Why are poor nations poor

Good questions.

The problem of the IMF is that it makes loans to countries, that is, governments, that is, politicians.

This enables those politicians to destroy their subject's productive capacity.

I suspect that 30%, if the debt was forgiven, would just amass more debt. Another 30% would have found a way to repay the debt without assistance eventually. So forgiving debt is about the remaining 40%. And on the whole, it's not in the interest of the lender nations to forgive the debts. We should call these nations that can't repay their loans what they are, deadbeats.

Stiglitz makes more econ 101 mistakes than any other big name economist I can think of -- more even than Krugman.

Stiglitz makes just about every economic science blunder Hayek ever identified.

What's up with that?

On the NPR theme, Russ, you have to checkout the Science Friday episode that aired today.

All about health care, and how the private insurance companies are ruining the health care system.

A former editor in chief of some kind for the New England Journal of Medicine was making the case that Obama wasn't trying hard enough for a truly socialized system.

Actually BoscoH,

The purpose of those loans by us'ns was/is not to improve their lives or lift them out of poverty.

See my comment above and Sanm Grove's higher. It is all about binding the nations leaders to us politically, specifically in votes in the U.N., and in trade policies.

"We should call these nations that can't repay their loans what they are, deadbeats.

Posted by: BoscoH | Jul 10, 2009 9:47:44 PM"

Why not call them what they are intended to be, ours.

Poor nations had socialism foisted on them when the colonials were kicked out. All the loans in the world won't help them because they don't invest the money in their own prosperity. Even if their leaders don't steal it for themselves, once its spent, they merely come looking for more.

Pay attention to the OP --

Who owns the debt?

Is there an international recocognition of odious debt? (an idea AFASIK first proffered by the Soviets after the 1917 revolution).

"Give the thugs who run the country money. "

Exactly. Then own the thug, take over the countries assets as collateral, let multi-national corporations use the "borrowed" money to build things and profit handsomely, privatize public assets... again putting them in the hands of the corporations, then force upon them conditions in which the debt will never be re-paid and you have whole countries indentured to you.

It's the Road to Serfdom and we paved it. Yeah capitalism run amuck is why poor nations are poor in many cases.

muirgeo,

If "capitalism" means funding third-world dictators so that politicians can hand out more goodies to their friends, then you will find very few capitalists on this blog, and would be better served by commenting elsewhere.

even if this economic hitman is telling the truth, what imbecile muirgeo doesn't understand, is the fact that hitman was funded by the ALMIGHTY STATE.

BTW, I listened to an interview of this guy John Perkins on radio and I wanted to throw up. This man was just a leg breaker for a mafia ( the state ). He has no clue what so ever about economics, and went onto say that any profits over 5% should be confiscated by the state - may be because he wanted Mafia ( the state ) to do more hit jobs.

One of the few things families in underdeveloped nations can productively engage in is agriculture. But its hard to compete when the entire tax base of the USA and Western Europe is subsidizing their own agriculture.

muirgeo,

If "capitalism" means funding third-world dictators so that politicians can hand out more goodies to their friends, then you will find very few capitalists on this blog, and would be better served by commenting elsewhere.

Posted by: Lee Kelly

You may not directly support such policies but you regularly give only a passing nod to such realities that result from the excesses of capitalism. These large accumulations of money buy politicians and policy that pushes for more accumulation of money to a few while 2 billion live off $2 dollars a day.

The fact that Russ seriously asked the question and wonders how their debt makes them poor is evidence that even tenured professors are capable of being insulated from the realities of the world. Has he really never read John Perkins books or many such others documenting the history of IMF and our own policies. Money rules the world and capitalism and liberty come in far behind. Allowing massive accumulations of money is to allow massive accumulations of power no different from the power dictators except in its cleverness to subvert and enslave with fewer bullets. There's no reason for it.

S Andrews what you don't understand is that the state is subordinated by these men with too much money. The state is the hit-man but they are doing the job for corporations.

Merg,

That may be true. But would it be a reason for curbing the corporations or the state?

You have never ever answered even one of my questions.

Just this once, please, and I promise to go out a kill a capitalist for you.

I think there are many possible reasons why poor countries are poor.

But living in a dirt poor African country surrounded by the same and worse, I think awfully bad policies have something to do with it.

This policies may serve only the elite, may protect thieves, hinder trade, screw the poor peasants, etc. But what would foreign governments have got to do with this?

They might give money to the thugs in charge, but not dealing with these thugs doesn't make them go away, nor -even if it did- would it garantee that the ones who take over are any better.

Both China & Myanmar aren't ruled by sweethearts who care much for the freedom of their people. Is the embargo against one of the two doing so much good and the trading with the other so much harm?

The IMF & World bank are quite irrelevant (as China & India & Singapore & South Korea & ... prove every day), both when a country does well as when it goes down. Though they like to claim credit for the former and to blame corruption for the latter.

How much personal wealth has Joseph Stiglitz lent out to strangers?

If he's lent at all; have terms of repayment been established? If terms of repayment been established has he waived those term of repayment for the benefit of the borrower?

Nobel Laureate Joseph Stiglitz I have some advice for you...

Buy a dictionary and look up two words: loan and gift.

Meh. Gecko seems to say what I'm thinking - poor countries are poor because they're just non-productive, period. Other countries have had impediments too but they overcame them. Other countries, such as China, aren't exactly laissez-faire but they are getting somewhere. It's just the same as listening to someone who cries poor and it's because "everyone's holding him back" only realise he just a plain loser.

I don't know how George manages to miss the taint of politics in the scenery.

Maybe his filters are the same color.

Corporations = people with money.

Governments = people with guns.

George thinks guns are nicer than money.

Muir:

Exactly. Then own the thug, take over the countries assets as collateral, let multi-national corporations use the "borrowed" money to build things and profit handsomely, privatize public assets... again putting them in the hands of the corporations,

You are totally correct actually. The only mistake you made is assigning the above actions to capitalism.

That my friend is simply politics. Men in power, Republican and Democrat, do this and that is why politicians are generally bad people.

Which takes us to the larger point of your own generally collectivist view. You see very clearly the evils that government does, but then you want fewer individual rights, and more power in the hands of the government. (Unless I've misread your posts in the past and your some kind of quasi-anarchist - but I have to admit I usually ignore you.)

You - and other collectivists for that matter - seem to think some men are actually good, and should be in charge of other men by some kind of cosmic fiat. Three hundred years ago you would have no doubt been in favor the "divine right" of kings because of course if you trust the evil land owners, they'll just screw you, but the king, well, he'll take care of you and always look out for your best interests.

I lived in Brazil for 3 years and they're probably as good an example as any of what the village idiot (muirdog) is talking about. Except, ONCE AGAIN, he has let too many people of the Naomi Klein breed guide his thinking.

It is true that Brazil took on massive amounts of debt under their string of dictators. Some of the money was no doubt stolen, but most of it went to infrastructure and industries deemed too "important" to be run in private hands. Unlike what the idiot (muirdog) claims about these countries, Brazil was highly protectionist. Everything from telecommunications, and aviation, to banks were OWNED and operated by the government and outside competition, particularly from foreigners was not allowed.

The reasoning behind theses policies was to protect these industries until they could compete on their own (the old infant industry argument) and make Brazil a prosperous nation. The results were massive amounts of debt while at the same time creating a wealthy and protected class and leaving the rest in poverty.

It was only under the democratically elected Fernando Henrique Cardoso and his moves to privatize large numbers of state owned companies and allow for competition from foreigners (those evil corporations) that you began to see a booming middle class and a sharp rise in the standard of living.

I always laugh when I hear people describe foreign (particularly American) owned corporations operating in these developing countries. Their views could not be farther from the truth.

Poor nations are poor for the same reason poor people are poor; they have poor ways.

See my comment above...

Vidyohs,

Were you referring to the preceding sentence, or to a comment that did not actually get posted?

Merg,

That may be true. But would it be a reason for curbing the corporations or the state?

You have never ever answered even one of my questions.

Just this once, please, and I promise to go out a kill a capitalist for you.

Posted by: dg lesvic

You curb both corporations and the state by simply enacting real campaign finance reform and lobby reform.

I as a doctor can not take even too nice of a pen from a drug representative for risk of loosing my license for conflict of interest. Any money exchanging in any way from lobbyist to campaigns is bribery of a public official. Politician should basically be require to wear live helmet webcams anytime they are doing publics business except in rare cases of national security. Secret deals are not part of the public interest. Don't like then don't be a politician.

You curb both corporations and the state by simply enacting real campaign finance reform and lobby reform.

Good luck with that. What I've found with campaign finance reform so far is that incumbency is favored and potential competition is thwarted.

Why should we expect anything different from the incumbent parties?

Any money exchanging in any way from lobbyist to campaigns is bribery of a public official. Politician should basically be require to wear live helmet webcams anytime they are doing publics business except in rare cases of national security.

Good luck with that too.

What politician is going to encumber hizzer activities this way?

Russ - You should no by now we are living in an Age of Irresponsibility, the "Not my fault" generation.

Corporations = people with money.

Governments = people with guns.

George thinks guns are nicer than money.

Posted by: Sam Grove

Sam,

Even in the mafia the dons don't do the shooting. they have hired guns.... but they have all the power and money.

You are totally correct actually. The only mistake you made is assigning the above actions to capitalism.

That my friend is simply politics. Men in power, Republican and Democrat, do this and that is why politicians are generally bad people.

Posted by: Ray Gardner

No!!! You don't get to claim the tautological argument that if something goes wrong then it must not be capitalism.

muirgeo

"Which takes us to the larger point of your own generally collectivist view. You see very clearly the evils that government does, but then you want fewer individual rights, and more power in the hands of the government. "

Ray Gardner

You guys claim I always misrepresent your position but here you are clearly misrepresenting mine.

No!!! I co not want more power in the hands of the government. I want the government to answer to and be responsive to the people NOT the corporations.

If it's responsive to "the people" equally rather then just the interest of the wealthy we shouldn't see such abuses of power.

muirgeo

"You - and other collectivists for that matter - seem to think some men are actually good, and should be in charge of other men by some kind of cosmic fiat. Three hundred years ago you would have no doubt been in favor the "divine right" of kings because of course if you trust the evil land owners, they'll just screw you, but the king, well, he'll take care of you and always look out for your best interests."

Posted by: Ray Gardner

No I believe that a society with minimal rules will favor the worst types of people while honest fair minded hardworking people get screwed. And three hundred years ago you and the conservative Tories sided with the king because this country was his property. Being a property rights kind of guy on what basis would you argue that the revolutionaries had any right to take the Kings property The revolutionaries from that time forward have always sided with diffusing power. Yours is a position that consolidates power. YOURS is a position of divine rights, indentured servitude and rule by the Paris Hiltons of the world.

Your facts and your logic are completely azz-backwards.

No!!! I co not want more power in the hands of the government. I want the government to answer to and be responsive to the people NOT the corporations.

You may WANT that, but your prescription guarantees the opposite. An examination of history shows that political power is always for sale.

Why?

Because it is a valuable commodity.

The government does not respond to "the people" because there is no "the people".

ALL governments are oligarchical.

All governments function to bring control of resources under the oligarchy.

Only wealthy people have the time, resources, and inclination to play the political game.

Politicians tell voters what they think will get them elected.

Political offices are filled with people who do this well.

If you were to go through the congressional roles, you would find that the overwhelming majority of politicians are either from the wealthy or upper middle classes.

A society governed by a multitude of rules will favor those with access to the best legal talent and those who are willing to cheat.

The multitude of rules that you think will protect the people from the worst types actually produces the opposite results.

OBVIOUSLY YOU HAVEN'T BEEN PAYING ATTENTION TO THE NEWS FOR THE PAST FEW DECADES.

It would be an extreme error to suppose that there has been anything like a society of minimal rules for the past seven decades.

There are so many rules extant that it would take a very large staff of lawyers to have an inkling of all of them.

So look at the last administration, look at the current administration. Look at all the wealthy people in high office, look at the bailouts, look at the employment history of the FED chief, the Sec of Treasury, etc., and tell yourself that they are looking out for average people.

YASAFI

How you can look at the world and come to the conclusion you present here is beyond reason.

muirgeo wrote: "Yeah capitalism run amuck is why poor nations are poor in many cases."

I have no idea why you blame capitalism. Neither businessmen nor politicians are perfect beings and the back-door deals that are cut between some of them to deceive and defraud are certainly evidence of this. But to argue that Koslowski's choices are prima facia evidence of the deficiency of capitalism is to prclaim ignorance of how he will be spending the rest of his life.

C'mon, Professor, you know there are some questionable calls the IMF has made.

Some of the strings the IMF has attached to their loans have had devistating consequences on those countries.

When bean counters and policy wonks decide that aid should be conditional on a country stopping fertilizer subsidies to it's farmers, or medicine for tropical diseases, then something is wrong that those wonk and bean counters are allowed to breath the same air as the rest of us.

The IMF will say with a straight face that it doesn't kill people at the wholsesale level, but all I know is that famine existed where there wasn't any before, and villiages no longer exist where there used to be when medicine was available.

C'mon, Professor, you know there are some questionable calls the IMF has made.

Try asking Don if there should be an IMF.

"You curb both corporations and the state by simply enacting real campaign finance reform and lobby reform."

"You get free energy by simply making the rivers run uphill."

Seriously, muirgeo, how can you post thousands of inane drivelings on this site and not have at least one ounce of public choice theory penetrate your thick skull? Politics is a market too. Public choice theory has shown for years that the foxes are guarding the henhouse, and your "solution" is to ask the foxes real nicely to relinquish their power. Describing as "simple" any plan which involves those with the most power chopping off their own arms betrays a stunning ignorance of human nature, and is precisely the reason why I want people like you to have as little power over my life as possible.

Russ,

Forgiving existing debt is a simplistic approach that will not magically make poor countries richer.

The IMF issue boils down to the origination of the loans in the first place. The IMF follows austerity policies. They insist on higher taxes and other Keynesian ideas for countries they "help". These bad policies make the economy deteriorate, and the poor countries are left asking for more loans or forgiveness of loans.

You can find this anti-IMF idea in many places, ranging from anarchists to pro-market libertarians. Here is a piece with aspects of both views.


http://polyconomics.com/ssu/ssu-050325.htm
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So look at the last administration, look at the current administration. Look at all the wealthy people in high office, look at the bailouts, look at the employment history of the FED chief, the Sec of Treasury, etc., and tell yourself that they are looking out for average people.

YASAFI

Posted by: Sam Grove

I agree that they aren't. I disagree that we can't do something about it. The problem is bringing the average person up to speed on the facts and getting them out of their stupor. The powers that be understand the masses will tolerate a certain degree of inequity before they revolt.

IOW, the IMF operates on the principles of "mainstream" economics.

The idea is that if you increase the account balance of these countries, they will be better off.

Seriously, muirgeo, how can you post thousands of inane drivelings on this site and not have at least one ounce of public choice theory penetrate your thick skull? Politics is a market too.

Nathan

Well quite simply because their are other existing democratic and parliamentary forms of government that seem to do a better job at getting more equal representation. OOK?? So it's NOT inane. And of course you offered no solution... or is that a claim that the current system of those with the most money make the rules your favored system? Because I sure didn't hear you give any alternative solution.

... and is precisely the reason why I want people like you to have as little power over my life as possible.

Nathan

I'm arguing for diffusing the power as greatly as possible.... All I want is for George Soros, Bill Gates, the family farmer, me and the inner city resident to have equal access to power... what are YOU arguing for? So please stun us with your brilliance of just how power should be structured... ? Unregulated markets??? Talk about INANE!

"Unregulated markets???"

-muirdog

idiot

"Unregulated markets???"

-muirdog

idiot

The problem is bringing the average person up to speed on the facts and getting them out of their stupor.

I agree.

The problem is identifying the facts and what they mean.

You idea of equal access to power boils down to second and third hand power for a multitude of individual expressed through agency with concentrated power, rather than having actual power distributed in the hands of those individuals.

If you insist on ignoring the incentives in the system, you will always get the same results.

Intentions, by themselves, do not produce the desired results.

Concentration of political power in a monopoly agency contains a certain set of incentives.

Ignore them at the risk of your intended results.

How would forgiving those loans solve the problem?

"Forgiving the loans" is a misnomer. The IMF made bad loans to corrupt statesmen who can't repay the loans. They'll never repay the loans out of any utility generated by resources that the credit organized productively, because the credit wasn't expended this way, so the statesmen can only repay the loans to imposing unproductive rents on subjects whose productivity is already marginal.

So "loan forgiveness" is not necessary. A writeoff of bad IMF loans is necessary. Instead, the IMF expects its borrowers to coerce repayment out of neighbors with nothing to show for the borrowing.

It's like I extend credit to the mafia don down the street from you, and when he can't repay it, I tell him to march down to your place with his pistol and collect what I'm due.

And if you don't cough it up, that's because you're a bad credit risk. Get it? My bad lending can't be the problem, because that's just unthinkable. I'm a brilliant banker, so the failure of my investments must be the fault of borrowers, and if it's not their fault, it must be their neighbors. Something must be done to prove my wisdom, so get those pistols out and start collecting.

Needless to say, the same logic applies to taxpayer bailouts of Bank of America and Wachovia. This problem is not unique to third world governments, not remotely. The same thing happens here. We only use different words to describe it. We've met the third world debt problem, and it is us.

Why don't the poor countries just stop paying back the loans?

Giving money/credit to people mostly induces them to spend, not produce.

Not really. Credit built this country. Credit is not the problem. Particular creditors and their policies are the problem.

I agree that they aren't. I disagree that we can't do something about it. - Yasafi

WTF are you going to do about it? You voted for Obama, and you've defended every policy of his that's been debated here. You'll be voting for Obama in 2012, and still be accusing us of being GWB cheerleaders.

Try asking Don if there should be an IMF.

Don, should there?

If not, I'd be curious to hear your main reason for it not to exist.

"Giving money/credit to people mostly induces them to spend, not produce."

You're right. The common misconception is that "credit built this country". That ignores the crucial importance of borrower selection. The truth is closer to "production built this country". The key is to lend money to producers. The profit motive of the lender tends to produce that result. Without the profit motive, such as with politically motivating lending like the IMF performs, you instead tend to get wealth destruction.

And when the nature of the borrower is not considered, credit is more akin to a wealth transfer or subsidy. The result, as you said, is to stimulate the "borrower" to spend.

Giving money/credit to people mostly induces them to spend, not produce.

The least one could expect is that forgiving loans would come with a change of managements and severe curtailment of taking new loans.

The debate on debt sustainability sometimes sounds to me like debating whether you can smoke one, two or three packages of cigarettes a day before smoking kills you. In my case, after not having smoked one single cigarette in more than ten years—and not one single week goes by without being seriously tempted—I am certain that my own “nonsmoking sustainability level” is an absolute zero cigarettes.

With respect to public debt, we know there are governments really hooked on public debt and then perhaps their debt sustainability level should be an equally big zero. As it must be very difficult to free someone from a vice with as much addictive power as credits payable by future generations, it might be safer if the Bank and the Fund recommend cutting the habit altogether, cold-turkey, instead of suggesting a life on the border of sustainable (healthy?) levels of debt consumption.