Saturday, July 17, 2010


I read a good post on Aid Thoughts and commented, further comments below. Their point is that people can become addicted to aid and unable to help themselves if you give them too much help for too long.

Those are points well taken, with one caveat. A lot of people seem to think this problem stems from the scale of aid, but it doesn't. The incentives people face are a product of how the aid is given. For instance, if you give aid on the condition that for every dollar earned in a micro-enterprise you'll invest more money, that aid incentivizes effort. If you give aid unconditionally and with the expectation that it will flow forever, then you're going to be discouraging work.

That said, sometimes people make the point that we don't want foreign aid to last forever. Eventually countries and people should learn to stand on their own two feet. That sounds nice in theory, but horribly implausible. In the U.S. we have a massive, permanent program of wealth redistribution that most people use to supplement their consumption (EITC, Medicare, etc.) for much of their lives. We know unemployment insurance deters finding unemployment so we set a cutoff date, but we know a lot of people will find themselves back on the rolls next year. We know the EITC phase-out deters working overtime, but we accept it as a necessary evil. Aid does deter effort, but we take it as given that in the long run we're going to handing out aid to the poor in the U.S. Is it such a stretch to think we'll be handing out more aid, not less, to the poor in Rwanda as the world becomes more globalized?

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