is a Better Way for Africa. Speaking at the Cato Institute last Friday (video available here), Moyo also strongly criticized the view of poverty as a “trap,” which she described as product of a condescending Western “pity” that denigrates aid recipients’ resourcefulness and abilities.

May the chorus grow louder.

Dambisa Moyo: Zambian Author Takes on Foreign Aid

by Ivan Osorio on February 25, 2009

in Deregulate to Stimulate, Economy, International, Stimulus to Nowhere, Trade

The celebrity parade calling for more foreign aid to poor countries has become so ubiquitous — and accepted — these days that critiques of it are rare. So it’s refreshing to see just such a critique in no less vaunted an outlet than The New York Times Magazine. The magazine’s current issue features an interview with Dambisa Moyo, a native of Zambia and author of the book, Dead Aid: Why Aid Is Not Working and How There is a Better Way for Africa, to be released in the United States on March 17.

You argue in your book that Western aid to Africa has not only perpetuated poverty but also worsened it, and you are perhaps the first African to request in book form that all development aid be halted within five years.
Think about it this way — China has 1.3 billion people, only 300 million of whom live like us, if you will, with Western living standards. There are a billion Chinese who are living in substandard conditions. Do you know anybody who feels sorry for China? Nobody.

Maybe that’s because they have so much money that we here in the U.S. are begging the Chinese for loans.
Forty years ago, China was poorer than many African countries. Yes, they have money today, but where did that money come from? They built that, they worked very hard to create a situation where they are not dependent on aid.

What do you think has held back Africans?
I believe it’s largely aid. You get the corruption — historically, leaders have stolen the money without penalty — and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people.

If people want to help out, what do you think they should do with their money if not make donations?
Microfinance. Give people jobs.

Finally, in these times of economic turmoil she’s got great advice not only for developing countries, but for rich ones, too.

For all your belief in the potential of capitalism, the free market is now in free fall and everyone is questioning the supposed wonders of the unregulated market.
I wish we questioned the aid model as much as we are questioning the capitalism model. Sometimes the most generous thing you can do is just say no.

Amen, though I would add that there is a form of aid of sorts that does help those it’s supposed to: remittances, which are private and voluntary, and thus can respond to recipients’ needs better than any bureaucratically administered aid program ever could. Moreover, as the current issue of The Economist notes, they can reach those in most need during lean times, because they “are less dependent on the growth prospects of receiving countries than other kinds of flows, which seek profitable investment opportunities.”

Of course, remittances alone will not help struggling countries rise out of poverty — that is a job for sound economic policies, including secure property rights, flexible markets (including labor markets), and free flow of goods, services, and capital. And again, not just for the developing world. As the American government pretends to “stimulate” the economy with the biggest spending bill in history, Dambisa Moyo’s advice could not be more timely. (Thanks to Margaret Griffis and Jeremy Sapienza for the New York Times Magazine link.)