STUDY GUIDE/ CLASS NOTES FOR ECONOMICS OF COMPASSION EXAM 21/30/13International Aid• In history: Poor (destitute) were widows, orphans, disabled• China originally experienced economic growth, then it mysteriously stopped• 1400-1600 years went by before standard of upper class in Western Europe began to improve.• Paul Collier (expert on development in Britain)- wrote a book called The Bottom Billion• Economic growth- measured over time, GDP- static measure of an economy in a certain point in time (a snapshot)• African nations make up most of the bottom GDP per capita list.• Important books/authors:o William Easterly- The Elusive Quest for Growtho George Nash- Herbert Hoover and Belgium, typescript found in the US National Archives Belgium was highly industrialized, but not agriculturally. This posed a problem during WWI because they were caught in the middle of conflict and were unable to get food. Innocent people were starving. Hoover and the American Red Cross helped Belgium, beginning the idea of a wealthy country helping a poor country with disaster relief. Moral of the story: you can’t provide aid forever; a retreat strategy must be in place.• The Great Depression- Began in 1929, in 1933 the depression was at a “trough”o GDP of the US recovered very quickly after 1933o By 1936, the GDP was equal to or higher than it was in 1929o The problem was that the unemployment rate was still at 12-13%o GDP recovered quicker than unemployment because they focused on models that didn’t have labor and capital in parallel.• Economic growth models (Harrod Domar) were capital-driven models.o Human/technology capital not yet present.• Max Weber- sociologisto Provided 1 idea as to where savings came from to help N. Europe: protestant ethic and the spirit of capitalismo Created religious reasons for people to engage in savings.2/4/13Most of today’s data from: Easterly- The Elusive Quest for GrowthImportant historical Events1. End of WW1- large scale international humanitarian disaster assistance. Herbert Hoover and the Red Cross.2. The Great Depression- disconnect between recovery of GDP and recovery of employment• Capital-driven models of economics growth were actually a business-cycle driven model saying that economies were driven by capital.3. End of WWIIa. Marshall Plan- recovery plan for Europe based on rebuilding economic capital. An official plan of US helpingi. Involved rebuilding bonded out physical capital. ii. The Cold War played a role in the US being so generousiii. It was successful- very large growth rates in Western Europe and Japan• Process of decolonization- big push to help struggling African nations.• Walter Rostow –“need capital for growth”o Capital is obtained by savingso These countries are very poor and “supposedly” have fewer opportunities for savings Result in Gap Model.  What fills the gap?• Western Aid and organized programs of assistance.• The idea is that economies would eventually “take off”• Dr. Moyo (From Dead Aid)- What went wrong with Ghana? o The capital-driven model doesn’t work in developing nationso The concept was misapplied in this situation• Some think that aid might not be a factor in a country’s economic destiny• Dr.Moyo is an “aid skeptic”- skeptical of western aid being a vehicle for help.• Good institutions are needed, which include:o lack of corruption, protection of private property rights, enforceable contracts, free and transparent flows of international trade.• International agencies should do a reverse Marshall Plan: everyone’s aid reduced by 20% for 5 years will stimulate self-sustainability.o This will then reopen the possibility of local entrepreneurship.• Also reforming US/Europe agriculture policieso Current policies prohibit trading agriculturally with Africa and other nations that could benefit from the growth of local agriculture programs. 2/6/13Aid Skeptics- (Easterly, Moyo) think aid doesn’t work well, in fact, probably does damage. i.e. destruction of indigenous markets, promoting corruption in government, siphoning of aid by corrupt governments.They suggest:• Ending aid- Dead Aid- quitting cold turkey• Trade- western countries integrating Africa into international trading• Moyo- FDI (foreign direct investment) China is investing in Africa. There are dangers to this as well. • Institutions-property rights, contracts, cleanup of corruption (which could have cultural roots as well)• Charter cities-o Must have property rights, free and open media, facilitated international trade, low cost of business start up1. Ex: Hong Kong, success story- stood alone with its own institutions after Britain left2. Ex: Honduras• LAPD story: 1920s-1949 the LAPD was considered one of the most corrupt police forces in the states.o LA confidential- highlights the corruption o William Parker takes over in 1949 and cleans up the LAPDo Parker’s actions can be related to what makes success in charter cities1. Personal commitment to the idea that the cops should stay “straight-edge”2. Competitive and free media: publicize actions, uncovers corruption, “dime novels” were prevalent in this era.3. There should be incentives to be non-corrupt (in the case of the LAPD the 2 person patrol car was established to maintain accountability)4. Use the media to promote non-corruption5. Contestability between government6. The culture of the charter city (LA culture) • New “Smart Aid” –J.Sachs and Bill Gates are associated with these ideas, based on research before action.• Intermediate position to Smart Aid and Moyo is Collier’s “The Bottom Billion”o Collier is an economist, also a dedicated empiricist, all about econometric modelso Describes attributes of countries trapped in the bottom billion:1. Civil war after 19602. Resource curse- oil, diamonds “Dutch disease”• Developing economy drives up value of currency3. Economy run by “bad guys”4. Land locked country at the mercy of countries with attributes 1 and 32/11/13Collier on good governments Ted Talk• There are 2 forces that combined can change the world for good: compassion and enlightened self-interesto Compassion-helps us become motivated to giveo Self-interest- motivation to change to make a better world for our children• The first time the rich world helped Europe (the poor world at the time): The Marshall plano Included reversal of trade policyo Reversal of security