Tuesday, October 13, 2015

Angus Deaton vs naive aid programs

Angus Deaton became the 6th Princeton-affiliated scholar to have won the memorial Nobel prize in economics. He received one megadollar for his work on poverty and inequality. I wasn't too actively aware of this Gentleman and his work but he seems pretty interesting.

He has apparently done lots of the difficult microscopic work in collecting and interpreting the local household data in India and other poor countries. But he's had some disagreement with Bill Gates which finally made me interested in the question what Deaton actually thinks about poverty, aid programs, and other things.

Bill Gates is relatively reasonable in these respects and while not terribly sophisticated or effective as a "manager of the third world", I think that his charities represent the ordinary semi-instinctive common-sense approach to help the poor nations and he has achieved some tangible results, too.

But it's clear to me that Deaton is an example of a thinker who understand the issues of poverty and inequality in much more detail. He isn't a darling of the superficial, far left activists who just walk around and scream that "inequality is always bad". Deaton knows that there is a whole important universality class of situations in which "inequality is good if not vital".

Inequality is a factor that acts as a primary motivation for people to do a better job – or more useful work. Deaton realizes that very well. I would also add that inequality – which is basically equivalent to a non-uniform allocation of the capital – is inseparable from the allocation of power. It's usually (although clearly not "always") the people who are more capable of making better, more constructive decisions who become richer than others. The money gives them more power to decide which makes the "average decisions of the mankind" more constructive.

Well, different societies may display different degrees of correlation between the "quality of the person's decisions" and "his wealth". The higher the correlation is, the more constructive role in the development of the society the inequality plays.

Deaton has accumulated some data that have disproven some widely spread misconceptions. For example, he showed that malnutrition is primarily a consequence, and not a cause, of poverty. He also found out that some behavior of the poor Indian families towards their children is independent of the children's sex – unexpectedly for some people. But his 2013 book, the Great Escape has also made some inconvenient statements about the aid programs in Africa etc. Lots of money have flown to certain countries but these countries haven't seen higher decreases of the poverty rate than other countries that weren't helped.

Shouldn't a sensible person pay attention to similar empirical facts? Isn't there a lesson to be learned?

Years ago, my dad has "adopted" a daughter in black Africa. Similarly, my half-sister has "adopted" a son in black Africa. Each of them has been sending finances comparable to $1,000 a year. The African kids have been writing and sending a few letters a year – which I was often translating. Believe me, I have a big heart as well. But I have never done such a thing, for several reasons. It's obvious that some of them may be described as "excuses" but from my viewpoint, they are not.

My sister found out that it's too much money for her to fund "her son" in the last year or two before he's 18. A trained teacher of English, she currently works as the best waitress in the Cheesecake Factory. Suddenly, it turns out that she's not even interested in seeing "her son". I view these things as paradoxical. If I paid these somewhat substantial amounts of money to someone (the price of the most expensive smartphone per year), I would probably love to meet her or him.

The main reason I didn't "adopt" any African like that is that from my perspective, it doesn't seem too helpful to them. It seems even less helpful from a more objective perspective – let alone from my personal perspective. If I thought that someone needs or deserves the money, I would probably pick some special guy or girl who is doing lots of nontrivial and rare – probably intellectual (with some potential for a real breakthrough) – work basically for free and who has courageously rejected the offer to receive new amounts of money because it would have meant to serve to the arrogance of power and the political correctness. So you may imagine where I would redirect my money and where you should approximately redirect yours. ;-) I would be sending the money to someone who seemed sufficiently poorer than I was but whose real or potential contributions looked at least conceivably comparable if not higher than mine. So that the person doesn't have to worry about the same existential things as many others (and certainly he or she shouldn't worry more than they do).

When it comes to the aid to Africa and poor nations in general, I've always considered this insight from Richard Feynman's popular book to be the most important realization:
There was a special dinner at some point [of a crazy interdisciplinary conference he attended], and the head of the theology place, a very nice, very Jewish man gave a speech. It was a good speech, and he was a very good speaker, so while it sounds crazy now, while I’m telling about it, at that time his main idea sounded completely obvious and true. He talked about the big differences in the welfare of various countries, which cause jealousy, which leads to conflict, and now that we have atomic weapons, any war and we’re doomed, so therefore the right way out is to strive for peace by making sure there are no great differences from place to place, and since we have so much in the United States, we should all give up nearly everything to the other countries until we’re all even. Everybody was listening to this, and we were all full of sacrificial feeling, and all thinking we ought to do this. But I came back to my senses on the way home.

The next day one of the guys in our group said, “I think that speech last night was so good that we should all endorse it, and it should be the summary of our conference.”

I started to say that the idea of distributing everything evenly is based on a theory that there’s only X amount of stuff in the world, that somehow we took it away from poorer countries in the first place, and therefore we should give it back to them. But this theory doesn’t take into account the real reason for the differences between countries — that is, the development of new techniques for growing food, the development of machinery to grow food and to do other things, and the fact that all this machinery requires the concentration of capital. It isn’t the stuff, but the power to make the stuff, that is important. But I realize now that these people were not in science; they didn’t understand it. They didn’t understand technology; they didn’t understand their time.
What primarily matters for the fate of nations isn't the amount of wealth that already exists or that may be distributed in the next week or the next year. What matters is the potential to produce stuff, the GDP – the time derivative of the overall wealth you may have. And even the second time derivative of the wealth, the GDP growth rate, is more important than the wealth itself.

And moving the wealth itself doesn't create GDP, let alone a higher GDP growth rate.

When my sister sent those thousands of dollars to "her son" and sacrificed many things that could have been funded by that money, how did it change the world? A guy in Africa could have (so far, almost) completed his basic school and/or high school without substantial material pressures. When he's approaching 18 years of age, it's very likely that he's close enough to being an average guy in his country. Without the gifts, he could have had some material pressures and they could have forced him to build a small brewery in his town.

(I mentioned a brewery because today, Anheuser-Busch, the #1 global beer corporation, bought Pilsner Urquell in my town, the place that has produced the first pints of pils, a type of beer that 90% of currently produced beer in the world imitates. To do so, AB had to buy the whole owner of Pilsner Urquell, SABMiller – the #2 global beer corporation – as well, for something like $100 billion dollars. A huge merger, indeed. Some people could talk about monopolies but even this combined behemoth only controls 1/3 of the world market.)

So there are at least three potential (and, most likely, very real) problems with the subsidies for the "adopted son":
  • the resources may end up in the hands of the messengers, or get lost in the corrupt systems of the target countries that are not adjusted to use the money wisely
  • even if the money mostly gets to the actual black kids, the money is unlikely to be optimally allocated to make a real difference in those nations because the recipient kid is most likely close to an average guy and the selective subsidy primarily creates some "unjustified" inequality in his environment
  • the comfort resulting from this aid reduces the motivation for him to become productive
Different nations and countries have different potentials. Countries differ by the fertility of the soil, the climate, the infrastructure that already exists, and many other things. Peoples differ by their intelligence, habits, religions, temperament, and numerous other characteristics. That's why it's nonsensical to expect that all nations will be equally wealthy, have the same GDP, or the same GDP growth rate.

But once you appreciate that the expectations should be realistic and reflect lots of the underlying parameters, what is the best possible act that could help people such as those in the black Africa? Should you impose some education system upon them and fund it? Should you try to recolonize these countries and train them in the Western ways of thinking and management etc.? I do think that these policies would be helpful for those nations.

But what I consider most helpful is to tear down the trade barriers. To allow them to export here. To stop subsidies for their domestic competition.

Sometime in the future, these peoples may produce – and perhaps design – state-of-the-art smartphones and other things. But it makes much more sense to expect that they will mostly "repeat" the historical development that has occurred in the West, too. Long before a nation starts to design smartphones, it should undergo some revolution in the agriculture. It should learn how to grow and sell crops more effectively than ever before.

It should learn how to produce or buy machines that make agriculture easier or more effective. It should learn to turn the agricultural products into some "more artificial" products in the food industry, to market those products, and so on.

My point is that while the Western nations pretend to be helping to the poor nations by sending some cash etc., they are hurting them much more by preventing them from exporting their agricultural and other realistic products and some services to the West. When I talk about services, I mean things like the storage of toxins, too. In the famous 1991 memo, the World Bank's chief economist Larry Summers pointed out that Africa was hugely underpolluted. By being underpolluted, they failed and they are still failing to exploit their economic potential.

For example, it's a P.R. problem to place the radioactive waste anywhere in the Western countries. It should be much easier and cheaper to bury it somewhere in Africa but the money the Africans could earn by an "okay" could still be substantial.

One may compare the economies of China and black Africa. China is a very polluted place but this pollution is almost an inseparable part of the development at a certain stage. I think that most of the people in the really poor African countries wouldn't mind if their air were as polluted as the air in some big Chinese industrial hotspots. After all, they're breathing lots of harmful smoke from fires that are needed whenever electricity isn't available.

But the West tends to discourage the old-fashioned industrial production that existed in the 19th century Europe and the U.S. and that was necessary to make the West truly modern (and clean) just a century later. Instead, breathtaking aßholes are suggesting that Africa should feel shy before it emits carbon dioxide, a highly beneficial gas.

As many wise people have said before I did, it is hugely immoral. The Westerners who have some compassion want to allow the black African economies to evolve, to emulate the progress that Europe and America saw a century or two centuries earlier. This includes the free, unlimited growth of factories, power plants, and chimneys – a growth that is not being discouraged by any regulations or a bureaucratic harassment in general. The Westerners who try to restrict the Africans are inhuman. The proponents of CO2 regulation in Africa are the contemporary epoch's hardcore racists who should spend their lives in prison.

Maybe, many of the Westerners who agree with these antihuman policies – such as the demonization of CO2 across the world – are only acting in this way because they've been educated or brainwashed to believe these things. But the harm they are causing is real. Maybe, these wealthy people in the West can't understand that someone else in the world has totally different priorities than they have.

But people in different continents usually have very different priorities. When you're at risk that you will starve in less than a year or a few years, you really don't care whether NOx let alone CO2 emissions are what they are in a Western capital or 50 times higher. From your perspective, it is very clear that there exist much greater threats for your life than the toxins or the beneficial gases that I picked as examples.

At the end, poorer people may be much more sensible. They haven't lost their contact with the more ordinary things that actually endanger their well-being – and sometimes their lives. Such as hunger. Millions of people in California and in the West in general have lived their lives as spoiled brats who have been completely separated from the things that matter in other people's lives. They've never had any existential problems of any sort.

Angus Deaton isn't one of those spoiled brats. One of the reasons is that he was brought up in rather modest conditions somewhere in Scotland. People like that often have the sufficient freedom and experience not to romanticize the poor people and poverty, not to throw the baby of "creative and vital inequality" out with the bath water of "unfair inequality", and realize that the people and nations that are not drowning in excessive redundant wealth have totally different priorities than the values worshiped by the political correctness. The bare physical survival is often one of them. When someone's survival is at stake, the racial diversity, the clean air, and even the human freedom and dignity are usually secondary.

People are born with bare buttocks. The default state of the societies was poverty. Wealth is an "unnatural state of affairs" and it is the result of long years of hard work, technological progress, constructive concentration of the capital, and feedback mechanisms that direct the society in the right direction, towards the increasing wealth. These necessary conditions may sound simple but in practice, they're much more complex than just having a fixed amount of capital to start with. The task to turn a nation into a wealthy one isn't an easy task and the main hurdles that have to be overcome are not ethical in character. People and nations aren't poor because someone (e.g. the wealthy folks) is evil. They are poor because it's the normal, default state of affairs.

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