Foreign-Aid Follies: Rogoff's Review Of Angus Deaton's Book The Great Escape: Health, Wealth, and the Origins of Inequality

Click here to read it. Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. His most recent book, co-authored with Carmen M. Reinhart, is This Time is Different: Eight Centuries of Financial Folly. Excerpts:

"Do we really know how to help countries overcome poverty?

In his eloquently written and deeply researched new book ... Princeton University’s Angus Deaton urges caution .... it is unquestionably the most important book on development assistance to appear in a long time."

"Although Deaton supports select initiatives, particularly for delivering medical and technological knowledge, he questions whether the vast majority of aid passes the basic Hippocratic litmus test of “first do no harm.”"

"Economists have developed some useful indicators, but they are vastly less precise than politicians and the media seem to understand."

"Attempts to convert national incomes into a common denominator are fraught with complications. To take one prominent example, there is a 25% margin of error on purchasing-power-parity comparisons between GDP in the United States and China."

"How can one compare cost-of-living indices in different periods when new goods are constantly upending traditional consumption models? Consider the impact of cell phones in Africa, for example, or the Internet in India."

 "the “hydraulic model” of aid – the idea that if we simply pumped in more aid, better results would gush out – ignores the fact that funds are often fungible. Even if aid is narrowly targeted at say, food or health, a government can simply economize on expenditures that it might have made anyway and redirect them elsewhere – for example, to the military."

"An influx of Western NGOs often bids talent away from nascent businesses that could help the country long after the NGOs reset their priorities and move on."

 "inflows into one economic sector – typically oil or minerals – drive up economy-wide prices (including the exchange rate), rendering other sectors uncompetitive. Moreover, a great deal of this aid is delivered in kind and for strategic reasons, often supporting ineffective and kleptocratic governments."

"Western countries developed without receiving any aid....China and India, too, have succeeded in lifting hundreds of millions of people out of poverty with relatively little Western aid ... aid providers must be extremely careful not to interfere with political and social forces that, over time, can generate organic – and therefore more lasting – internal change."

"small randomized trials to .... The results are often specific to a particular country’s circumstances, and there is no reason to presume that they would scale up when fully confronted with a developing country’s governance problems."

"For most of mankind, now is a better time than ever before to be alive. The path to development remains for others to follow. Highly targeted Western aid and advice can help, but donors must take more care not to stand in the way of the beneficiaries in assisting them."