Aid and Poverty: correlation or causation

In response to one of my posts, our friend the probligo posed a question that I think deserves an answer. He wonders: ”What do [you] really believe should be done [by the Federal Government] to help those who have lost all in [Katrina]?”

I’m not naïve, despite my youth (relative to the probligo), so I’m cognizant of the fact that Mr. Bush will indeed be successful in urging Congress to liberally redistribute as many billions of public dollars as “we the people” deem necessary. I’m also well aware that the ‘new deal’ is sealed, with respect to direct cash transfers to everyone from displaced individuals to all levels of the affected local and State governments. Rather than try—in vein—to halt the inevitable spending spree, my intent is simply to show that it is immoral, improper and counterproductive.

First, a review of what has been proposed by Mr. Bush (which, I’m sure, has nothing to do with his sagging poll numbers). Let’s take a look at the dramatic speech he delivered in Jackson Square, dripping with "compassionate conservatism". From the transcript:

In the rebuilding process, there will be many important decisions and many details to resolve, yet we are moving forward according to some clear principles. The Federal government will be fully engaged in the mission, but Gov. Barbour, Gov. Blanco, Mayor Nagin, and other state and local leaders will have the primary role in planning for their own future.

Arguably, Blanco and Nagin (and their ilk) have largely contributed to the economic environment that existed prior to Katrina and certainly, beyond the personal responsibility of those able-bodies that remained, the Governor and Mayor failed to execute the very evacuation that they ordered. In light of recent history, how one can reason that those two ought to oversee the dispersal of multiplied billions of (someone else’s) dollars is a mystery to me.

Adding insult to injury, the President assented to the nonsense that is the go-to excuse for any and all adversity that befalls poor people that happen to be black. You guessed it: r a c i s m.

As all of us saw on television, there is also some deep, persistent poverty in this region as well. And that poverty has roots in a history of racial discrimination, which cut off generations from the opportunity of America. We have a duty to confront this poverty with bold action.

By “bold action”, he means: more money. Is a series of hand-outs really the best way to solve the problem of poverty (putting aside the question of morality)? My answer is obvious, but there’s no need to take my word for it. I would recommend a good site called A World Connected, wherein there is a great article that addresses the relationship between aid and poverty. While it deals with poverty in Africa, as opposed to New Orleans, I contend that poverty is poverty, regardless of geography. This is equally true for poverty’s remedy.

A new study (pdf) from International Policy Network concludes that aid has failed to achieve its goals in the past 50 years. Worse, in many cases aid has been counterproductive – crowding out private sector investment, undermining democracy and perpetuating poverty.

Contrary to collectivists of all stripes, LBJ’s so-called Great Society (aka “War on Poverty”), enacted some 40 years ago, is an utter failure at best and an unjustifiable expenditure at worst. The data is clear; “free money” tends to exacerbate poverty, rather than eradicate it.

Africa received over $400 billion in aid between 1970 and 2000. Yet, the evidence presented in the study shows an inverse relationship between aid and economic growth – when aid rises, growth falls. In part this is because aid supplants private sector investment and undermines savings: there is also an inverse relationship between savings and aid -- when aid increases, saving decreases. Such is a sign of dependency on aid revenues.
(my emphasis)

Although poor governance is not the only explanation for Africa’s woes, the vast majority of countries in Africa are badly governed and bad policy is the most important factor in explaining their continuing poverty.

When will our elected representatives learn from history? Agh…who am I kidding? Those slugs in tailored suits live from election to election. The fault really lies—in my view—with their constituents, who constantly clamor for more and more government-provided solutions to personal problems. The depressing irony is that Government is the Problem. So, to answer the probligo directly: Government ought to get out of the business of pseudo-altruism and allow free individuals to engage in free enterprise.