Mo' Money Mo' Problems

I recently stumbled onto e-utopia for fellow nerds seeking thought provoking tidbits on healthcare policy, the health insurance market and economics. The Healthcare Economist http://healthcare-economist.com/ has the tag line “An unbiased look at today's health care issues” but I prefer “The make Jessica think without overwhelming her blog” – one cannot find enough such places in life.

This evening I came across the post Lenin as the first development economist. As you might imagine a title like this caught my eye fairly quickly. The posting summarized some of the main ideas of a paper by a NYU development economist, William Easterly, which recently appeared in the American Economic Review. As I read the post and ultimately Easterly’s paper, I realized that the ideas really had very little to do with Lenin (which is what initially pulled me in) but nonetheless provided me with one of the thought provoking hours I have spent in a while. The questions below represent my thought process as I progressed through the paper.

My First Question: Does Foreign Aid = Foreign Development
The Summarized Answer: No - The countries that receive the most aid (mostly in Africa and Latin America) show little or no economic growth each year while other Countries that have received virtually no aid (China, India, Vietnam) are making great progress. The success or failure of different aid programs and initiatives shows no consistency – there is no one size fits all solutions for inspiring economic growth.

My Next Question: So if foreign aid isn’t helping, is it hurting?
The Summarized Answer: Maybe – Although there is no way to prove it, it seems logical based upon the facts presented in Easterly’s essay that foreign aid may actually undermine policy reform, reduce local government accountability, intensify corruption and stand in the way of normal economic development.

Before everyone freaks out thinking that Easterly or myself are suggesting that anyone stop foreign aid programs, the essay does indicate that some foreign aid is necessary in overcoming barriers that stand in the way of normal development – providing clean water, health care, infrastructure development – projects focused on creating opportunities, not complete transformation.

The Big Question: What does this mean to me?
My Answer: In general I agree with everything that Easterly says in his paper (kind of hard to disagree with an expert) but the whole time I was reading I was thinking about how all of this extended outside the concept of foreign aid programs. I have always been (and probably always will be) very inwardly focused on poverty within the United States. Throughout my reading, I focused on the similarities in the way development economists arrive at and implement foreign development initiatives and the way policy makers develop and implement welfare programs.

A series of complex thoughts and ideas from people that are what I call “crazy smart” go into each and every welfare regulation in this country and I have the utmost confidence that policy makers generally have the best of intentions (just like development economists) but that their “crazy smartness” may be clouding their view of the problem in its simplest state. Simply, there are people that are poor and need help to survive. They aren’t looking to be rich and probably never will be. We need to provide them with basic tools to survive and support them as they develop.

Our current system of support is providing needy families (and very, very few individuals) with a monthly cash payment that would never in a million years be enough to fully support anyone, food stamps to buy enough food to survive for the month – albeit on top ramen, and a Medicaid benefit card (which is by far the best thing we are doing for the poor right now). This system is a band-aid that is very poorly controlling the hemorrhaging of poverty and homelessness in this country. Ironically, although the rules and regulations that govern our welfare system are overly confusing and complicated, the way our system defines being poor is excessively simplistic. Largely, we define being poor as having no money but the reality is that being poor is typically just a symptom of any number of mental, physical or emotional problems. By throwing money at the problem we are simply treating the symptom, not the disease.

As is the case with lump-sum foreign aid, continuously putting money into the pockets of the needy is not the answer – forms of non-fiscal support are more powerful than small sums of money handed out each month can ever be. I am not suggesting that non-fiscal support is not expensive (in fact it is probably more expensive) but the benefits achieved by supporting individuals to be the very best they can be are immeasurable. Instead of expending billions of dollars each year on providing direct cash benefits to the needy (and all the overhead costs associated with determining their initial and ongoing eligibility) we should divert our focus to providing them with what they need to survive (food, shelter and healthcare) and treating the mental, physical or emotional ailment that led them down the path to poverty. Treating these ailments through targeted, personalized support will provide every individual with the power to develop normally in their lives– they will not be rich (and in fact some may still be poor) but they will have the sense of empowerment and dignity that every human deserves.

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