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bogus comments on Charity Effectiveness and Third-World Economics - Less Wrong
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Comments (37)
The reason why I asked my original question is that GiveDirectly is directly handing money to the recipients, and this money is presumably competing with other money to make purchases. If one were to naively measure the effectiveness via the direct observation, "Ooh, the people with more money are better off than the people with less money!" then this kinda begs the question. It's not obvious to me that foreign money behaves differently in this regard if it's competing for goods that other low-income communities are also trying to purchase. Again, you can justify this model but it's not as simple as observing that the people with more money are better off. You need the country to be running an NGDP deficit / aggregate demand shortfall, for purchased imports to help, for redistribution of purchasing power to be good, etc.
What do you mean by "money" here? Local currency? They bought that currency in the foreign exchange market, so no, there's no injection of cash into the broader economy. The only issue I can think of is that spending a lot of money (here meaning generally "resources") in a very localized area might drive up local prices (i.e. land, local wages etc.) compared to the surroundings, making the locals not as much better off in PPP (purchasing-power parity) terms. But this is going to be negligible in a typical intervention.
Who would have otherwise bought that currency in the foreign exchange market? Where would they have spent it? Are higher prices on the foreign exchange market a good thing?