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STUDY GUIDE CLASS NOTES FOR ECONOMICS OF COMPASSION EXAM 2 1 30 13 International 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 Growth o 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 1933 o By 1936 the GDP was equal to or higher than it was in 1929 o 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 sociologist o Provided 1 idea as to where savings came from to help N Europe protestant ethic and the spirit of capitalism o Created religious reasons for people to engage in savings 2 4 13 Most of today s data from Easterly The Elusive Quest for Growth Important historical Events 1 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 WWII plan of US helping a Marshall Plan recovery plan for Europe based on rebuilding economic capital An official Involved rebuilding bonded out physical capital i ii The Cold War played a role in the US being so generous iii 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 savings o 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 nations o 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 policies o Current policies prohibit trading agriculturally with Africa and other nations that could benefit from the growth of local agriculture programs 2 6 13 Aid 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 1 Ex Hong Kong success story stood alone with its own institutions after Britain of business start up left 2 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 LAPD o Parker s actions can be related to what makes success in charter cities 1 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 corruption 5 Contestability between government 6 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 models o Describes attributes of countries trapped in the bottom billion 1 Civil war after 1960 2 Resource curse oil diamonds Dutch disease Developing economy drives up value of currency 3 Economy run by bad guys 4 Land locked country at the mercy of countries with attributes 1 and 3 2 11 13 Collier on good governments Ted Talk There are 2 forces that combined can change the world for good compassion and enlightened self interest o Compassion helps us become motivated to give o 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 plan o Included reversal of trade policy o Reversal of security policy o And aid Ideas to strengthen governments o Optimism about the bottom billions o But the problem is countries can be worse off in the long run because of aid o Democracies make more of a mess of resource revenues than autocracies o Electoral competition causes problems but bottom billion countries


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FSU ECO 4132 - ECONOMICS OF COMPASSION

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