The Senate’s vote to acquit Donald Trump on both articles of impeachment this month brought a much-needed end to the tiring impeachment saga America has been subject to in the last few months.
The impeachment controversy arose when President Donald Trump initially withheld military aid from Ukraine unless President Volodymyr Zelensky provided revelatory information about political rivals such as presidential candidate Joe Biden and his son Hunter Biden’s business dealings. After a whistleblower alleged that Trump may have abused power, the managerial class was off to the races to launch an impeachment inquiry against him. For the past few months, DC pundits have yammered on about the implications of impeachment while the rest of the country has been busy getting on with their lives the way that normal people not living off government largesse do.
Now that the impeachment trial is over, maybe we can actually talk about more relevant issues like foreign aid. For more than seventy-five years, foreign assistance has played an integral role in American foreign policy. In 2019, a total of $39.2 billion was spent on foreign assistance, and at a quick glance it has left a lot to be desired.
School textbooks tend to make foreign aid look like a simple process, but as with anything the government runs, foreign aid has its obligatory share of red tape. Fergus Hodgson of Econ Americas noted that “Little of the development funds trickle down to the target communities,” in explaining why countries like Ethiopia and Haiti remain backwards. More importantly, Hodgson provided an unpleasant depiction of where foreign aid money generally goes:
A confiscatory portion goes to the pockets of federal bureaucrats and U.S. contractors, and another sizable chunk goes to urban, middle-class, or affluent partners in recipient countries. Further, one-fifth of U.S. aid goes through local governments, which tend to be corrupt and incompetent.
As far as the countries where the bulk of foreign aid is going, they’re not necessarily the most institutionally sound. War-ravaged countries such as Afghanistan ($5.1 billion), Iraq ($880 million), and Yemen ($565 million) received substantial aid in the fiscal year of 2018—be it in economic or military form. The first two countries have been subject to US invasions, in which the US government may have spent more than $5 trillion trying to turn them into Western-style democracies. In the case of Yemen, the US has been dragged into a proxy war all thanks to its “special relationship” with the Kingdom of Saudi Arabia. After nearly two decades of nation building, there appears to be no end in sight to American involvement in the region.
Thanks to the ruling class’s Russophobia, Ukraine was easy to side with in the Crimean conflict after Russia ramped up its intervention in the Crimean Peninsula. This resulted in the US disbursing a total of $559 million in aid to Ukraine in 2018. Foreign aid to Ukraine was at the center of the now concluded impeachment charade.
None of the aforementioned countries are exemplars of clean governance. Transparency International’s 2018 Corruption Perceptions Index revealed that Afghanistan, Iraq, Ukraine, and Yemen have putrid corruption rankings of 172nd, 168th, 120th, and 176th place, respectively.
Foreign Aid Encourages Bad Behavior
Foreign aid is not a get-rich-quick scheme for developing countries. Instead of building wealth, it comes with some not-so-pleasant consequences for the recipient nation. Also, such programs aren’t free. Someone ultimately has to pay for them. At the 2011 Conservative Political Action Conference, former congressman Ron Paul famously declared that
Foreign aid is taking money from the poor people of a rich country and giving it to the rich people of a poor country.
Thanks to a steady flow of outside funding, governments receiving aid no longer have to be accountable to their citizens. Knowing that US taxpayers will bail them out, some governments have no incentive whatsoever to innovate or keep corruption in check. Like subsidizing American banks making bad decisions at the domestic level, giving foreign aid to corrupt governments or factions within a country only encourages bad behavior.
DC has become so detached from the concept of rational economics that it treats the blood and sweat of taxpayers as malleable inputs that can be squeezed out of the population and sent abroad on a legislative whim. All of this is done with complete disregard for the unforeseen consequences that these policies inevitably produce.
Economist Frédéric Bastiat’s essay “That Which is Seen, and That Which is Not Seen” offers various points to consider when approaching the subject of government transfers such as foreign aid. What is seen is the recipient government being propped up thanks to the aid injection, which pleases both the recipient country’s elites and US foreign policy wonks.
However, what is not seen are the potential reform movements that would emerge under normal political circumstances. These movements often hold the key to breaking free of the cycle of corruption and poverty that many of these countries find themselves in. But when foreign aid enters the equation, the establishment government is artificially propped up at reformist factions’ expense. Domestically speaking, foreign aid money is clearly coming from American taxpayers. In an ideal world, this money would be in the hands of American taxpayers and put to use in the private sector. Sadly, most political leaders will never take these concerns into consideration. The signing ceremonies of foreign aid agreements and the subsequent ego boosts are too irresistible to DC do-gooders, so they’ll work diligently to keep the foreign aid gravy train in place.
Let’s not kid ourselves. It is the height of naivete to believe that developing countries will magically become rich via wealth transfers from First World countries. It ignores many of the institutions of freedom—private property and federalism—that enabled countries like the US to become the most prosperous societies in human history. Policymakers will have to think outside the box if they want to see more nations join the ranks of the developed world.
Some Alternatives to Consider
Indeed, there are more practical alternatives to using heavy-handed state measures to help developing countires. First off, bilateral free trade is a much better way to handle the issue of economic development. Expanding trade relations makes sense with regions such as Central America, which stand to benefit from the inflow of North American capital. Increased trade and investment will raise living standards in these capital-starved regions while also providing American consumers and entrepreneurs access to a new market of goods and services.
Another foreign aid alternative to consider is the revival of exchange programs such as the renowned collaboration between the University of Chicago and the Pontifical Catholic University of Chile in the 1950s. This program helped create a new generation of free market economists who would craft the very policies that catapulted Chile into the highest echelons of economic development in Latin America. The exchange program between the two universities still exists, but these efforts could be replicated and expanded to other countries without much state sponsorship.
Neither of these solutions involve dumping foreign aid into these regions or using military intervention to help them. The key to beating poverty from Santiago de Chile to Kinshasa (in the Congo) is still to increase these countries’ capital stock, not confiscate Americans’ wealth and ship it off in the form of foreign aid packages. The only serious way to do this is through policies which reduce regulatory barriers, respect property rights, expand commerce, and otherwise facilitate capital formation.
But this may be too much to ask of Western politicians who are fixated on using the government to solve every conceivable socioeconomic problem they encounter.
According to a YouGov–Victims of Communism Memorial Foundation poll released in late October, 70 percent of millennials indicated that they are “somewhat or extremely likely to vote for a socialist candidate.”
This same poll also found that 50 percent of millennials — those between 23 and 38 years of age, and 51 percent of Generation Z — those aged 16 to 22, have somewhat or very unfavorable views of capitalism. This represented an increase of 8 and 6 percent, respectively, from the previous year. In comparison, 44 percent of Generation X, 33 percent of Baby Boomers, and 33 percent of the Silent Generation responded that they were somewhat or extremely likely to vote for a socialist candidate.
Overall, capitalism is still viewed more positively than any other system. Pollsters found that 61 percent of people viewed it favorably in 2018. The overall takeaway was that millennials don’t have as much hostility towards socialism and communism as the generations who lived during the Cold War.
What could be the driving force behind socialism’s appeal among the youth?
American culture has gone through numerous transformations during the last 50 years. Mass public schooling and an increasingly politicized society have made interventionist ideas become more mainstream. One of the easiest ways to get people behind an idea is by promoting it to them while they’re young, i.e., conditioning them in their early years of schooling.
Then, universities finish this process off by promoting socialist ideas in economics, history, political science, and other liberal arts fields. Even when young Americans leave educational settings and become professionals, they will likely consume entertainment with left-wing bias. At that juncture, they’ll have had thousands of hours of exposure to collectivist ideas.
The rise of Bernie Sanders and Alexandria Ocasio-Cortez is no coincidence when considering these factors. The current socialism these two political figures espouse may not be the same as the socialism of the 20th century, which produced mass killings, but it’s still worthy of condemnation. In contrast to the proletariat versus bourgeois conflict that marked 20th-century socialism and communism, present-day socialists focus more on identity politics and using the state to benefit certain “disadvantaged” groups.
No matter how we slice it, what the present-day youth increasingly desire is a controlling system that undermines economic and civil liberties. The state does not operate in a vacuum. Services that are “free” and compulsory require that resources be expropriated from the private sector, while people are forced against their will to comply with these programs. No respectable society that truly cherishes freedom would accept such policies.
However, it would be a mistake to believe that a simple political campaign can be used to defeat the ideas that Sanders and AOC are promoting. Economist Ludwig von Mises asserted that “Thoughts and ideas are not phantoms. They are real things. Although intangible and immaterial, they are factors in bringing about changes in the realm of tangible and material things.”
To even confront the rise of socialist ideas, we must go back to the fundamentals. That means understanding the basic principles of freedom and finding the best ways to spread them. This could consist of building media outlets, educational organizations, mutual aid societies, alternative schooling methods such as homeschooling, etc. To move away from a society where the state is the common denominator in virtually all affairs requires a shift in consciousness. There are no quick fixes for this.
It should be stressed that this is a multi-pronged process that could take decades to carry out. The Left has taken note of that and has played the long game in gradually taking over both public and private institutions over the span of decades. But it all starts with ideas.
There is no “right” moment to start disseminating these ideas. The sooner we can build a lasting infrastructure to do so, the better. Future generations are counting on us to get this right.
On August 11, 2019, the presidential ticket of Alberto Fernández and Cristina Fernández de Kirchner pulled off a major electoral upset against incumbent President Mauricio Marci in the Argentine primary elections. Based on their performance last month, they’ll be able to compete in the general election on October 27, 2019. Winning by a 16-point margin, many on the political Left see this as a sound rejection of Macri’s supposedly neoliberal policies.
Neoliberalism: Fact or Fiction?
The aforementioned accusations of Macri’s administration being “neoliberal” is a typical slur in Latin American politics and is usually directed toward right-wing administrations and their nominal devotion to markets. Conventional wisdom states that these regimes are working day and night to implement radical free-market policies consisting of the privatization of every sector of the economy, drastic spending cuts, and the down-sizing of the regulatory state.
If these critiques were taken at face value, we would be under the impression that Latin American countries were well on their way toward a libertarian political order every time they turned to the International Monetary Fund for aid. However, careful inspection of actual policy moves, not sensationalist media takes, shows that this perception is erroneous. In many cases throughout Latin America, as we’re now seeing in Argentina, there was never really a genuine move toward free markets. At best, most of these governments are trying to patch up the fiscal misbehavior of previous populist administrations.
The heads of government may talk a big game about free markets, but their policy actions tell a different story. Once in a blue moon, certain governments may get a few policies right, but institutional inertia and a lack of a political will to carry out market reforms put these countries back on the path to economic mediocrity. Macri’s Argentina is a prime example.
Macri’s predecessor Cristina Fernández de Kirchner (CFK) implemented a series of interventionist policies such as currency controls, price controls, and subsidies to correct the errors of the previous “neoliberal” decade of the 1990s. Thanks to high commodity prices in its agricultural sector, Argentina could coast economically throughout the first decade of the twenty-first century. However, the chickens eventually came to roost once commodity prices dropped and CFK’s policies began to take a serious toll on the Argentine economy. By 2014, Argentina defaulted on its debt and inflation began to rise well into the double digits. Naturally, the growing discontent following Argentina’s 2014 default paved the way for Macri’s election in 2015.
The Macri Administration’s Over-Hyped Free Market Credentials
Described as a “non-Peronist,” Macri’s presidency was viewed as a rejection of the previous populist politics of the Kirchner era. However, Macri’s administration morphed into another phase in the repetitive cycle of economic instability that has characterized Argentina’s political economy during the last 70 years. Winning by a slim margin and not having control of the Argentine Congress, Macri faced considerable institutional inertia in trying to pass any meaningful economic reforms.
Juan Carlos Hidalgo, a Latin American policy analyst for the Cato Institute, provided a sobering analysis of the dilemma Macri has faced throughout his presidency.
Dismantling currency and price controls, cutting back subsidies, reducing overall spending, bringing the deficit under control, and taming inflation was not going to be easy. The question from the beginning was, what kind of approach would Macri adopt to reforms? He opted for gradualism. Macri was quick to lift currency controls and return Argentina to international bond markets, but he failed in cutting spending. Thus, the fiscal deficit remained high, taxes continued to be punitive, and high inflation endured.
Instead of implementing bold market reforms, Marci opted for the road most traveled — gradualism. With his back against the wall, Macri ended up having to negotiate a $57 billion bailout with the IMF. When dealing with the IMF, it’s always a mixed bag. On one hand, Macri was able to reduce spending. On the other, he raised taxes and even brought back price controls in a futile attempt to tame inflation. Not exactly what Argentina’s economy needs at this very moment.
Argentina Needs Free Markets
What Argentina is going through is a sad situation that could have been avoided had the country made a concerted effort like Chile made during the 1970s and 1980s to liberalize its economy. Sadly, Argentina has not learned this lesson and is now just meandering its way along the played-out populist cycle that it has gone through for decades. Although it’s not Venezuela, Argentina’s refusal to embrace coherent market policies will make it susceptible to more economic reversals and leave its political system wide open for demagogues to exploit.
Argentines have every reason to be mad at Macri’s current administration. Inflation is expected to rise to 53 percent by December 2019. Now, there are talks about the country potentially defaulting on its debt, which would make it the ninth time the country has defaulted in its history. Since 1950, Argentina has defaulted 7 times.
In Argentina’s case, it seems that old political habits die hard. So, no matter who ends up winning the presidency in October, the Argentine people are set to lose.
Antony Davies is an associate professor of economics at Duquesne University and Mercatus Affiliated Senior Scholar at George Mason University. His primary research interests include econometrics and public policy.
Find Mr. Davies at his website: antolin-davies.com
His podcast: www.wordsandnumbers.org
And on Learn Liberty: http://www.learnliberty.org/speakers/antony-davies/
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