Americans already think a third of the budget goes to foreign aid. What if it did?

November 8, 2013

The poll result that seems to most frustrate budget analysts is the apparent belief among Americans that foreign aid is a huge cost to the federal government. The latest poll that my colleague Ezra Klein cites finds that the average American thinks the United States spends 28 percent of the federal budget on aid to foreign governments -- more than the country spends on Social Security or Medicare or defense.

In reality, we spend only 1 percent on foreign aid.

This gap between perception and reality is ridiculously large. That's depressing, but it also presents an opportunity. The case that 28 percent of the budget should go to foreign aid is very strong. And if Americans already think we give that much -- well, the least we could do is accommodate them!

We could even announce that we're obeying the American people's wishes and cutting aid to be only 25 percent of the federal budget. Or 15 percent! Or five percent! Any of these moves would lead to a massive increase in the well-being of the average human being, and here's why.

The simple case

PEPFAR's impact  (PEPFAR)

Let's say you think the proper role of government is to try to make as many people as better off as possible. It's a plausible belief, not least among the economists who tend to make social policy. When economists talk about "maximizing welfare," this is usually what they mean. When they talk about "optimal tax rates" or weigh how high a carbon tax should be or how much cash assistance should go to the poor or how best to cover the uninsured, maximizing welfare is the goal.

So how does foreign aid look on that scale? Well, let's take the President’s Emergency Plan for AIDS Relief (PEPFAR) as an example. It started in 2004 and has a reputation for being among the most cost-effective aid programs the United States has invested in. One study estimated that PEPFAR spent $2,700 for each life it saved. That's in keeping with other highly effective aid interventions. GiveWell estimates that providing insecticide-treated bed nets to prevent malaria costs around $1,500 to 2,000 per life saved. Deworming efforts cost somewhere between $1,700 and $4,000 per life saved.

Let's compare that to a major social policy meant to improve welfare here in the United States. The Medicaid expansion included in the new health care law is a good example. Health wonks like MIT's Jon Gruber have long argued that expanding Medicaid is the most cost-effective way to expand coverage, and numerous studies (this one being perhaps the most pertinent) have found that insuring more people saves lives. Friends-of-the-blog researchers Aaron Carroll and Harold Pollack estimate that expanding Medicaid costs $1 million per life saved.

I don't want to diss Medicaid expansion: $1 million per life is actually really good compared to a whole lot of government programs. I suspect you'd get a number many orders of magnitude higher if you tried to do the same calculation for, say, a fancy new spy plane. But that would be hundreds of times less effective than increasing aid to developing countries. The case for redirecting spending — particularly truly wasteful spending, such as much of the defense budget or farm payments or unnecessary medical payments — toward more aid to the third world is extremely strong.

The equality case


The proceeds of mines like this one in Nigeria often don't go to their nations' people. (George Osodi/National Museum of African Art)

Perhaps you don't buy the utilitarian intuition that we want to make as many people better off as possible. Let's say you think it's more important that government treat people fairly. The case for redirecting money to the developing world is still very strong.

The most basic reason why is that place-of-birth is as arbitrary a reason to treat someone differently as is race or gender. Someone living on less than $1 a day in Haiti no more chose to be in that position than I chose to a white male in the richest country on Earth. If world institutions are to be structured to treat both of us fairly, they would allow for the Haitian to at the very least have the same starting resources, if not the same outcomes, as I do. For that to happen, something dramatic has to change in U.S. policy. One way to shrink the gap is to let many more people come to the United States. But assuming that nativistic attitudes prevail, foreign aid is the next best option.

But there's another wrinkle here, as well. It's not just that we fail to provide enough resources to the Haitian. It's also that world institutions are set up so as to actively harm him.

One of the most prominent voices making this kind of argument is Yale's Thomas Pogge, who alleges that "most of us do not merely let people starve, but also participate in starving them." We elect politicians who allow business owners to take the land's natural resources, compensating only illegitimate and dictatorial rulers for the privilege. We buy goods, including those ill-gotten natural resources, from those businesses. The politicians we elect have created a system of international finance that allows those illegitimate rulers to borrow in the name of their people, which materially benefits those rulers, increases incentives for bloody coups d'état and prevents later governments from spending on anti-poverty programs. We also enforce immigration laws that keep people from moving to countries where they could escape poverty.

If you buy any part of Pogge's argument, then it follows that we must stop propping up structures that perpetuate world poverty and support policies that undermine them. Pogge's preferred plan is known as the global resources dividend, in which all countries pay a 1 percent fee on any natural resources they use, and the proceeds are spent by NGOs or democratic governments of poor countries to fight world poverty.

But an increase in the U.S. aid budget would similarly counteract whatever harms the United States may be inflicting on the people of poor nations.

The nationalist case

At this point, you might still think the case is weak. The U.S. government exists for Americans. Why should we have to care about saving the lives of people abroad, or even about not harming them?

The most plausible defense of the United States only caring for its own citizens is that our country knows what Americans need better than it knows what people abroad need. More generally, one could argue that a system where nations take care of their own produces the best outcomes, and that a self-interested policy approach on the part of the United States brings us closer to that system.

The philosopher Robert Goodin has a great explication of this argument's limits in the paper "What is so special about our fellow countrymen?" Our relationships to our countrymen are indeed special, but they're special in the costs we impose on them as much as in the benefits we give. We let our fellow citizens, and no other nation's, vote, but we can also conscript them, force them to pay taxes and purchase their property against their will. So, on what grounds can we treat our citizens better than foreigners some of the time but worse on other occasions?

"It's a two-way deal!" you might say. Taxes and eminent domain and the like are the prices we pay for special treatment from the state. But few of us would be willing to accept the implications of treating the government like a mutual-benefit society of that type. Chances are that many congenitally handicapped people will, throughout the course of their lives, receive far more in benefits from the state than they'll contribute in taxes; indeed, if they are unable to work, their contribution will be quite minimal. If the government is a mutual benefit society, we must expel people like that and deny them any benefits.

No one would accept a state that cruel because governments are not, in fact, mutual benefit societies. Instead, Goodin argues that states are just ways that we fulfill our general ethical obligations to other human beings. That, for practical reasons, involves some divvying up of roles on national lines. It wouldn't make much sense for German taxpayers to pay to repair American roads. But it also means that we shouldn't pass up opportunities to help people from outside our political community. Indeed, we're often morally obligated to seize such opportunities.

Call the bluff

This is a better poker move than anything Topher Grace does in Ocean's 11. (Warner Bros.)
This is a better poker move than anything Topher Grace does in "Ocean's 11." (Warner Bros.)

So, Congress and the president could call the American peoples' bluff and direct 28 percent of the fiscal year 2015 budget to foreign aid. According to the Congressional Budget Office's latest projections, the United States will spend $3.777 trillion that year. Twenty-eight percent of that is a little under $1.1 trillion. We might be able to slice that from the budget through cuts to defense, farm subsidies and wasteful health spending, though it would take a lot of doing.

But, given that investors are literally giving money away to the United States for free at the moment, why not take some of it and give it to poor people abroad? Borrowing $1.47 trillion (minus the paltry sum we now spend on USAID, PEPFAR, the Millennium Challenge Corporation, etc.) would get us to 28 percent.

As for how to spend it, the sky's the limit! We could spend it on highly cost-effective interventions, such as an expansion of PEPFAR, deworming efforts or anti-malarial bed nets. We could try more ambitious projects that are possible only with funding of that scale. Or we could just, you know, give the money to poor people. A newly released randomized trial shows that practice improves any number of health, education and financial outcomes for poor people, and most importantly, it allows them to direct aid dollars to what they actually need, which they usually understand better than do outside aid workers. Cash transfers would also minimize administrative bloat and corruption; in poor countries with cellphone-based payment systems, you can evade corrupt governments entirely.

Would this be politically unpopular? Obviously. People hate spending this much on foreign aid. But given that they already think we're spending this much anyway, why not anger the voters and save millions of lives as a consequence?

Altruists of Congress, unite! You have nothing to lose but your seats (possibly).

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Brad Plumer · November 8, 2013