So many people acknowledge that foreign aid can devastate third world countries by causing massive inflation, or putting hard working farmers out of work and creating a system of dependency. But this very system is also similar to when a country subsidizes any industry. As it make the goods artificially cheaper, and can put people out a job with almost no other alternative. Basically foreign aid and sobsidies by a foriegn government have the exact same type of effect, differing only in magnitude, that is providing artificially cheapened goods in an economy, possibly a relatively closed economy too.The awkward thing is many people seems to have opposite opinons on these subjects. Many libertarians think that subsidies by country A can benefit country B, as country B now has cheaper items at no cost to them. Although the same disastrous effect of foreign aid are also prevalent, especially in a country where one of the few comparative advantages it might have is through agriculture. Leaving country B in possibly worse shape, as there are now massive unemployment, and with less of an advantage over another country(this is especially true in developing countries), thus hindering economic growth and development.On the other hand many leftest believe in the complete opposite, that foreign aid helps the developing countries, but the subsidies hurt developing countries.In all likelihood, subsidies would be less disastrous as they would likely stay constant and not shortly dry up, but they would only cheapen a good, not make it free. Any thoughts or opinions on why this is, or even if this is true?
Yeah a subsidy ain't as harmful because it stays in effect longer and people can coordinate around it to make gains from trade. Foreign aid is usally a very short-term thing and often times a one-time deal so that it creates high volatility by suddenly lowering the price of agricultural goods or whatever product it is that the domestic economy of a nation receiving it is already making. If it's something constant, they dont' have to worry as much because they know they'll receive the subsidized product over a long period of time and can thus decide what else to do with their resources. As you said, the subsidy of a product at least gives them a chance to use comparative advantage.
there is precisely no difference between 'foreign aid' and 'subsidies to a foreign country'; they mean the same thing. as such; one does not have properties that the other lacks, and there cannot be one superior to the other along any dimension.
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Some of the most important "aid" to give these countries is in the form of debt relief. The IMF engages in predatory lending to dictators who default and then holds the whole country accountable. Resources like water and oil are sold off to multinational corporations to help pay the debt.
Its like what if you lent money to a crack addict so he can overdose then you pretend his family owes you money so you repossess their house.
nirgrahamUK: there is precisely no difference between 'foreign aid' and 'subsidies to a foreign country'; they mean the same thing. as such; one does not have properties that the other lacks, and there cannot be one superior to the other along any dimension.
In the case of a subsidy, it at least allows the country to move around their labor and get gains from trade. Foreign aid is usually a very short-term thing and often simply a one-time thing. They get tons of crops that their own agricultural sector produces and thus have the prices lowered....and then the next year they don't get it and the prices are suddenly higher and they have to get started up all over again after some of them being put out of business or having less profit with which to reinvest in their operations.
Snowflake: Some of the most important "aid" to give these countries is in the form of debt relief. The IMF engages in predatory lending to dictators who default and then holds the whole country accountable. Resources like water and oil are sold off to multinational corporations to help pay the debt. Its like what if you lent money to a crack addict so he can overdose then you pretend his family owes you money so you repossess their house.
It's only predatory lending because there is predatory borrowing. If a government borrows, it simply gets the money from the people. In a free market you wouldn't lend if you knew you would never get paid back. However, governments can externalize their costs by simply taxing the people (or getting their central bank to create money)
you are using a non-technical, i.e. 'personal definition' of subsidy, which in your mind is distinguished from foreign aid. I can't follow you on that.
Snowflake: The IMF engages in predatory lending etc. Its like what if you lent money to a crack addict so he can overdose then you pretend his family owes you money so you repossess their house.
The IMF engages in predatory lending etc.
This took me by complete surprise. The whole spirit of AE seems to be that any voluntary transaction is by definition OK. As such I don't see how the concept of "predatory lending" has a place. You borrowed, you signed the papers, no one had a gun to your head, now pay.
In the case of the crack addict, if the family co signed, they are indeed responsible to pay up. If not, not. When you write "pretend they do", i guess you are saying, lending the crack addict when the family has said in advance "But don't come crying for your money to us," and then robbing them. This is just robbery, not sure why it gets a special name of predatory lending. I mean, who cares what the excuse is?
In the case of the IMF the issue is complicated by another q. What right does a "leader" have to put his country into debt? it's an interesting philosophical q, one that I personally am very interested in the answer to.
But does the IMF have to think about this? As of now the universal law is if the leader signs, the whole country has to pay. Are they immoral to lend money in such circs? Why?
Say Ron Paul is elected pres. Can he with a clear conscience get up and tell the Chinese, "Guess what, Bush and Obama borrowed the money, not me and not the people of the USA. So go whistle for your money. I am not going to rip off my citizens to pay you"? Can every head of every state say that from now on?
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Smiling Dave: Snowflake: The IMF engages in predatory lending etc. Its like what if you lent money to a crack addict so he can overdose then you pretend his family owes you money so you repossess their house. This took me by complete surprise. The whole spirit of AE seems to be that any voluntary transaction is by definition OK. As such I don't see how the concept of "predatory lending" has a place. You borrowed, you signed the papers, no one had a gun to your head, now pay. In the case of the crack addict, if the family co signed, they are indeed responsible to pay up. If not, not. When you write "pretend they do", i guess you are saying, lending the crack addict when the family has said in advance "But don't come crying for your money to us," and then robbing them. This is just robbery, not sure why it gets a special name of predatory lending. I mean, who cares what the excuse is? In the case of the IMF the issue is complicated by another q. What right does a "leader" have to put his country into debt? it's an interesting philosophical q, one that I personally am very interested in the answer to. But does the IMF have to think about this? As of now the universal law is if the leader signs, the whole country has to pay. Are they immoral to lend money in such circs? Why? Say Ron Paul is elected pres. Can he with a clear conscience get up and tell the Chinese, "Guess what, Bush and Obama borrowed the money, not me and not the people of the USA. So go whistle for your money. I am not going to rip off my citizens to pay you"? Can every head of every state say that from now on?
agreed, nobody forced them to borrow. what seems worse to me is that the dictator/government can force their citizens to pay up for something they didn't all agree to.
As for someone being elected president and repudiating debt...yes I do believe that should be the case. It would make it much less likely for governments to lend to other governments and would mean that individuals lend more to individuals. That's how i see it anyways.