International Generosity

A lot depends on how your draw the graph and the measures you use.  Statistics are often used in ways that bring the U.S. down.  For example, when we talk about CO2 emissions or military spending, the measure is usually the straight big number.   On the other hand, when we talk about things like foreign aid or investment, we usually find a measure as a % of GDP.   In the apples-to-apples comparison, the U.S. is the world’s #1 foreign aid donor and the #2 producer of CO2.  Per unit of GDP, we are a medium producer of CO2 and a low donor of official foreign aid, although we do significantly better when the total aid (private plus public) is included.

Consider this graph from the Economist.  The graph gives you one impression and the numbers tell another story.   As $26 billion, the U.S. accounted for almost 22% of the entire official foreign aid given world wide.   In fact the increase of U.S. aid from 2007 to 2008 was bigger than the total foreign aid given by some countries.  Sometimes size matters.

If you made a graph of actual outlays, the U.S. would be almost twice as big as the second place donor (Germany).

So I guess it depends on what sort of point you want to make.  If you are trying to make a moral point – that U.S. official aid is stingy because the U.S. could afford more, the graph in the illustration works.  If you are actually wondering how much poor people are receiving, you might want to look also at the raw numbers too, because if you had the choice between getting 90% of my salary or 1% of Bill Gates’, you should go with Bill.

The irony is that declining economic fortunes may improve the outlays as a % of GDP.   If you manage to lose half your money, you become twice as generous by this reckoning, perhaps another reason to reconsider the measurement.  

Beyond the measuring problems, there are questions about the overall effectiveness of official foreign aid.  If official foreign aid was the key to development, Tanzania would be really rich and Singapore would still be a basket case.  The WSJ ran an article today re how aid helps keep Latin America poor.  You sometimes get perverse effects from generosity.

You have to consider behavior.  Unconditionally pouring money into corrupt societies just sustains klepocracies.  U.S. foreign aid has become more effective in recent years when we started to demand reforms in return for the cash.  The Millennium Challenge Program was the best thing that ever happened to foreign aid, IMO.   But overall, the best thing the rich world can do for the poor world is to make trade easier and more transparent.   It has something to do with the old saying about giving a man a fish.