Bono, Deaton and Malign Aid

Shortly after Angus Deaton was announced winner of the Nobel Prize in Economics little over a year ago, I found this review article he wrote for the Review of Austrian Economics in 2015. Pretty strange, right? To have a well-known mainstream economist publishing in the one of the two major outlets for writing in Austrian Economics.

Obviously, I decided to have a look.

His fairly short entry in the RAE was a review of William Easterly's masterful work The Tyranny of Experts from 2014. I loved that book back then, so obviously I was excited for what Deaton would say. As it turns out, he was equally excited, praising Easterly's work, agreeing with his thorough critique of foreign aid and embracing most of the free-market views contained therein. Impressive, considering that Deaton's reputation is hardly one of an astune beacon of liberty. He very much captures the essence of Easterly's meticulous work, and accurate captures it in the following sentence:

What Easterly calls the technocratic illusion, often endorsed by experts, and in whose harm they are complicit. The illusion is that economic development is a technical, scientific, or engineering problem, to be solved by development experts, and that politics is not important, or at least will take care of itself when the engineering is complete. (p. 408)

I remember reading somewhere that development economics is the last outpost of central planning, the only area where the post-Soviet washing away of such nonsense still hadn't reached. Deaton, echoing Easterly, calls it a "museum-like belief in planning" (p. 410) – absolutely brilliant! Considering what Deaton and Easterly tell me, I'm not surprised. Deaton again, not even remotely concealing his harsh judgment:

“Aid, including health aid, undermines democracy, makes leaders less democratic, and will hurt health in the end.” (p. 411)

Few people understand this, so I' take a moment to explain. When a larger enough share of government revenue comes from foreign aid, governments of any kind are less sensitive to needs and requests of its own people. That is, even the most benevolent government imaginable is in such a situation more sensitive to the whims and technocratic ideas of World Bank employees in Washington, D.C., than anything that may be going on closer to home. Or to use Deaton's words: governments “can safely ignore the demands of its own citizens.” (p. 409)

Even prominent philantropists like Bono is coming around to this view, after spending most of his post-musician life praising foreign aid:

As is the case for many scholars, their negative case destroying some terrible and everlasting conviction is much stronger than their later positive contribution. Easterly's book was no different, and Deaton jumps at the chance of legitimately criticizing him; the impression one gets from reading Easterly's work is that democracy and rights for the poor together are sufficient reasons to bring an end to poverty. This, Deaton points out, is hardly the case, and he gives the example of Ghana to illustrate the point:

Which policy wins out is not a matter of mass popular demand, or of the rights of the poor, but is determined by how politics settle the conflicts between groups. In Ghana, whose rulers had long seen cocoa farmers as milch cows, production was eventually strangled or smuggled out, as experts had long predicted, and the restoration of sensible prices was inevitable once no one was benefiting from taxes that no one was paying. It is not true that the only policies that promote economic growth are those that are demanded from below, or certainly not in the short run. (p. 409)

Great to see Deaton publishing in RAE, reminding me that Easterly's work is still pretty darn amazing. With time, I'm sure the last central planners will fade away, as naive beliefs always do.