||Intro. West has spent a mere $2.3 trillion in hopes of ending worldwide poverty. Very little of it actually reached the poor. Nearly $600 billion of aid went into Africa, but economic growth per person has been 0 over that period. No change in standard of living. Where did it go? Unique thing about aid: no way for intended beneficiaries to give any feedback on whether the money is reaching them or not. Opposite of consumer markets where if someone doesn't buy a product, seller takes notice. Aid agencies made surprisingly little effort to find out if the money was reaching the poor. Aid industry has been operating in the dark. H. L. Mencken "Conscience is the feeling that someone might be watching." Surprising that the agencies didn't do more to monitor how well their aid was doing. No matter how noble the purpose, the main motivation that drives a bureaucracy is to perpetuate its own existence. Negative results is bad publicity for future fundraising. Easterly was at World Bank in research department, but main incentives were to keep the money flowing. Spend your budget was number 1 rule, else what is rationale for getting the budget next period?
||Truth is important, romance is dangerous when it involves people's lives. Elusive Quest for Growth, economic fads for development. At one time, investment was thought to be the key. Didn't work; why not? Incentives matter. Naive idea was to just give money to countries not investing enough and they would invest it. But there was no incentive to invest. If people expect their profits to be confiscated by government, they will not invest. Money goes into consumption or political consumption. Another idea: education, a form of capital, were also thought to be the key. But building schools and hiring teachers doesn't fuel the incentive to take advantage of them, or to supervise the schools; huge quality problem, government-owned sector so if government dysfunctional, schools will be as well. Unqualified teachers, teachers working just for political patronage. Pakistan survey: landowner turned school buildings into cattle sheds. Rick Hanushek podcast. White Man's Burden: if we just raise enough money it will work. Why do those plans fail? Lack of feedback, lack of knowledge at the top. Fail for same reason that central planning in the Soviet Union failed: people at the top cannot possibly have enough information to meet all the needs at the bottom, plus no feedback mechanism. Planners v. searchers. Planners operate at top and have grand plans, often win the argument--whoever promises the most wins even if promises are unlikely to be kept. Searchers, field workers, are less likely to get celebrity status, out there in the fields, experiment by trial and error, asking what does work? Analogous to the entrepreneur in the free market. How to get malaria bed-nets to malaria victims as opposed to just a malaria program.
||Another failed theme: role of markets. If it's not investment or education, we just need markets. Why did it fail? In hands of bureaucrats, markets are simply imposed via central plan on another society that is not used to free markets and doesn't have the norms, values, and structure necessary for free markets to operate. Shock therapy in the Soviet Union: free prices, private property and presto you have a free market, but the Soviet Union had gone 70 years without these, operators stealing other people's money, ended up with one of the worst recessions in economic history. Hotel rooms contract example. Cultural shortcoming. Economists not good with cultural norms. Can't just implement a western court system. Ironically, many of these problems apply to the United States when we sometimes try to impose a market by the top down as opposed to its emerging, e.g., California and energy, school systems have some of these kinds of problems.
||Traps, poverty as a trap that you get stuck in. Easterly: it's a myth. Vicious and virtuous circles. What do the data say? No evidence of poverty trap. Poorest group of countries have pretty much the same growth rate as the richest countries. Why does it appear that there's a poverty trap? People design tests in flawed ways. Fallacy: If you look at the end of the period who is poor then they had the worst growth by definition. Fallacy of composition: different countries enter and exit the poorest 20%. Paul Collier podcast, talks about traps, e.g., civil war can create a circle. Do you think that's correct? Easterly: No. (Dutch disease, country with a resource doesn't thrive though it manages the resources well.) Bottom Billion falls into that fallacy: looks at the end of a certain period, finds the poorest countries; there are always some that have at that endpoint have had bad things happen and they will be the poorest. Go to Las Vegas, at the end of weekend ask and find the poorest; by definition that person had the worst luck even though everyone faced the same odds beforehand. No bad-luck trap. Argument is that in the next 25 years there is no additional likelihood that the countries who are poorest now will still be poorest at the end of next 25 years. Julian Simon bet in order. Stronger than correlation vs. causation: correlation itself was biased to imply a poverty trap when there was none. Correct way: ask who is poorest at the beginning of the period, who has the worst civil war at the beginning of the period.
||Can aid make a difference? How can reasonable people such as Easterly and Collier come to such disparate conclusions? Is it due to way of reading the data vs. philosophical differences? Philosophical differences matter, top-down expert concept that great leaders are at the center of history, philosophical approach to social change, 18th century enlightenment's view, French Revolution was kind of a top-down attempt to remake a society, as opposed to Burke's view that experts have to be humble and modest, can't just remake it. Social engineering idea vs. evolutionary, gradual. Jeffrey Sachs, Angelina Jolie. Romance of utopia, Russian Revolution: everyone understands that it was a human, economic, and social disaster--witness the Gulag--but people still look to that kind of approach with hope. Maybe aid just hasn't yet been tried hard enough, effectively enough. Bruce Bueno de Mesquita podcast. Same argument as maybe Communism has never been tried, maybe Christianity has never been tried. Certainly aid has been given for bad reasons, but there is no convincing evidence that aid given for good reasons has done any better. Utopian expectation for aid will never be realized, but aid could do a lot of good things for poor people. There are some successes, small pox wiped out, vaccination programs, infant mortality reduced in Africa.
||Bureaucracies, anti-globalization. To an economist globalization is trade, sometimes immigration. But anti-globalization charge is to look at institutions like IMF and World Bank and charge that they have, by imposing free markets, mired the poor countries to which they have directed funds into poverty. Can't force free markets on society, or you set yourself up for a backlash, Bolivia, Ecuador, Nicaragua in which anything that goes wrong can be blamed on free markets and the aid agencies. Cannot force other people to be free. A nation is not an actor, though. Political process is often hijacked by thugs, democratic backlash may not really be democratic; but there does seem to be an actual democratic backlash. Bryan Caplan's podcast: rich countries also have anti-market bias. IMF often set conditions for loans, but even if conditions weren't met, the loans kept coming. Conditionality is not a credible threat, we allowed countries to use the existence of thugs as an excuse. Some countries turned out to be a little bit improved, though. On average most countries have been moving away from extremely populist interventionist programs, in favor of more reasonable market-determination such as for exchange rates and interest rates. Worldwide trend, not necessarily due to IMF or World Bank. India article: did IMF play a role in that development leap? No.
||But some countries, like China and Easterly argues India, grew and grew dramatically without much intervention from the West? What techniques can be imitated? Common elements of success stories: homegrown, not necessarily democratically accountable, e.g., China, but people who have their political careers at stake and home grown. Moving away from central planning, more market mechanisms, more international trade used to fuel the successes of China and India. Not a recipe, can't write a 10-point program to guarantee it. Infant-mortality, life-expectancy, education have risen dramatically in Africa. Quote from White Man's Burden: When you are in a hole. Aim should be to make individuals better off, direct aid to individuals, not governments. Aid can achieve much more than it is achieving now. How can aid and aid agencies be restructured to make a difference? Evaluations. GlobalGiving.com, eliminate the IMF and World Bank and offer option for individuals to give. E-bay meets foreign aid. Projects that look good attract funders. There is a lot of need and a lot of good will in the world, need an efficient matchmaker. GlobalGiving was started by World Bank staffers, small projects, a few thousand dollars, what assurance to donors that projects are real? Reputational mechanisms common to free markets. Run some preliminary checks, reputation climbs or falls. Searching vs. planning: searchers can try anything, excites enthusiastic young folks, entrepreneurs: irrigation pumps, Kickstart, powered by human labor. Discoveries waiting to be made.