A few days ago, Jeffrey Sachs, a well known economist wrote some quite nasty things about another fellow economist, Dambisa Moyo. Ms. Moyo, replied back to Mr Sachs accusations.
As a rule of thumb, a white guy heavily criticizing a black woman would produce a flurry of accusations of racism. This of course if the guy is a conservative/libertarian and the woman/minority is a socialist (i.e. liberal in the N. American sense). Financial Times tried this Saturday to present a “balanced” view, but somehow failed. To quote from FT:
“It has been easy for critics to poke holes in both her analysis and her solutions. The book does not establish in any scientific way the link between hundreds of billions of dollars poured into Africa over decades and the poor performance of economies. It also studiously ignores evidence of development assistance working.”
FT also quoted Jeffrey Sachs as saying that her ideas are “absolutely pernicious, and could lead to the death of millions of people”.
It appears that Jeffrey Sachs is a desperate man. The first rule of science to present arguments and not come with ad-hominem attacks. However after years and years dealing with the UN and other bureaucracies, it seems that Mr Sachs lost his scientific mantle and got a politician’s.
In a nutshell, Sachs arguments are as follows:
1) Dombisa Moyo and Bill Easterly got aid in school and this kind of aid should also be available to others.
2) Moyo and Easterly are pure evil and want to pull the ladder of opportunity of poor people.
3) Children in Africa and dying, but Goldman Sachs paid more bonuses last year than US help to Africa, while at the same time GS got help from the government.
Paul Kagame, the President of Rwanda is hypocritical for getting foreign aid while at the same time being against it.
Moyo and Easterly produce the misconception that aid doesn’t work, when in fact it mostly does.
Help from the western aid decreases child mortality which in turn decreases the number of kids.
Countries need more money in aid to graduate into a more wealthy environment.
Jeffrey Sachs employed the worse kind of logical fallacies against a fellow economist. I am personally outraged. Now the rebuttal:
Moyo and Easterly got help with their studies, that is probably true. What is also true is that both of them graduated and made their mark in the world and now pay taxes so other students get “student aid”.
Without the “student aid”, some effects would be felt: Firstly taxes would be lower (since they won’t cover for student “aid”). Then academics would be making less money (since their customers would be more careful if they had to pay 100% of their tuition. Also, a private system of lending to worthy students would appear. Akerlof would argue that this way, due to asymmetric information, the number of loans for students would be less than now, since investors would find it hard to find worthy students that will eventually pay back their loans. This is true only if we assume that the cost of education stays constant as a percentage of the student’s post graduation after tax income.
Evidence however shows the opposite: with the exception of medical schools that don’t turn out enough graduates (due to AMA enrollment restrictions), most schools have more graduates than required. In order to have most of them complete their education, universities are incentivized to water down their subjects and go at a slower pace. True achievers need to spend more time in school and get more advanced degrees in order to differentiate themselves from those who go to universities in order to get drunk and get laid and get a piece of paper on the wall. Also, because the government’s heavy involvement in higher education, many courses taught are completely useless if not dangerous: courses in sociology, marxism, post-modernism etc.
Also, due to the increased number of graduates, the employers find it harder to find the people that they need, and also due to the lemon problem, those overachievers will be paid less than they would if only the truth seekers got advanced degrees. Add to this increasing taxes to pay for those who were supposed to have more applied metier. My point is that Easterly and Moyo, having already proven themselves, I can guarantee you that they would have made it if they had to pay for their tuition themselves. For every dollar they got in “aid” they probably pay 3-4 dollars if not more in taxes so that slackers get degrees and under-achieving academics stay employed.
In a talk with Cato institute some while back, Easterly mentioned that once he realized that aid didn’t work, and some innovative solutions must be implemented, he was sacked by his employer. And why is that? Because the mandarins working for the World Bank not only get above market salaries and perks, but also most likely get kickbacks from the loans they provide.
Paul Wolfowitz also tried to reform this failing institution and was shown the door. It is also worth knowing that a large portion of the World Bank loans are provided to China (30% in 2005) and other countries that don’t really need WB’s help.
I don’t see how these courageous people who aren’t happy with the status quo and pay for their idealism are somehow evil. A careful observer might actually speculate that Jeffrey Sachs is in this position.
It is true, children are dying in Africa and maybe to the tune of 9 million a year. If this is true, then perhaps 9 million died last year, two years ago and so on. The point is to make sure that this number decreases fast and goes close to zero as soon as possible. Moyo is right in her assertion that billions were spent years ago and the problem is still there. Look at SE Asia. Fifty years ago Ethiopia and South Korea were at a similar level of development. Now the GDP per capita in South Korea is ten times higher than Ethiopia’s, while over the years Ethiopia benefited from hundreds of billions of dollars in aid. Also the problems that Sachs mentioned in Africa can be supplied by locals themselves at lower prices. What is needed is respect for private property in these countries. But why would government bureaucrats want economic growth when that would mean that aid from the West would dwindle as a consequence. Why not throw thorns in the way of progress and keep the population subservient, while the aid comes and is directed to their pockets. This is what Sachs fails to understand or more likely fails to mention in order to keep the status quo and his position of “development guru”.
However what western governments did in Africa was to provide some “free” food, thereby killing the local agriculture and industry. Also they (especially europeans) banned some agricultural products by claiming it’s genetically modified and dangerous to health. On top of that large amounts of aid was stolen by corrupt government officials in their home countries. People with integrity have no room in these corrupt governments.
Goldman Sachs provided some bonuses last year, but not as much as the aid to Africa. Also I don’t see how relevant it is what Goldman Sachs does. Moyo was not the CEO of Goldman Sachs, but just a bond trader. While GS got a small help from the government in a 5 bln TARP loan (that GS would repay tomorrow if the government would take its money back), without government intervention, GS which currently has about 164 bln of liquid instruments could buy Citigroup, Bank of America and/or other assets. Sachs’ attack on GS is disingenuous at best.
Moyo, in her defense mentioned that given the current situation in the world economies, President Kagame could have asked for more aid and blame it on the world situation. He did not. Sachs’ attack is like blaming the fat kid who lost some weight by working out and exercising for still being fat. Again very disingenuous if not mean.
5-7) Aid doesn’t work indeed. I would like Sachs to provide some examples of the contrary. If aid actually worked, Africa would have been so rich, while SE Asia should have still been a poor backward region. If aid worked, we would be talking about some “aid tiger”. Actually the countries that grew faster are those who got the least amount of aid.
It seems highly suspect to me that a bright Ph.D. can’t see that the data does not support his hypothesis. Not only aid doesn’t work, but it becomes increasingly apparent that dirigiste economic policies in the west are bringing us closer and closer to poverty. Will Sachs live to advocate aid to the West from the now developing economies?
