No, I mean d(Imports)/d$. There are two things that make this tricky. The first trick is that money is not wealth; you have to track the flow and creation of goods, not the flow of money. The second trick is that money is not a conserved quantity; governments can create and destroy it at will.
Consider a hypothetical country which is a closed system (ie, it has no imports and no exports), and suppose you take money from outside and give it to someone in that country. This has two effects on the recipient country. The first effect is that that person will use the money to buy things, and making them wealthier. This is a positive effect. The second effect is that they bid up the price of those things in the recipient country, so everyone else has to pay very slightly more. This manifests as a slight increase in inflation, which is a negative effect. In a well-functioning economy with zero income inequality, these effects are exactly equal, but one is measurable and the other is hidden. There are two ways around this.
There are two reasons why the direct benefit would be larger than the diffuse harm. The first is income inequality: when you give money to very poor people, they spend it more productively than richer people, because richer people will have already used up their highest-value buying opportunities. In the best case, giving people money lets them transform themselves from starving idle peasants into a productive working class, which goes on to create value (goods) worth much more than the initial handout. But this particular gain does not require the money to come from outside; the local government can simply print money and hand it out, and unlike an outside donor, they can do so for free. The only cost they pay is inflation, which they suffer in both cases.
The second way around the inflation problem is through imports. This is where governments can't just print money, because the international trade value of their local currency falls faster than the local trade value. If you give people in a country money and that money is eventually spent on imports, then the inflation burden spreads through international markets, and mostly lands on rich countries, where it is much less harmful.
The first trick is that money is not wealth; you have to track the flow and creation of goods, not the flow of money.
Yes, and that's in specific why I was making this argument. This money isn't being dumped into the economy as a whole - it's targeted to poor families. Now, money is the lubricant of the economy, and those folks were jammed tight: since they're so short on cash, it's tough for them to maintain an economy. They need to do it by barter or in their heads. So if this greases the wheels and lets them begin trading with each other, then you get...
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?