Handouts

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?

Technical Jargon about Growth

. . . the baseline growth theory blithely assumes away poverty traps (for example, in the famous Inada condition of the first day of growth theory) . . .

From this old book review. I wish I knew more about growth theory, but I did Jeff Sachs' commentary in particular. Everyone interested in development hates Sachs for one reason or another. But I like him.

Measuring Poverty

Robert Samuelson explains why the new poverty measure should not be used as a political tool. (HT: Greg Mankiw).

I think he doesn't go far enough explaining how poorly (and why) income and consumption can be correlated. This story from Mankiw demonstrates how. When you include implicit marginal taxes from lost government benefits the marginal tax rate hovers around and can even exceed 100%, meaning families pay $0.80-$1.05 in taxes for each dollar earned. I don't completely trust this source, but they document implicit taxes in Virginia and you can see how bad it can be.

One other point worth emphasizing is that Democrats should want the poverty rate to pick up progress. We've made of progress improving the standard of living in this country over the years and reducing poverty, but the poverty line currently used (and the one proposed by Obama) ignores that. Some Democrats think that's a good thing as it keeps people's attention focused on poverty. But that's not true. It makes people think helping the poor is a lost cause, so we should give up. It also obscures our priorities, making us think, for instance, that people who choose not to work because they make more money on welfare, are in desperate straits, so we continue to focus on them, while we largely ignore mentally ill, homeless people who actually need help.