quikchange: The theory behind Live8

Tony (

quikchange) wrote,
@ 2005-07-12 21:10:00

Current mood:	enthralled
Current music:	The Watchmen - Middle East
Entry tags:	economics

The theory behind Live8
Last week I purchased one of those white wristbands in support of forgiving 3rd-world debt in the interests of fighting poverty. This week I learned how it all works. I shall now explain in plain English.

A long time ago the governments of modern industrial nations (like Canada) wanted to help ailing African nations out financially. What they should have done was to bankroll infrastructure development projects. But their citizens (that's us) didn't want to see their taxes being used to help other countries. So our governments mislead us slightly and said they were going to lend money to the Africa countries and we would be paid interest on these loans. That didn't sound so bad so we let them do it.

Unfortunately, most of this money was squandered on ethnic cleansing, quelling riots, fighting wars and other completely unproductive endeavours. By the end of it all, they were no better off than before they got the money, except now they have these loans on which they can't afford to pay interest. This makes them look like bad debtors so now nobody else will lend them money even when they do actually want to invest in infrastructure.

Of course, we're never going to see that money we gave them anyway, so we may as well write it off as a bad debt. This will clear their credit rating and allow them to take loans from private banks that will (hopefully) take rigourous measures to ensure that the money is not squandered again. This does not guarantee that they will progress but it does remove one of the obstacles in their way.

(Post a new comment)

a_chatterbox
2005-07-13 01:18 am UTC (link)

I think you've simplified this so much you've left out important details :/ You make it sound as though simply erasing the debt will give people in Africa enough of a chance to get back on their feet. It won't. And then the people who didn't want the debts erased in the first place will say, "I told you so." And they'll refuse to provide additional help, muttering something about throwing good money after bad.

(Reply to this)(Thread)

	quikchange 2005-07-13 02:12 am UTC (link)
	I think you forgot to read my final sentence, in which I explicitly stated that this would not necessarily fix thing; it is necessary but not sufficient. For things to improve in Africa they will also have to stop killing each other. (Reply to this)(Parent)

	adamspitz 2005-07-13 02:14 am UTC (link)
	Why do you believe that they won't squander the money a second time? (I mean that as an honest question, not a sarcastic comment. I don't know much about the situation over there.) Why did they squander it the first time? Have they fixed the problem so that it won't happen a second time? (Reply to this)(Thread)

	quikchange 2005-07-13 03:17 am UTC (link)
	I never said I believed it. I said I hoped they wouldn't squander it. The reason I have some hope is that I think the private banks will be cautious about lending money out this time and therefore ensure that it gets used properly. (Reply to this)(Parent)(Thread)

adamspitz
2005-07-13 03:52 am UTC (link)

Do the banks have the ability to do that? From what little I know of the situation over there, it sounds like a big part of the problem is that they've got corrupt governments. Is that still true? If their governments are still corrupt, will the banks be able to ensure that they don't squander the money again? It sounded to me like the problem was hard enough that it wasn't gonna be solved just by being a little bit more cautious.

(Reply to this)(Parent)(Thread)

	quikchange 2005-07-13 10:29 am UTC (link)
	As wary of lending them money as you might be, the banks are even more wary. It is their money, after all. If they lend them any, you can be sure that they've made damn sure it'll come back. Banks only ever make a money-losing mistake once. That's why you can't get the kind of mortgage that your parents probably had ;-( (Reply to this)(Parent)(Thread)

adamspitz
2005-07-13 07:15 pm UTC (link)

That's part of my point. I'm wondering whether the banks really will lend them money. They might not, because they might not have the ability to make sure that the loan will be repaid.

Personally, I don't think the lesson to learn from this is that we should have used our taxes to pay for their infrastructure, instead of lending them the money and expecting them to pay it back with interest. I think a better lesson is that we shouldn't lend money to entities whom we're not going to hold responsible for their own actions. If you don't think the citizens of a nation should be held responsible for the actions of their government, you shouldn't be lending money to governments. (If we had lent money to an individual person, and that person decided to use the money for "ethnic cleansing" and stuff like that, we certainly wouldn't forgive that debt, because we feel that the individual person should be held responsible for his own actions. If I've understood the situation correctly, our problem in the Africa case is that we're uneasy with the idea of holding Africans responsible for the actions of their corrupt governments.)

(Reply to this)(Parent)(Thread)

	quikchange 2005-07-13 09:01 pm UTC (link)
	Well, a better alternative might be to build the infrastructure ourselves via a Canadian corporation that we can hold accountable. (Reply to this)(Parent)(Thread)

adamspitz
2005-07-13 09:17 pm UTC (link)

Are we still using tax money for this? Would the Canadian corporation be responsible for eventually paying back that money to the taxpayers, with interest?

In your original post it sounded like you were saying that the Canadian government should have just spent the tax money on African infrastructure and not expected anything in return. I don't think that would be a good thing to do. But now I'm not sure whether that's what you're saying or not.

(Reply to this)(Parent)(Thread)

	quikchange 2005-07-13 10:40 pm UTC (link)
	The money can be treated as an investment by the corporation and it can make a return of it as people make use of the infrastructure. It's a lot like what happened with the rebuilding of Japan & Germany after WW2. (Reply to this)(Parent)

	(Anonymous) 2005-07-13 02:33 am UTC (link)
	You so stole my post, that was my question I asked in ECON!!!! (Reply to this)(Thread)

	zedinbed 2005-07-13 03:01 am UTC (link)
	Tony's an idea thief! I can atest to your statement. Bad Tony, bad! (Reply to this)(Parent)

	Sorry Lish quikchange 2005-07-13 03:18 am UTC (link)
	You snooze, you lose. (Reply to this)(Parent)

(Anonymous)
2005-07-13 04:27 am UTC (link)

I'll just add that part of the criteria that determined which countries were eligible for this debt relief was for it to have demonstrated a lack of corruption within the government; that is, for the country to show that any future money would be put to good use. I'm curious to see how the next two years pan out for Africa because, finally, a lot of attention is getting directed to it.

Justin (http://www.liberdei.com)

(Reply to this)(Thread)

	(Anonymous) 2005-07-13 04:28 am UTC (link)
	My goodness LJ stinks! Anchor tag adulteration again!! :( (Reply to this)(Parent)(Thread)

	theenforcer 2005-07-13 06:04 am UTC (link)
	Don't blame LJ for your inability to make a simple a href= statement properly. (Reply to this)(Parent)(Thread)

	quikchange 2005-07-13 10:40 am UTC (link)
	Actually, he did make it properly (as I can see in the email LJ sent me) but I think LJ mangles them to prevent comment spam from anonymous users. (Reply to this)(Parent)

	quikchange 2005-07-13 10:38 am UTC (link)
	Justin, why don't you have an RSS feed for your blog? (Reply to this)(Parent)(Thread)

	(Anonymous) 2005-07-13 05:43 pm UTC (link)
	Done: http://www.liberdei.com/journal/index.xml JC (Reply to this)(Parent)(Thread)

	quikchange 2005-07-13 08:59 pm UTC (link)
	Nice! (Reply to this)(Parent)

tangbu
2005-07-13 08:31 am UTC (link)

But the economics of this aid makes lots of sense to some of the people involved. You convince all the rich countries to give money to starving people in Africa, then you or your friends take a trip over there to sell them arms. Then the money comes back to your country and your friends get rich.

Last night at the Auckland Film Festival I watched a documentary on a disaster that is happening right now in Tanzania. I haven't got time right now, but I'll write it up for LJ soon. It's relevant to your discussion.

(Reply to this)(Thread)

	quikchange 2005-07-13 10:41 am UTC (link)
	I look forward to it :) (Reply to this)(Parent)

	cinnamon_digory 2005-07-13 12:43 pm UTC (link)
	who cares if the "economics" make sense? millions of people are dying because of these economics, therefore they are bad (at least in my mind) (Reply to this)(Parent)(Thread)

	quikchange 2005-07-13 12:52 pm UTC (link)
	It's all very well to dismiss economics but if you want to deal with reality then you have to understand and work with economics. Economics cannot be bad any more than Mathematics can. It's merely a framework that allows us to understand human behaviour. Refusing to accept what it illustrates will usually just let you shoot yourself in the foot. (Reply to this)(Parent)(Thread)

	cinnamon_digory 2005-07-13 12:56 pm UTC (link)
	and THAT is why I would make a horrible politician :) (Reply to this)(Parent)

	tangbu 2005-07-13 08:14 pm UTC (link)
	I never said the economics make sense to me, I said that they make sense to the (western) people who are getting rich from selling arms to the various sides in Africa. (Reply to this)(Parent)(Thread)

	cinnamon_digory 2005-07-13 09:40 pm UTC (link)
	>.< stupid arms-selling western people (Reply to this)(Parent)

theenforcer
2005-07-13 07:53 pm UTC (link)

I don't believe cancelling the debt will solve anything. The credit record might go away, sure, but it's not like the day after the debt is erased a bank will go 'Wow! This African country suddenly has a clean slate! They must be great with their money!' and lend them a billion dollars. I also doubt that they'd take the risk of lending money even with strict restrictions and rules. It's going to take a lot of work to attack these problems at their root, and until someone figures out how to do it, you may as well just launch your money into space for all the good it's going to do anybody.

(Reply to this)(Thread)

	quikchange 2005-07-13 09:02 pm UTC (link)
	Isn't that what NASA's been doing for decades...? (Reply to this)(Parent)(Thread)

	theenforcer 2005-07-13 09:33 pm UTC (link)
	No, I mean taking all of your money, loading it into the cargo hold of a spaceship, and having it hit escape velocity and shooting off into space in a random direction, never to be seen or heard from again. On the other hand, if you want to argue that NASA is useless, I'm not here to tell you you're wrong. (Reply to this)(Parent)(Thread)

tangbu
2005-07-14 09:35 am UTC (link)

I am. NASA is stupid and have made some incredible blunders, but they've also done some incredible things with the constraints they've been forced to work under. The moon wasn't easy, and everyone knew it couldn't be done in under ten years, yet they did it. Ever since then they've been under incredibly stupid pressure from their leadership, who seem to never have been interested in science, but politics.

(Reply to this)(Parent)(Thread)

quikchange
2005-07-14 10:13 am UTC (link)

I highly respect your opinion so please don't take what I am about to say as a personal attack but rather as an attack on the idea of space exploration. If you can make a decent argument in favour of it I am open to altering my opinion but I'm going to throw my most aggressive argument at you first.

As an exercise in intellectual masturbation, NASA can be considered an enormous success. However, has landing on the moon or on Mars gotten us anything palpably useful? What are we (humanity, not the US) trying to do with the space program?

If the idea is to leave this planet (since we seem to be hell-bent on wrecking it) and moving somewhere else, then I am convinced that we are burning money. We cannot support life outside earth without at least a source of renewable energy and we haven't even solved that problem here on earth with our abundance of natural resources. I don't see it happening elsewhere first. So it would be more fruitful to throw all that money into research to find a good source of renewable energy instead.

(Reply to this)(Parent)(Thread)

	theenforcer 2005-07-14 11:57 am UTC (link)
	To step in for a moment: if nothing else, space exploration has led to a myriad of technologies developed and released by NASA and now employed right here at home. (Reply to this)(Parent)(Thread)

	quikchange 2005-07-14 12:29 pm UTC (link)
	That would change my mind about it. Can you give me a few examples? (Reply to this)(Parent)(Thread)

	ramou 2005-07-14 01:46 pm UTC (link)
	Velcro? Or is that an urban myth? (Reply to this)(Parent)(Thread)

	Where do you find this crap...!? quikchange 2005-07-14 02:14 pm UTC (link)
	Myth. (Reply to this)(Parent)

theenforcer
2005-07-14 04:27 pm UTC (link)

It's not that tough to imagine, is it? Get some of the finest engineering minds in the world together in one place, pose them an impossible problem like "Get into space, and do it safely," and see what kind of solutions they come up with. Some of the stuff that's been improved or made possible by NASA developments is listed and briefly explained here. NASA also releases technical reports for the cool stuff they develop, which seem to be archived here, but the reports themselves can only be accessed from within the US.

(Reply to this)(Parent)(Thread)

	quikchange 2005-07-14 06:21 pm UTC (link)
	Those are pretty neat. I take it all back; NASA is useful :) (Reply to this)(Parent)

	Space tangbu 2005-07-15 09:34 am UTC (link)
	I've added an entry into my own LJ in a somewhat belated attempt to avoid hijacking your thread. (Reply to this)(Parent)

(Anonymous)
2005-07-15 07:19 am UTC (link)

Here's another version:

``A long time ago the governments of modern industrial nations (like Canada) wanted to make some money. So they make some very risky loans to murderers, gangsters, and robbers. Because the loans are so risky, they demand very high interest payments, ensuring they make plenty of money out of the loans. Naturally, the governments lied to us about this. Some people objected but because power is concentrated among the rich and privileged, they were able to do it.

Obviously, the dictators used the money to enrich themselves. By the end of it all, they are ridiculously wealthy, except now the poor people living in these countries are living in poverty, paying off loans they never borrowed in the first place. Meanwhile, the rich bankers are being paid off by taxpayers in the modern nations via the IMF.

Of course, we're never going to see that money we gave them anyway, so we may as well write it off as a bad debt, but only if they agree to implement strict structural adjustment programs. This will open up their domestic markets to imports and force them to cut social spending. This guarantees that the first beneficiaries of wealth are not the people in the region, and will usually result in more poverty.''

<url:http://a16.monkeyfist.com/?id=453>
<url:http://www.chomsky.info/interviews/200507--.htm>
<url:http://www.odiousdebts.org/odiousdebts/index.cfm?dsp=content&contentid=450\>
<url:http://www.vivelecanada.ca/article.php/20050624095334717>
<url:http://www.socialistworker.org/2005-2/548/548_03_g8.shtml>

Also, you might be interested to know your white wristband was made in a Chinese sweatshop under ``slave labour'' conditions:

<url:http://news.scotsman.com/uk.cfm?id=588782005>

Regards,
Alan

(Reply to this)(Thread)

	(Anonymous) 2005-07-15 07:22 am UTC (link)
	Sorry, the third URL should read: <url:http://www.odiousdebts.org/odiousdebts/index.cfm?dsp=content&contentid=4506> (Reply to this)(Parent)(Thread)

	quikchange 2005-07-15 09:00 am UTC (link)
	Wow. They sure pulled the wool over our eyes! Thanks for exposing it. (Reply to this)(Parent)(Thread)

	(Anonymous) 2005-07-15 11:20 pm UTC (link)
	It's hard to say whether the people in charge of the campaign really knew exactly what was happening, but the fact that they didn't scrutinize their suppliers more carefully certainly says something about how they operate. (Reply to this)(Parent)

	quikchange 2005-07-15 05:21 pm UTC (link)
	The wristband I bought (from EWB) was actually union manufactured in Canada though. (Reply to this)(Parent)(Thread)

	(Anonymous) 2005-07-15 11:14 pm UTC (link)
	Cool, I didn't know EWB was selling them. Regards, Alan (Reply to this)(Parent)

Username:		Create an Account Forgot your login? Login w/ OpenID
Password:
	Remember Me
	English • Español • Deutsch • Русский…