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August 21, 2009

Maximizing Economic Growth and Aid to the Poor

Growth is Good

There is an essay "Who's afraid of economic growth?" which makes an excellent case in favor of economic growth and why those who are trying to stop or constrain it are wrong.

Behind today's trendy arguments about environmentalism, ethical living and happiness, there lurks a deep disdain for material progress. From an objective perspective it should be clear that economic growth has brought enormous social benefits and could bring many more in the future. Increasing affluence has enabled us to live longer and healthier lives than ever before. It has generally allowed a shortening of working hours and therefore more time for individuals to spend on leisure. Economic growth is also closely related to the development of science and culture.

* More growth = better environment
* More growth = less poverty


Poverty : Just asking for bigger handouts is a bad Plan
Note: Less poverty is not zero yet. But there is less growth and more poverty in Africa while there is more growth and less poverty in China. More growth can mean a better environment, such as being able to not burn wood or coal means the developed world does not have 1.6 million deaths per year from indoor air pollution.

Some make the argument that the US and Europe should give the poor in Africa and other places the money to get them out of poverty. In 2008, total net official development assistance (ODA) from members of the OECD’s Development Assistance Committee (DAC) rose by 10.2% in real terms to USD 119.8 billion. This is the highest dollar figure ever recorded. It represents 0.30% of members’ combined gross national income (GNI). Private aid (About $40 billion) and voluntary transfers by people working in the United States (and developed countries) to family living abroad was about $122 billion. The official aid, private aid and transfers to family totalled to about 0.7% of GNI.

In spite of this level of aid:
According to the World Bank some 2.7 billion people still lived on less than $2 a day in 2001, of which 1.1 billion lived on less than a dollar. But the growth sceptics are not arguing for ambitious new development to bring Third World living standards up to those in the West. On the contrary, at every stage they cast doubt on the benefits of growth.




Would the OECD countries and its citizens give an additional $700 billion/year (not including additional administrative costs and inefficiencies in distributing and getting money and aid to people) to lift the 1.1 billion on less than a dollar a day to have everyone at $2+ a day (and top up the 1.6 billion on less than $2/day) ?

The US is looking at $9+ trillion in cumulative federal deficits from 2010-2019. If the US was to chip in one third, that would be 250 billion/year or about $3 trillion from 2010-2019 with a bit of additional interest. Alternatively or in combination if those 2.7 billion people had strong economic growth in their own countries then some percentage would get lifted out of poverty as was the case in China and India. Howver, $4 trillion in growth in China has still left some people in China at the less than $1 and $2/day levels.

Massive Pro-Growth Policies and 0.7% Aid

If there was economies in the developed world that were $100 trillion bigger then the 0.7% that flows over in aid would be $700 billion/year more. The US, Canada, Japan, Australia and Europe are about $35 trillion of the world's 61 trillion economy Each annual 1% increase in GDP growth over the 2010-2020 timeframe is $350 billion/year initially and increases and sustained over ten years would be about $4 trillion [or $28 billion in more aid].

China could have an economy of 90 trillion RMB by 2025 and if the exchange rate was 4 RMB to 1 US dollar would be $22.5 trillion. Per capita GDP would be $15,000 per person. China would likely be increasing international aid as its own economy continued to improve. 0.7% of $18 trillion [the increase in GDP from now] is $126 billion.



Closing the educational-achievement gap between the U.S. and higher-performing nations such as Finland and South Korea could boost U.S. gross domestic product by as much as $2.3 trillion, or about 16%, according to a new study by McKinsey & Co. [0.7% of that would be $16.1 in added aid each year].

Medical breakthroughs could accelerate the reduction in deaths due to infectious disease and other causes which would be a large boost to the economies of the poor countries. Healthier people are more productive.

Plus medical aid seems to have a multiplier effect where $1 of effort to eliminate a disease mean $10-20 worth of improvement to that developing economy.

FURTHER READING
Poverty statistics

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