Gene Callahan, who is writing
a book, Economics for Real People, for the Ludwig
von Mises Institute.
a recent National Review Online Guest Comment, "Forgiveness
Time," Brett Wagner and Jesse Lorenzo contend that the U.S.
should forgive Third World countries $435 million in debt. While
this might be a good idea, I find their analysis of the debt problem
faulty and incomplete in important ways.
and Lorenzo say:
of millions of people throughout the Third World are trapped in
suffocating and dehumanizing poverty in no small part because
domestic resources that could be used for health, education, sanitation,
and agricultural-modernization programs are being diverted to
service uncollectible international debt.
that the things that they think this money could be used for are
all government projects "programs." Perhaps, after four decades
of "programs" that have made things worse, these governments could
try simply leaving their people alone and letting them work it out
for themselves? When these programs to help the poor fail once or
twice, we can believe that the "programmers" were simply mistaken
what they thought would help did not. But after repeated
efforts fail, one must begin to wonder whether the programmers actually
have an interest in the poor or are simply in love with designing
and Lorenzo's statement, "America has more than enough money to
pay its fair share of Third World debt relief," is doubly curious.
In the first place, while it is certainly true that the U.S. government
has enough money to pony up $435 million, just who is arguing the
issue on these grounds? Our government also has enough money to
fund me on one heck of an around-the-world cruise. The real question
would seem to be, "Should the government be spending its money on
how can U.S. taxpayers, who will ultimately foot this bill, be said
to have a "fair share" of someone else's debts? If I can't pay my
mortgage, what will Wagner and Lorenzo take on as their fair share
of my debt? This usage seems to render "fair" empty of any meaning,
other than enabling the user to call anyone who would dispute his
true that the poor of the Third World are chiefly innocent victims
in this mess. Their leaders squandered some of the funds from previous
loans on inefficient (or just plain useless) government projects.
But much of the money flowing in from the developed world they simply
stole. Doug Bandow of the CATO Institute writes,
of one of the worst of the thieves:
there is any nation where donors should be cautious, it is the
former Zaire. The Mobuto regime collected $8.5 billion between
1970 and 1994. The only evidence that remains of that aid is the
deposed dictator's luxurious villas in France and Switzerland,
assorted bank accounts frozen by the Swiss government and his
country's huge, uncollectable international debt.
told, Mobuto is thought to have amassed a fortune of between $4
billion and $7 billion by looting his national treasury and the
foreign aid that flowed into it.
is a story of Mobuto being asked if it was true that he had $5 billion
stashed away in Switzerland. Mobuto, apparently insulted, told the
inquirer, "No, I have much more than that."
major effect of this flow of funds to Third World governments is
that it strengthens corrupt and despotic regimes. With billions
of dollars to distribute, the strongmen, who are the chief obstacle
to their countries' advance, are able to buy support and remain
in office for far longer than they otherwise could have.
we realize that the initial loans are as much a part of the problem
as the subsequent repayments, our obligations appear somewhat differently.
Let us imagine that we have been lending money to a problem drinker
to buy alcohol. Certainly, we have been a part of his problem. And
if he can't pay us back, we might feel a responsibility to forgive
his debt. But we would surely want to add a proviso that there will
be no more loans forthcoming. This is just the sort of solution
to the debt problem that Ian Vásquez, CATO's director of
the Project on Global Economic Liberty, recommends. In his article
Won't Help Africa" he contends:
best solution would be to forgive poor countries' debts and terminate
official lending altogether. Doing so would end the continent's
aid addiction and force governments to focus on the real causes
of poverty: flawed economic policies and institutions.
and Lorenzo write:
America and the other "haves" turn a deaf ear to the pleas of
the world's "have-nots," the 21st century will likely be increasingly
plagued by famine, failed states, massive transnational flows
of refugees, and growing regional instability. And that bodes
well for no one.
"help" that the "have-nots" have received from the "haves" has mainly
helped to make so much of Third World the disaster area that it
is. Debt relief might be a suitable act of charity, and recognition
of the effect that First World aid has had on the Third World. But
if not accompanied by a fundamental change in policy on future aid,
it will not make a significant difference to the lives of the Third
Callahan is a regular contributor to mises.org
© 2000, Gene