Why are we only talking about developing nations? If the last 6 years show us anything, it's that developed nations more often than not don't have competent economic advisors; and aren't listening to the ones they have. In particular, developed nations have mostly failed to follow the policy of monetary growth and inflationary spending that was appropriate for their situations.
I see no evidence that economists in developing nations are any less competent or wise than economists in developed nations. In fact, this demonstrates a very common fallacy: do not assume that people in the developing world are less smart or rational than people in the developed world. A much more accurate model of the world is formed by assuming that people everywhere have similar distributions of intelligence and rationality, and rationally respond to different circumstances based on their perceived self-interest and limited understanding. This doesn't mean they are perfectly rational (in the economic, not LessWrong sense of the word "rational) actors, any more than people in the developed world are. However it does mean that what you see on the ground is more likely to be a result of serving the self-interest of some individuals and groups than a simple failure to understand the situation economically.
Furthermore, developed nations that manage their own currency are much better able to inflate their way out of a liquidity trap. A nation like Panama that does not have its own currency, or a nation like Costa Rica whose currency is pegged to the U.S. dollar, or a nation like Cuba whose currency isn't freely exchangeable, or any nation whose debt is denominated in units other than that nation's own currency is much less able to implement such a strategy effectively. Greece's problems have been massively exacerbated by the Euro. If they had stayed with the Drachma they'd be in better shape. Contrast Greece with Iceland which had similar debt issues but maintained its own currency, and weathered the financial crises much more easily. A nation that with its own hard currency is much better prepared to redistribute wealth in this fashion. If its debts are denominated in that currency, so much the better.
In a recent Facebook status update, Eliezer Yudkowsky asked a question:
My first thought was object-level; the obvious answer is that some fraction of the money given will eventually be converted into imports, transferring the burden of inflation out and onto richer countries which can easily afford it. This seems plausible. If true, it implies that we should multiply our effectiveness estimates by dImports/d$, which is (asspull) 0.5. By this line of reasoning, direct giving is less effective than we thought, but still a reasonably good deal.
My second thought was that it's likely true that some developing country governments could improve their economies by printing and distributing money, but they won't because they're corrupt, and giving directly is a workaround to force that policy upon them. This seems plausible at first, but it feels forced; the leaders' incentives here are ambiguous, not clearly aligned against this sort of policy.
My third thought was that it's likely true that developing countries' governments could improve their economies by printing and distributing money, and they might not know this.
Sanity check. What sort of people do the poorest countries' governments have, in their economic advisory roles? Is anyone making a serious effort to connect good economists with governments that need them?
If developing countries are short on competent economic advisors at the top levels, and no one is working to fix this, then funding that charity would outperform direct giving by multiple orders of magnitude. But what reason do we have to think that a well-placed economist can make a difference? Well, history does contain at least one big, salient success story: Brazil, where a clever scheme halted hyperinflation and turned the economy around. And on a smaller scale, Otjivero-Namibia.
So now I have some questions for the efficient altruism community:
- Which developing nations have competent economic advisors, and which ones need them?
- If a developing nation's leader needs good economic advisors to fill his/her cabinet, does he/she get them?
- Do any nations have economic problems that seem especially amenable to fixing by clever economists?