FOREIGN AID-RATIONALE AND DISTRIBUTION

I am writing these thoughts as someone with a degree in Economics, with the intent to look at rationale and criteria for distribution of foreign aid.  The definition given to me by one of my college professors, that inspired me to enter the field was “Economics deals with the allocation of scarce resources over competing ends”.  These criteria are not meant to be all-inclusive, however, other considerations such as a security of an ally must also be considered. 

This rationale only deals with foreign assistance that does not include military assets.

The first aspect Congress should consider is a relative analysis comparing the target country’s per capita debt vs the per capita debt of the United States. This consideration is easily understood.  Why give non-military foreign aid to a country with no national debt, or substantially less per capita debt? Let that country borrow money from the U.S. or others if that country really needs aid. 

The second consideration should be per capita income.  If the target country has a higher per capita income than that of the United States, it should be looked at with relative value.  This option should only be considered with the next consideration.

The third consideration would be per capita poverty level or a minimum cost of living level relative to the per capita income.  This can be expressed in a percentage of poverty to income.

A chart can be produced which can provide the best guidance for the issue of any foreign assistance.

Our foreign debt per capita is $68,000 and growing at a rate of 5% in early 2020.  With population growth at .7% per year in the United States, could one see a potential problem in the very near future?  Corporations have influence by promoting construction and other infrastructure projects to be funded with taxpayer monies. The United States household per capita debt (2.5 members per household) is $19,480.  Now let us look at publicly available data

And put together some criteria.

Per capita income

The United States

$29,800 (5 year avg.)

Poverty Level in the United States

$19,480

Income to poverty %

65%

Per capita National Debt

$68,000

All of the above was written prior to the virus pandemic.  Let’s see what has transpired.

The above data was prior to the Trump bailout when the Gross Domestic Product was 22 Trillion.  The national debt was 23 trillion dollars.  As a result of the bailout the debt will increase by $3 to $7 trillion.  The current budget allows for $1 trillion debt and the bailout legislation has at its bottom $2 trillion debt.  The remaining $4 trillion debt is generated by using $500 million of the $2 trillion dollars to magically having the Fed turn $500 million into $4 trillion by giving grants, low interest loans and loans which may be forgiven (in other words a bailout).  The $500 million is used as the collateral for printing the $4 trillion dollars. The new total $30 trillion debt gives every individual in the United States $91,000 debt. This $7 trillion is just the first of the bailouts and it will only cover about 4 months of the shutdown, which could take 6 to 9 months.  Will this mean another $7 to $10 trillion bailout required?  Trump being the self-described king of debt knows this option has potential political problems.

Another options is one that would greatly help his family businesses and their debt.  That option is to devalue the currency and this is what printing money does.  If the $4 trillion or any part is forgiven, that action has the same effect as printing money.  What I will now predict is, if the bailouts continue without any end, run-away inflation could wipe out the economy.  Inflation makes a payback of fixed debt easier.

The economy recovery situation can only be mitigated by a testing and returning to normal. Unless a vaccine or some type of an effective medication that reduces the symptoms is introduced, the economy will not return.  The tests required are tests that show who has the virus and those individuals that are non-symptomatic and those with potential antibodies.  Remember without testing who knows? Since no individual has an initial immunity, everyone has the potential to be infected.

Foreign Aid, sorry I got distracted.  I may revisit the subject at a later date.