American Elephants


Obamanomics 101: Understanding How the Obama Economy Works by The Elephant's Child

The Great Obama Depression. by The Elephant's Child
July 2, 2010, 11:35 pm
Filed under: Capitalism, Domestic Policy, Economy, Progressivism | Tags: , ,

President Obama gave a speech to a town hall meeting in Racine,  Wisconsin this week. Straw men, not his fault, economy recovering, Recovery Act working, Bush’s fault, Republicans won’t help, stimulus worked, more straw men, border more secure than ever, not his fault, more straw men.  Promoting the “merits” of his stimulus bill, President Obama said:

Now, every economist who’s looked at it said that the Recovery [Act] did its job…The problem is, number one, it’s hard to argue sometimes, “things could have been a lot worse. Right?  So people kind of say, “Yeah, but unemployment’s still at 9.6 percent.” Yes, but it’s not 12 or 13 or 15.  People say “Well, you know, the stock market didn’t fully recover.” Yeah, but it’s recovered more than people expected last year.  So part of the challenge in delivering this message about all the Recovery Act accomplished is that things are still tough, they just aren’t as bad as they could have been..  They could have been a catastrophe.  In that sense [the stimulus] worked.

New claims for jobless benefits jumped last month by 13,000 to a seasonally adjusted 472,000.  The number of people continuing to claim benefits rose by 43,000 to 9.6 million.  The number collecting extended benefits fell by 376,000. Since unemployment figures count only those actively seeking work, the real number is said to be around 17 percent.

“Unemployment’s still at 9.6 percent.
But it’s not 12 or 13 or 25.”

Every economist certainly did not say that the Recovery Act did its job. Alan Meltzer, professor of economics at Carnegie Mellon, said in the Wall Street Journal yesterday “The administration’s stimulus program has failed.” as innumerable other economists have said.  Even Keynesian economist Jeffrey Sachs said that the stimulus failed.

Allan Meltzer added that “The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.  But they want new stimulus measures — which is convincing evidence that they too recognize that the earlier measures failed.”

Obama got somewhat of a chilly reception from world leaders at the G-20 summit over the past weekend when he pressed them to continue with spending to bolster the global economy. Many nations in Europe and elsewhere have had to grapple with their own debt crises, and have been forced to enact tough austerity measures.

In 1981, President Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending.  Recovery began about a year later.  After 18 months, the economy grew more than 9% and continued to expand above trend rates. The administration economists neglected the longer-term  consequences of their actions.

Economist Larry Kudlow says:

The economic power of business is the missing link in the faux debate that is now raging over spending and deficit policies. A brief look at the recent jobs report for June tells this story. After spending more than $1 trillion through so-called government stimulus, we are at best experiencing a grinding and anemic jobs recovery. Private payrolls are growing slowly. The workweek is again shrinking. And average hourly earnings have declined. The unemployment rate dropped to 9.5 percent, but that’s because 650,000 people left the labor force.

The economic power of business is the missing link in the faux debate that is now raging over spending and deficit policies. A brief look at the recent jobs report for June tells this story. After spending more than $1 trillion through so-called government stimulus, we are at best experiencing a grinding and anemic jobs recovery. Private payrolls are growing slowly. The workweek is again shrinking. And average hourly earnings have declined. The unemployment rate dropped to 9.5 percent, but that’s because 650,000 people left the labor force.

So what about all this stimulus spending? Well, it hasn’t worked.

Business, in order to hire, plan for the future, increase spending, needs more than vague hope.  They need some kind of certainty.  Right now, everything is up in the air.  There’s a new health care law, how much will it cost business? Nobody knows.  Will the Bush tax-cuts be extended? Will Congress enact new taxes?  What is in the new Dodd-Frank bill’s 2000+ pages and how will it affect business?  What new regulations are going to be imposed? Cap-and-trade would  be an enormous cost on doing business, will it pass, and what will it mean to business?  Are we in for a double-dip recession? How can a business, hoping to make a profit in an economy where everyone is reluctant to buy, reluctant to spend, know what to do?

Misdiagnosis of the problem, and a lack of understanding of the possible remedies has made the problem far worse than it needed to be. The far left blames “capitalism” for most of the world’s problems, but “capitalism” is simply the name Marx gave to the free market.

Unemployment is the problem.  Yet most policies adopted by the Obama administration increase unemployment.  Slapping a heavy tax on makers of medical devices means lower employment in that industry.  Unnecessarily shutting down all oil rigs in the Gulf creates huge unemployment as rigs leave the area.  Failing to take quick action to prevent oil slicks from reaching the coastline means unemployment all up and down the coast.  Requiring people to switch to CFL lightbulbs means that industry will take place in China.  Closing  federal lands to oil exploration means lost jobs. Putting too many regulations and taxes on business means businesses will move to somewhere where they are better treated. There are always consequences.



A Reminder: by The Elephant's Child
October 5, 2009, 11:53 pm
Filed under: Capitalism, Conservatism, Economy | Tags: , ,

From Henry Hazlitt’s Economics in One Lesson“You can’t raise living standards by breaking windows so some people can get jobs repairing them.”



Spinning the Numbers, by Your Government and Mine. by The Elephant's Child
August 7, 2009, 9:28 pm
Filed under: Capitalism, Economy, Progressivism | Tags: , ,

The much anticipated jobs report was released today.  247,000 more jobs have been lost, but “the rate of job loss has dropped from 9.5 percent to 9.4 percent”— because 422,000 quit looking.  This was heralded across the airwaves as a great sign of economic recovery.  This is known as spin.

The economy is still in the doldrums with 6.7 million jobs lost since December of 2007.  14.5 million are currently unemployed, with all sectors of the economy affected.

The president’s agenda, however, is focused not on jobs, but on passing, at all costs, a health care bill about which the biggest questions are how to pay for it, since the Congressional Budget Office has said bluntly that we can’t afford it.

Democrats are talking about a middle class tax hike (Robert Gibbs denies it, but they simply cannot squeeze enough money from “the rich” to pay for it).  They are talking about a value-added tax, which just raises the cost of everything.  They are trying to think of all sorts of things to tax, apparently unaware that people who do not have jobs aren’t able to pay a lot of taxes, and what taxes they do have to pay only harm them.

Democrats are also considering what taxes and mandates to inflict on employers, apparently unaware that raising the cost of doing business during a recession simply means more layoffs and more business failures.  But economics has never been one of the Democrats’ strong points.

And once they get the new airplanes approved, and the cash for clunkers out there to destroy the used car business, and the health care reform bill passed, then they want to pass a cap-and-trade bill which will raise not only the cost of energy, but of everything you buy.  They’re estimating that at something like $3,000 -$4,000 per household per year.

But you must take care, because they don’t want any criticism, and they don’t want to answer any unfriendly questions, and they especially don’t want to be told that they have to read the bills.



Wise Words From a Nobel Laureate by The Elephant's Child
July 29, 2009, 7:47 pm
Filed under: Health Care, Progressivism, Statism | Tags: , ,

Economist Greg Mankiw — whose blog I recommend unreservedly — posted this comment by the Nobel laureate Ken Arrow:

Oh, why health costs increase? The basic reason why health costs increased is that health care is a good thing! Because today there is a lot more you can do! Consider all these expenses that are diagnostic. Cat scans, X-rays, MRIs and now the proton-powered whatever-it-is. Something that is the size of a football field, cost $50 million, and has all sorts of diagnostic powers. A lot of these technologies clearly reveal things that would not be revealed otherwise. There’s no question about it. Diagnostics have improved. Technology has improved. You know, sending things through your blood stream to help in operations, instead of cutting you open. It’s incredible. But these things are costly. But for older people longevity is increasing by a month each year. Now, whether that creates other problems with retirement and social security is another question. But, nevertheless, preserving life is a good thing.

The Obama administration seems to have forgotten what health care is all about.  They think it is about power, and getting control of something that voters cannot do without.  It certainly is not about preserving life.  Free abortions are on the list, rationing care for the old folks is on the list, and (Page 354, Section 1177)  Government will RESTRICT enrollment of Special needs people.  I’d sure like to hear them explain that one.



How Much Will It Cost? Way More Than They Expect! by The Elephant's Child
July 29, 2009, 5:04 pm
Filed under: Capitalism, Economy, Health Care | Tags: , , ,

President Obama is trying to find someone to blame if his party is unable to pass a health-care reform bill before August 1.  His target is the Congressional Budget Office and director Douglas Elmendorf.  Remember that the office is intended to be completely non-partisan, and oriented towards giving congress good and responsible estimates of what a bill will cost.

The administration was so upset over the estimate that the CBO produced over the health-care bill that they summoned Elmendorf to the White House, a very improper step.  The CBO is expected to be free of interference from the administration and from congress.

Peter Orszag, President Obama’s Budget Director, was previously Director of the CBO.  He should know what the rules are.

Stephen Spruiell notes at National Review:

Last weekend’s outburst from Obama’s budget director, Peter Orszag, was the equivalent of a player upending the chess board and calling his opponent a cheater.

The irony is that, just a few months ago,  Orszag was on the other side of the board.  Before Obama appointed him to run the Office of Management and Budget, Orszag was in charge of the CBO.  And just before he left the legislative for the executive branch, he took measures to make sure the CBO would be well equipped to play its role in the health-care debate, expanding the number of health-care economists on staff and ordering a new computer capable of modeling the effects of complicated legislation.

In a Saturday post on his White House blog, Orszag implied that the CBO’s latest analysis was guilty of “exaggerating costs and underestimating savings,” and he said that the agency had “overstepped its bounds.”

The Washington Times chimed in last week to point out that the CBO had vastly underestimated the number of small businesses and the number of people from that source who would switch to the government plan.  They said:

CBO — incredibly — assumes that only 3 million people will switch from employer-provided coverage to government insurance.  But the Lewin Group, a health care policy research and management consulting firm, estimates that 119 million Americans will switch from their current private insurance to government insurance.  If these figures are accurate, the program’s cost could easily be $4.5 trillion over 10 years, not the $1.04 trillion CBO is claiming. That new financial burden would be a disaster for the deficit.

The House bill, however contains: (Pg. 50, Section 152) Health Care will be provided to ALL non U.S. citizens, illegal or otherwise.  I wonder if the CBO is including in its estimates the entire non-citizen population? Intelligent guesstimates suggest around 1.3 million illegal immigrants. I don’t know if the CBO  includes adding them the the health insurance rolls.

Government bills or policies that come in costing less than estimated are as rare as an occasion when Obama did not blame the Republicans.  This is his mess, and at some point he will have to own up to misleading the public.



Global Warming Meets a Basic Cost-Benefits Test, and Loses. by The Elephant's Child

Bjørn Lomborg is director of the Denmark-based think tank The Copenhagen Consensus Center, author of The Skeptical Environmentalist and Cool It: The Skeptical Environmentalist’s Guide to Global Warming.  He gave a talk today at the Manhattan Institute. The transcript was published in The New York Post. Lomborg is a professor of statistics, and was at one time, a member of Greenpeace.

Here, he has some important information for politicians, and the rest of us:

IN the heart of a financial crisis, most of us carefully consider every last purchase. It is important that politicians do the same when making vital policy decisions.

Instead of focusing on initiatives with the greatest benefits, they tend to be swayed by those with the most vocal advocates. Take the Kyoto Protocol. Its $180 billion annual global cost would perhaps be worth the investment if it made any substantial difference to global warming. But even if Kyoto were implemented for the rest of this century, it would cut temperatures by just 0.3 degrees Fahrenheit.

This doesn’t pass a basic cost-benefit test. The investment would cause more immediate financial hardship than eventual good. There are many better uses for the money.

That point was underscored by Copenhagen Consensus 2008, a project I designed to champion the use of economic tools in international aid and development policy.

For two years before Copenhagen Consensus 2008, teams of experts wrote papers identifying the best ways to solve the world’s biggest problems: air pollution, conflict, disease, inadequate education, global warming, malnutrition and hunger, sanitation and water challenges, subsidies and trade barriers, terrorism and gender-disparity issues. They identified the investments that would best tackle each challenge and outlined the costs and benefits of each.

A group of prestigious economists — including five Nobel laureates — gathered and examined this research. They took the long menu of investments and turned it into a prioritized list of opportunities. At the bottom — the least cost-effective investment the world could make to respond to any of these problems — was dealing with climate change through immediate CO2 cuts, as the Kyoto Protocol attempts.

At the top was the provision of micronutrients — particularly vitamin A and zinc — to undernourished children in South Asia and Sub-Saharan Africa.

For just $60 million annually, we could reach 80 percent of the world’s 140 million or so undernourished children. The economic gains from improving their lives would eventually clear $1 billion a year.

For another $286 million, we could iodize salt and fortify basic food with iron for 80 percent of the children who are at risk of stunting and poor development because they’re going without.

Interestingly — and perhaps predictably — many of the economists’ top-ranked solutions were to problems that don’t attract many headlines or much celebrity attention. The simple act of deworming children in developing countries, for example, would improve nourishment and allow some of the world’s most disadvantaged kids to learn more and get better jobs later.

Copenhagen Consensus 2008 showed that we know how to stop people from dying from malnutrition, pollution, HIV/AIDS and malaria. Solving these problems would open a world of opportunities, including allowing a disadvantaged community to grow, develop and care about longer-term issues like global warming.

What we need to do now is cheap and simple. It’s mostly a question of getting what’s needed (micronutrients, cleaner forms of fuel, free condoms and mosquito nets) to those in need. Death tolls remain high because we have limited resources, and these problems are not considered our biggest concerns.

Economic tools such as cost-benefit analysis and prioritization will never offer the last word in public policy debate — and nor should they — but they can provide a vital input for decision-makers.

The process that worked for Copenhagen Consensus 2008 — and that encouraged philanthropic organizations to invest more in malnutrition — is also relevant for national and state governments and city administrations.

Prioritization is difficult for any politician, whether a member of the Obama team or a city administrator. The project would give a city like New York the opportunity to focus on the spending priorities that achieve the most. Vested interests and lobbying groups create a lot of noise. Copenhagen Consensus sets aside that noise, so that the costs and benefits of competing options can be seriously considered side-by-side.

The recession that has made life more difficult also offers an opportunity for us all to rethink our priorities — and ensure that each dollar spent achieves as much as possible.



The king of France went up the hill, with forty thousand men; The King of France came down the hill And ne’er went up again. by The Elephant's Child
April 30, 2009, 6:52 pm
Filed under: Economy, Freedom, Socialism | Tags: , ,

Economist Veronique de Rugy warns President Obama that while France is admirable in many ways, economics is not one of the ways.



We Cannot Trust Obama on the Economy. by The Elephant's Child

The heralded “Town Hall” format for the debate last night was a great disappointment. It reminded me immediately of how much I disliked the format last time. What it was not, was a town hall. The debate organizing committee needs to learn the difference between a “gotcha” game — a perennial favorite of the media — and the desire of the voting public to actually learn something about these candidates. Rick Warren’s Saddleback debate was far more informative than either of the debates moderated by media people.

Voters right now are understandably worried about the economy.  We have been told of drastic actions that will be taken to control things, we do not know how they will work. We must watch and wait, and that is nervous-making.

Voters, we are told by recent polls, are inclined to trust Senator Obama on the economy. Gasp! The fox, the fox! That is known as putting the fox in charge of the proverbial henhouse.

The current crisis had its origins in the well-intentioned Community Development Act from the Carter Administration which was meant to increase minority home ownership.  The Clinton Administration felt that it was not working well, or fast enough, and put laws into place to force bankers to increase lending to poorly qualified applicants as a kind of affirmative action.

Stanley Kurtz of the Ethics and Public Policy Center has been researching Obama’s Chicago connections and activities.  He writes at National Review about the disastrous results of Acorn’s activities, and of Obama’s connections to Acorn.  If you vote, you need to read about this background. See also our article below

Barack Obama, the senator from Acorn, trained Acorn staffers, represented Acorn in court, was elected to the state legislature with Acorn’s “non-partisan” help, and once elected was able to address through legislation Acorn’s particular interests.  He served on the boards of two of Chicago’s charitable organizations, the Woods fund, and the Joyce Foundation, and was able to funnel donations to Acorn as well as other organizations.

Acorn helped him in his campaign for the U.S. Senate, and recently endorsed him for the presidency, as he reminded them of his past connections to the organization. Here is a recent article of ours.  Obama’s involvement with this radical organization has been extensive, and Acorn’s involvement with the sub-prime crisis is even more extensive. The first “bailout bill” contained more taxpayer funds for Acorn.

Obama, in the debate last night, blamed “deregulation” by the Bush administration for the problems. This is nonsense. The problem was not deregulation or not enough regulation, but too much regulation of the wrong kind, and too little oversight.  Obama incorrectly believes that the work of congress is regulation (control) rather than oversight. It is an economy-killing error.

This article explains the 1933 Glass/Segall Acts that Democrats are trying to blame the sub-prime crisis on.  Obama claimed to have written a letter to Secretary Paulson and Chairman Bernanke with a prescient demand for action in March of 2007, but 25 subprime lenders had failed in February and March.  His letter was a response to headlines, not a call to action.

Obama went on to further display his economic ignorance.  John McCain has continually, and rightly, called for a reduction in corporate taxes since U.S. corporate taxes are among the highest in the world. Obama sneers and calls it “corporate welfare”.  If you remember, Fred Thompson demolished that argument in his convention speech:

Our opponents tell us not to worry about their tax increases.  They tell you they’re not going to tax your family.

No, they’re just going to tax “businesses.” So unless you buy something from a business, like groceries or clothes or gasoline, or unless you get a paycheck from a business, a big business or a small business, don’t worry, it’s not going to affect you.

Senator McCain reiterated his opposition to earmarks and his record of never using earmarks. A reader over at Instapundit pointed out that:

Tonight Senator Obama said $18 billion in earmarks between 535 Congressional ne’er-do-wells isn’t that big a deal, but if we can only keep 500 CEOs from getting $350 million in tax breaks, that’s how we fix problems.

And, conversely, Obama wants to prevent business from going overseas or sending jobs overseas. Why does he suppose that businesses move abroad?

Obama claims that 95% of Americans will get a tax-cut under his administration, but less than 70% of Americans pay any taxes at all.  For those people, Obama plans to give them $1,000 or $500, derived from taxing small businesses. In other words, he wants to reinstate welfare, but he’s pretty cheap about it.

He really has it in for CEOs, which is a window on his anti-capitalist views.  He expects to solve the problems of America and of the world by throwing money at the problem, whatever it is.  Taxpayer money, for the government has no money of its own. And there is his big save the world vision of ending poverty by sending aid through the UN.  I ranted wrote about that one here.  You can see that I did not agree with Senator Obama on much of anything. I think he is remarkably unqualified to be President, and his ignorance of economics is frightening.  But Acorn will do its best to see that he is elected.  Be sure to do your homework before you vote.



Forgotten history, dredged up once again. by The Elephant's Child

As we wait to see what the Congress will do in addressing the mortgage crisis, it is worthwhile noting a little history.  The New York Times reported in 2003: ” New Agency Proposed to Oversee Freddie Mac and Fannie Mae”.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies.  It would exercise authority over any new lines of business.  And it would determine whether the two are adequately managing risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken.  A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

“There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,”Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

Do read the whole article.  This is a real crisis, though it is mostly confined to the housing and financial sectors of the economy. It’s important to do your homework, and understand what it’s about.

The debate is very much up in the air.  Economists are begging for a “clean” bill, free of extraneous language. Democrats are anxious for Government to take over financial organizations, and relieve everyone of any liability for their bad decisions, and Socialize our form of government. 

They want to bail out homeowners whose mortgages are in default, people who owe too much on their credit cards, and promise any other goodies that may help Democrats to get reelected.

Obama’s understanding of this financial crisis is very shallow. He is more interested in protecting those who bought more house than they could afford.  He is unaware that raising taxes on an economy in trouble is not the best idea, for the government may need more money.  But, he says, a new President will take over in 40 days.  Um, January 20, Mr. Obama.

He is anxious to blame everything on President Bush, for much of his campaign appeal has been to attempt to portray the Bush economy as “terrible”, in spite of all evidence to the contrary.  The Bush tax cuts have been wildly successful, enabling the economy to shrug off the damages of 9/11, the War in the Mideast, and Katrina.  And even in the current trouble, the underlying economy remains strong.



Market Meltdown Explained. by The Elephant's Child

It is always wise to consult more than one source. Experts will differ in their conclusions, and will express the problem differently, so listening to several experts will help your understanding.

(h/t: The Daily Bayonet)



Let’s talk about Global Poverty and the Democrats. by The Elephant's Child

Here is someone you should know.  James Shikwati , a Kenyan libertarian economist, is director of a Kenyan Think Tank, Inter-Region Economic Network (IREN).  He burst upon world attention in 2005, with an interview in Spiegel Online, entitled For God’s Sake, Please Stop the Aid!”

SPIEGEL: Stop? The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years.  If the industrial nations really want to help the Africans, they should finally terminate this awful aid.  The countries that have collected the most development aid are also the ones that are in the worst shape.  Despite the billions that have poured in to Africa, the continent remains poor.

SPIEGEL: Do you have an explanation for this paradox?

Shikwati: Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent.  In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need.  As absurd as it may sound, development aid is one of the reasons for Africa’s problems.  If the West were to cancel these payments, normal Africans wouldn’t even notice.  Only the functionaries would be hard hit.  Which is why they maintain that the world would stop turning without this development aid.

SPIEGEL: Even in a country like Kenya, people are starving to death each year.  Someone has got to help them.

Shikwati: But is has to be the Kenyans themselves who help these people.  When there’s a drought in a region of Kenya, our corrupt politicians reflexively cry out for more help.  This call then reaches the United Nations World Food Program — which is a massive agency of apparatchiks who are in the absurd situation of, on the one hand, being dedicated to the fight against hunger while, on the other hand, being faced with unemployment were hunger actually eliminated…and before long, several thousand tons of corn are shipped to Africa…and at some point, this corn ends up in the harbor of Mombasa.  A portion of the corn often goes directly into the hands of unscrupulous politicians who then pass it on to their own tribe to boost their next election campaign.  Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices.  Local farmers may as well put down their hoes right away; no one can compete with the UN’s World Food Program.  And because the farmers go under in the face of this pressure, Kenya would have no reserves to draw on if there actually were a famine next year.  It’s a simple but fatal cycle.

It’s a stunning interview, and do read the whole thing, by clicking on the link above. In another essay, Mr. Shikwati emphasizes that what the developing world needs is trade, not aid, to help the poor.

This is pertinent, not only because of the failure to pass the Free Trade Agreement with Columbia, but because of the Democrat Congress’s reasons for voting against the bill.  American Unions have been losing membership and influence in recent years, and they have been ardent supporters of the Democrat Party.  They are now calling in the debt.  The unions want to force other countries throughout the world to adopt their union rules and environmental rules, and to refuse any trade agreements that do not contain those requirements.

Over the past several decades, in contrast to the claims of Democrats, remarkable progress has been made against poverty around the globe.  According to data from the World Bank, the number of extremely poor people has shrunk to fewer than a billion in 2004 from about one and one half billion in 1981.  Most of this has been accomplished through increased free trade.

Mr. Shikwati’s comments are also pertinent because the developed world’s rush to put farm crops into their fuel tanks has disrupted the world food supply, and rising energy prices are also harming poor countries. There is both a short-term and a long-term problem.  Robert Zoellick, President of the World Bank points out that food prices have risen 83 percent since 2005 “threatening to drive over 100 million people into extreme poverty”.  Such a move, he added, would “reverse the gains made in overcoming poverty in the last seven years”. Yet we must make sure that we are enacting policy changes that assure that emergency relief will not be required next year and thereafter.

Senator Barack Obama has sponsored a “Global Poverty Act” that would require the United States to increase foreign aid by approximately $65 billion per year.  If the Senate passes the bill, it would be Mr. Obama’s first significant legislative accomplishment. Derived directly from the UN’s Millennium Development Goals, the idea has been for donor countries to devote 0.7% of their GNP to aid.

The idea of making the goal of international development aid by rich countries 0.7% of their national income, rather than of any demonstrated need by developing countries or evidence that any such aid could be used effectively is illogical. Nowhere in the world can we point to a country that has escaped poverty through foreign aid, in spite of more than $2 trillion of foreign aid spending so far. The correct question is: How do countries develop economically?  What actually works?

The answer is foreign investment and increased trade. If rich countries would open their markets to developing countries, those poorer countries could work their way out of poverty and wouldn’t require foreign aid.

The latest report from the United Nations indicates that the goal, of cutting in half the proportion of people worldwide who live on less than $1 per day between 1990 and 2015, was already 80 percent achieved by 2004, 11 years before the deadline. As The Heritage Foundation reports:

US contributions to this goal are substantial. The U.S. is the largest source of foreign direct investment in developing countries, the largest recipient of developing country exports, and the largest provider of development and humanitarian assistance to developing countries.  In a world economy that is increasingly market-oriented and globalized, unprecedent levels of resources are flowing to developing countries.  The share of these resources coming from the private sector, primarily through the mechanisms of trade, investment and remittances, dwarfs official aid flows.

Democrats are always anxious to solve problems by taking money from taxpayers to give to those with the problem.  But problems are most often not so simplistic that they can be solved by simply throwing money at them.  The socialist idea that “redistribution” is the answer and the problem is “rich people” doesn’t meet the most elementary logic test. If we have already met 80 percent of the goal eleven years ahead of time, maybe we should keep on with what we have been doing: Increasing trade, increasing investment,  and sharing knowledge.

But that requires looking into what is actually being done, and what the results have been; rather than attempting to grandstand with a bill to solve world poverty to enhance one’s resume.




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