Incredible Shortsightedness

The US economy is reeling and we are all worried, many of us have lost their jobs or know several people who have. There are good economic arguments for trying to keep as much as possible of the economic stimulus inside the country (to maximize the impact of each dollar spent) while avoiding new protectionism that might spark a trade war. With all of us so focused on the domestic economy it is easy to forget that things are also happening in the rest of the world and that they aren’t that different from what we are going through here (and many of the problems like speculative investment in Eastern Europe are not at all the US fault).

However, if the current crisis has taught us anything, it is that nations are interlinked. The economic decoupling was a myth and the economic crisis is hurting everyone and endangering many US foreign policy priorities, including the recovery of Iraq. Because of this I was extremely shocked to see the following shortsightedness from Richard Posner:

I think the big foundations, such as the Gates foundation (the biggest), should be strongly urged to redirect their extensive foreign charity to the United States at this time of depression. I am not suggesting that his projects should “Buy American,” in the sense of buying U.S. products to give to foreign recipients of his charities. The point is rather that charity should begin at home when home is suffering.

I agree that in these tough times all of us who have steady incomes should help less fortunate ones by donating more to local charities. But taking away funding from the developing world would both be immoral and counter productive. These countries are already suffering immensely from a crisis that they did not create, the World Bank’s Chief Economist for Africa expects up to 700,000 additional infant deaths in Africa because of the crisis and an increase in conflict and decrease in governance quality. Ted Miguel and Ray Fisman have shown how economic shocks greatly increase the likelihood of civil wars and the same is true for a rapid fall in natural resource prices. Offering aid and then withdrawing it can be much worse than not giving anything in the first place. This decade has taught us that failing states, from Afghanistan, to Pakistan, to Somalia are real security problems, not just for their neighbors but also for the West.

If the Gates Foundation and others like it suddenly stopped funding projects in developing countries countless projects that have come to depend on their funds (many of which were started because of it) would have to shut down and it would take a long time for them to recover once the money becomes available again. The cutting of funds would worsen the impact of the crisis in affected countries, increase the time it will take for the global economy to recover, endanger long term research into tropical diseases, and produce a (potentially protectionist) backlash against the United States that we really don’t need right now.

This crisis and the way we get out of it is a chance for the US to show its leadership and creativity in the face of tough problems and together we can achieve that. If you as an individual want to help those less fortunate than you consider making a loan on Kiva or donating to a US charity.

Update: As Lauren pointed out in the comments you can also contribute by spending your time solving important problems and make a career out of making the world a better place.

Update 2: Richard Posner wrote another post supporting the elimination of tax deductions for charitable donations to foreign countries while Gary Becker (on the same blog) had a more nuanced opinion. Posner also maintains that we should regulate such giving which as an entrepreneur leaves me just flabbergasted. Many innovative non-profits started by young upstarts with great ideas such as Kiva, Forge, Face Aids, and Unite for Sight would never have been started under this plan and the world would be worse off for it. Let’s foster entrepreneurship in all sectors of the economy, not limit it without good reason.