PerennialII said:
Please enlighten us more ... the irony within the topic is not lost either. I'd be willing to believe that extreme poverty (3rd world type) be abolished given approx. half a centure (likely wishful thinking), but poverty itself is structural ... nope.
Okay.
First of all, nothing in economics should ever be done hastily. We are never sure of the diversity and magnitude of externalties that occur as a result of decision-making. Quick decisions also cause turbulence and uncertainty in markets and may force people to readjust their entire livelihood on short notice. So, we shouldn’t even
try to do anything hastily.
In the case of poverty, we should get people out of it as soon as possible, but poverty is by definition a long-term problem and needs a calm and collected long-term solution. Whether 20 years is long or short is debatable.
By all means, make haste in getting medicine out to those who need it, and food and drinking water etc. But people are impoverished because they either do not have the will or the ability to
sustain resources to cover the cost of living. There is no “big push” out of poverty – that’s tantamount to selling “get rich quick” schemes. There is only a long haul, because life is a long haul – survival requires continuous attention and work. Resources will help you survive, but
resourcefulness will help you live.
Second, those who are truly poor are those who are not free. Differences in political philosophy aside, people cannot capitalize on their abilities if they are forcefully prevented from doing so, especially by totalitarian regimes or by regional conflict. (I’m not sure if Paul Wolfowitz running the World Bank is the best solution, but he did say in a
WaPo article that he would not change the relationship the Bank has with its clients based on the way they rule their countries… that’s just weird that he’s been nominated, he doesn’t even have economic training). Anyways, any plan to eliminate poverty will require eliminating oppression of all sorts. Economic oppression is a unique matter and deserves
intense scrutiny. But simply, individuals must be free and secure in order to live life.
Now, I realize my knowledge in the following areas is mostly academic, but it’s clear there is a large amount of negligence and complacency amongst policy makers regarding trade relations with poorer countries. Just complete total utter criminal negligence. Not only must we honor the tradition of postwar trade liberalization, we most importantly must reaffirm basic principles we know are theoretically and empirically sound – namely the principle of
comparative advantage.
Every freshman business student at my university learns about this principle. And it is so completely painful to see our government not only ignore it, but act
against it! Comparative advantage is a keystone method for finding win-win situations. I know some of you already know this, but for those who don’t, it’s very simple and worth repeating.
Rich nations tend to have the “absolute advantage” in production. We can make just about everything poorer nations can make, and do it for a cheaper price. Poor nations are poor because they produce things relatively “poorly” compared to the more industrialized nations. However, just because they don’t have absolute advantages of their own doesn’t mean that they don’t have advantages to profit from. They still have “comparative advantage.” While poorer nations cannot produce at lower nominal costs, they can still produce at lower
opportunity costs. A very simple numerical example can be found at the following site.
http://www.digitaleconomist.com/ca_4010.html
Poorer nations can maximize their profits by minimizing their opportunity costs and producing in the industries where they have their comparative advantage. Poor nations tend to have comparative advantages in goods that require large amounts of land (agriculture) and large amounts of unskilled labor (textiles).
What should rich nations like the US do? We can maximize our profit by minimizing our opportunity costs as well and specializing in the industries that we’re good at. That’s sort of confusing for us, because we’re good at lot of things. But something we can easily do is
not put quotas and tarrifs on agriculture and textiles from poorer nations.
My goodness! You’ve got to see some of these numbers… here is an article we just had to read for Int. Trade a few weeks ago, available from my university’s online reserves.
http://www.marquette.edu/library/rayspring05/e-2822.pdf .
By imposing trade restrictions on the comparative advantages of poor nations, we are effectively oppressing and punishing them. We are being criminally negligent. We need to slowly back off on agriculture and clothing tariffs immediately.
We should not try to supply poor nations with absolute advantages and try to raise them to our level – they need to be free to develop their own strengths and in their own way. But, we must aid them in their growth through the comparative advantages they already have. And (now this is a contraversial “and”) we must allow them some leeway to protect their own industries.
Right now World Bank and IMF policies require poor nations to liberalize trade if they are going to accept loans and other capital assistance. But this has historically leaded to low domestic consumption and gross trade imbalances - citizens of poorer nations buy goods from industrialized nations because they are cheaper (usually because industrial nations subsidize those industries, either directly or indirectly). Not only this, but it cuts a poor nation off from a potentially significant source of tax revenue
and from the long term tax revenue that would’ve occurred had domestic consumption been greater.
Every industrialized nation grew from histories of high protectionism, but now they’ve outgrown the need for it. We must understand that it no longer makes to sense to protect industries that are already dominant.
Poor nations must also be free to subsidize industries that they want to grow. Poor nations may have comparative advantages, but they may still not be very good – they must have the freedom to choose where they want to strengthen their comparative advantages using public funds. In other words, they must be free to institute industrial policy. Some of the best empirical evidence for successful poverty reduction through industrial policy comes from postwar Japan. The Japanese had poor agricultural land to begin with, and their factories had been reduced to rubble, so they had little comparative advantage in anything. This post is getting long so I should not ramble…
The point is, poor nations have small markets and small firms, so their protectionism will not have as much of an impact as, say, protectionist policies between the US and the EU. Poor nation protectionist policies on average do not affect the world price of a good.
I think I should wrap it up here. I have not read the Sachs book, so I cannot criticize what I haven’t read, but more aid simply will not work. It hasn’t been working for the past half-century and there’s little reason to expect more of it to work in the future. Instead of focusing more on aid, we must focus more on policy decisions.
Poverty will end when the poor exercise their will
and are allowed to act in accordance with their abilities.
) 
Wow, Telos, that's a lot of information. All very good and well stated. Heres a question. You stated that giving more aid won't do anything to help the problem. Is there any kind of aid we can provide, other than food, medicine, water, etc., that we can provide that might help the situation? If there is how do we go about distributing it?
