Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Sunday, June 26, 2005

Live-8 Is a REALLY Stupid Idea.
And Possibly Even Dangerous

I wrote last week that I do not think more aid and debt relief will help alleviate world poverty, but that free trade will help. Here is some really compelling evidence supporting my argument [h/t to Econotarian]

Fundamentally, economic growth depends on
qualitative, not quantitative, factors: the structure of
property rights, the extent to which courts of law apply
and enforce abstract, clear rules inexpensively and
quickly, the size of government and its effectiveness in
delivering public goods, and the openness of the
economy to trade and investment with the outside
It would be more sensible to scale back levels of aid,
provide aid only to governments that are already
reforming, and make aid available for a strictly limited
period of time. Other reforms, such as removing trade
barriers and eliminating trade-distorting agricultural
subsidies, would yield far more benefits than increasing
The data and the tables are fascinating, so read the whole thing. Here is a summary of one section of its research:

There is also strong correlation between the number of
loans and negative performance: the more adjustment
loans a country received, the worse it performed. This
reflects the politics of aid: donors want to salvage their
failures with new loans, and this sends a message to
recipient governments that they do not have to deliver
reforms to get more loans. There are good reasons to
believe that several governments had an incentive not
to deliver reforms since they could obtain more money
by not reforming.

... The conclusion is simple: donors cannot buy reforms in
developing countries. It is naïve to believe that foreign
aid and conditionality can achieve what the domestic
political process has not accomplished. That idea rests
on the assumption that political leaders in poor
countries actually are interested in reforms that are
conducive to economic growth, and have the capacity to
deliver those reforms. If we have learned anything from
political history, it is that such a romantic view of the
nature of politics is seriously ill informed – if not
altogether dangerous.
Powerful rhetoric!

For more, which captures my earlier thoughts, but which is much better written, see Rondi Adamson's column about Live-8 in The Trono Star, "...fairer trade rules will do a lot more for Africa." And here is Daniel Drezner on the inadequacies of Jeffrey Sachs' proposals [which are perilously close to those of Live-8] for reducing extreme world poverty in The End of Poverty .
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