Recently fascinated by the thought of piping donations directly to poor populations and allowing them to use it as they wish. I watched the documentary Poverty, Inc. [0] regarding the "poverty industry" and how endless foreign aid in these countries is killing the economy. If Toms shoes dumps 1,000 pairs of shoes in the city center every week, how the hell would a cobbler stay in business. Or if the U.S. pumps an endless supply of rice into Haiti, how could Haitian rice farmers sell their inventory?
Instead, give these people the cash to purchase locally sourced goods or open a business of their own. Economies don't spring up out of a pile of free rice.
What you are describing is a mercantilist theory of development.[1]
Giving people free things usually helps them; what doesn't help them is the way that the 'gifts' are chosen, whom the 'aid' is given to, and how the poor are treated.[2] The gifts are usually chosen based on which companies and unions the 'giving' country wants to promote and help, instead of what the poor need. The 'aid' is often given to tyrants, and is a substitute for tax income, which disconnects the ruler from their populace and local accountability. The poor are then often treated like sheep who need to be told what to do, and can't figure out what to do with themselves, so they are the subject of government theft and general injust treatment.
I don't see how the parent comment is describing mercantilist development. My understanding is that mercantilist development implies that the subservient state is developed as an income source for the dominant state. Although traditional development may not be effective, it surely isn't meant to extract resources.
"Dumping" is a mercantilist theory; other schools of economics view the same phenomenon as a gift or subsidy (for the recipient). Bastiat wrote a famous criticism of proponents of "anti-dumping".[1]
Famous? Among whom? Other than libertarians who already agree with that point of view.
I didn't read everything Bastiat wrote, but he appears to be describing either the absolute or the comparative advantage of trade (e.g. the first few sentences of the last paragraph).
But trade is different than a gratuitous gift. Trade is part of the free market economy of mutually beneficial exchange. So trade is stimulating production in other areas and it's also allocating goods based on aggregated preferences, not the arbitrary whims of philanthropists.
I'm pretty sure Bastiat and other libertarians would agree that cash is much, much better gift than specific goods.
Finally, the jury is out on dumping. Most mainstream economists will admit there are instances where dumping should be prohibited.
Bastiat's petition is well-enough known to be included in his (lengthy) Wikipedia entry.[1]
No, the parent is not "describing either the absolute or the comparative advantage of trade", because they said:
>"If Toms shoes dumps 1,000 pairs of shoes in the city center every week, how the hell would a cobbler stay in business."
and
>"[I]f the U.S. pumps an endless supply of rice into Haiti, how could Haitian rice farmers sell their inventory."
This is basic mercantilism, as described in the 'theory' section of the 'Mercantilism' Wikipedia entry, and more specifically the following points of the theory:
>"That every little bit of a country's soil be utilized for agriculture, mining or manufacturing.
...
That a large, working population be encouraged.
...
That all imports of foreign goods be discouraged as much as possible.
...
That no importation be allowed if such goods are sufficiently and suitably supplied at home."[2]
Cash is a better gift because you get to buy whatever you want, not because 'dumping' goods is bad.
Every criticism of anti-dumping (bastiat's included) makes one or more of the same three mistakes:
A) industrial comparative advantage is built up in the short run rather than over a period of many decades.
B) that having natural resource comparative advantage is every bit as good as having industrial comparative advantage (see Russia, Saudi Arabia, Venezuela, etc. and the 'resource curse').
C) That industrial comparative advantage just appears randomly out of nowhere rather than (as is historically verified), being developed via protectionist trade policies and infrastructural development.
Basically UCT (Unconditional Cash Transfers) work well when lack of capital is the primary problem.
But often times the cycle of poverty is self-reinforcing because of deeper issues and UCTs don't fix those (such as undervaluing education). Instead CCT (Conditional Cash Transfers) can often be more corrective to enact lasting change to poverty cycles.
Ultimately, I think some sort of UCT and CCT combination would be the best and least overhead form of welfare. But that is just IMO.
Bolsa Familia[1] in Brazil was a pretty succesful program. Poor families get money as long as the children go to school and get vaccinated. Money is distributed to the female head of the household by a debit card network which helps to reduce corruption and theft.
Makes sense. I like the UCT in principle, but I can't argue with the evidence that CCT does have positive effects.
Of course, CCTs may eventually have the same problem as traditional welfare policies: self-perpetuating bureaucracies, contradictory incentives, resource misallocation, etc, etc.
I think the key difference is that UCTs and CCTs aren't (or at least don't have to be) doled out to "qualified" persons. They can just be given. I like UBI (Universal Basic Income) as it is a scaling UCT that disappears once you earn over a certain amount. So the traditional inefficiencies are no longer a concern.
CCTs could be issued in a universal sense as well, with an income threshold of some sort. But admittedly they are more complicated than UBI. But not necessarily as convoluted as current systems.
Just giving money will not work, see Saudi Arabia. They have all the money they can dream of and did not evolve. If you want it to work it needs 3 things:
1) Free Education
2) High Taxes
3) Strong Unions
Sounds leftist? It may astonish you which countries have the highest ratio of rich persons per capita live. This and a good explanation can be found in "Where in the world is it easiest to get rich? (TEDxOslo)"
I don't disagree with any of those numbered points, but this statement is completely irrelevant:
> Just giving money will not work, see Saudi Arabia. They have all the money they can dream of and did not evolve.
There are so many reasons why that's not relevant to the conversation that it's hard to know where to start. 1) You are conflating value systems with poverty. 2) You are cherry picking one particularly bad example and using it as evidence that it could NEVER work. 3) "All the money they can dream of" does not apply to all Saudi Arabians, it applies to those that have a lot of money.
The Saudi's have a recently reformed education system, complete with a freshly built full-fledged research university: King Abdullah University of Science and Technology (KAUST.)
KAUST has a more Western model of education, instruction in English, American and European faculty, partnerships with multiple Ivy League institutions. The current President of KAUST is Jean-Lou Chameau, who was previously the president of Caltech.
Perhaps most significantly, the university is granted greater freedom of speech and thought than probably anywhere else in Saudi Arabia. Saudi royalists politically protect the University, while the campus's isolated location prevents random acts of "law enforcement" by the religious police.
KAUST has an endowment of $20 Billion USD, which puts it in the same league monetarily with H/Y/P and is about twice the endowment of Oxbridge.
So the Saudis are investing in the right things in advanced education at least: alternative energy, desalinization technology, chemical engineering...
They're also building a series of new model commercial cities along the coast where they will attempt the same thing on a city-state scale. The religious rules will be less strictly enforced in these model cities, but far more importantly (for commerce), they will have independent judiciaries (still based on sharia fiqh law), but with written standardized laws of contract (uncertain contracts have put a strain on the Saudi economy.) They're also considering relaxing the onerous permitting regulations required to start a business.
It seems like the Saudis' want to have their cake, and eat it too. On the one hand, they want the benefits of Western higher education and economic systems. But on the other, they want to maintain a fundamentalist religious monarchy.
I cannot really see that being successful. The academic freedom needed to conduct meaningful research is diametrically opposed to the restrictions on thought and expression in a repressive theocracy.
What countries did evolve? Not ones that had high taxes or even strong unions. Recently, as mentioned above: Singapore, South Korea, Taiwan.
Yes, education is important. But what also matters is a working government. Strong unions and high taxes are a consequence (you have them once you can afford them), not a tool to achieve wealth.
Who has control of the money in Saudi Arabia, is it in a few hands, or broadly distributed in a stable way so people can make good consistent long term decisions?
I agree, though it seems a distinction needs to be drawn between aid that's providing goods and services that could be produced locally, vs aid that's providing medical goods and services that couldn't emerge from the local economy fast enough to help those being helped (such as perhaps the Gates Foundation does).
That doesn't solve a major problem: Who is to say what these people need? Give them the money, and they decide for themselves.
UCT fits free market theory, including market flexibility (if needs change or the first idea fails, consumers can change their spending much more quickly than donors can change their programs), and promotes democracy and empowering individuals. It also avoids common problems such as donors' bad decisions and their unanticipated consequences, corruption among those controlling distribution of the goods, and perversion of local markets.
As one example, according to a report in Foreign Affairs, the West's focus on AIDS, malaria, and TB, and their relatively enormous market power, took local medical resources away from more standard health care needs such as child birth, and might have resulted in more sickness and deaths than it prevented (IIRC the details of the article from several years go).
I came here to say just that. Aid is good, but it should be either (1) very temporary acute relief goods (food, water, shelters, sanitation, clothing) (2) very high technology services, such as MSF (Doctors without Borders) provides, or (3) capital assets for the population at large, in the form of business microloans and direct cash grants.
In brief, unless the nation is in crisis, send fishing poles, not fish.
It depends on the size and the stability of the basic income. If a bank knows a customer will get $X/year for the next 5 years, giving an upfront loan to allow that person to create a business becomes a lower risk proposition. A basic income could easily expand the number of low to medium-risk borrowers and expand the amount of savings present to use as a base for lending.
I'm not an economist so I'm sure there are variables I'm not accounting for, but here's my opinion. I think the difference is that an endless supply of money (we know it's not truly endless, but a large influx of cash) allows commerce to occur and people can buy/sell more than commodities. The mere existence of a bank doesn't improve the lives of citizens if said citizens have no money to purchase food/goods and no assets to offer as collateral to take out a loan in the first place. There needs to be some sort of economy in place before a bank will benefit a population anyway. The bank could also benefit because residents now have assets to leverage when seeking cash above and beyond their basic income since I'm assuming starting a business may cost more than donations or a basic income would provide.
> an endless supply of money (we know it's not truly endless, but a large influx of cash) allows commerce to occur and people can buy/sell more than commodities
I'm not an economist either, but I think the concepts you want to look up are 'money supply' and 'velocity of money'.
I don't think this works. Presumably cash has a lot more utility than rice or shoes, for example. These people can always use more money (i.e. bank loads in your example), but once they have x shoes or y rice, the utility of new shoes or rice is very low.
> Presumably cash has a lot more utility than rice or shoes, for example.
It has a lot more fungibility, which should also mean that the marginal utility of cash drops slower (as a function of total utility from that source) than for rice or shoes.
Also worth considering are countries where a large portion of the economy is based on family members sending remittances back from the United States (or other country). In a sense, they already have a form of basic income for the people who remain at home.
> Also worth considering are countries where a large portion of the economy is based on family members sending remittances back from the United States (or other country). In a sense, they already have a form of basic income for the people who remain at home.
Only in that some of the people that remain home have a source of income. But that doesn't make it anything like a "basic income", anymore than the fact that some people are supported by family members working in the same country means that that country already has something like basic income.
In both cases we're talking about an infusion of cash from the outside, distributed somewhat equally (as opposed to being given to banks and politicians).
This can be useful for answering questions such as:
* Will this discourage entrepreneurship?
* Will this create a culture of dependency?
* Will this boost the economy overall?
* If the economy is boosted, how sustainable is it?
These are the kinds of questions you're not going to be able to answer from a single data point, so it's worth finding similar situations to compare.
Well, you might want to qualify "it worked". There's a reason they moved to silver.
There was a point, when taxes were still assessed in rice, that the relevant official announced a large tax increase because the government just wasn't able to operate on what it was getting from existing taxes. He also started the process of reforming tax delivery, largely by making sure tax barges could make their way down the river without excessive delays. They had been arriving nearly (or completely!) empty thanks to predation by vermin.
The delivery reform was so successful that the tax increase was canceled. There were no (significantly problematic) issues with taxes not getting paid; expenditures were well within tax revenues; but... using rice as a currency meant that just because somebody paid you money didn't mean you actually received any.
Giving people money isn't giving them an economy either, it's giving them currency. The economy comes when they trade, it doesn't really matter if it's dollars, gold, rice, or bitcoin, people just have to agree on it's value.
Just the other week I was talking to the director of Poverty, Inc, Mark R. Weber, about UCTs. He's skeptical of cash transfers, for most of the same reasons that he's skeptical of goods transfers.
Instead, give these people the cash to purchase locally sourced goods or open a business of their own. Economies don't spring up out of a pile of free rice.
[0] http://www.povertyinc.org/