How can the U.S. government be continuously providing billions of dollars to various countries (we have trillions of dollars in debt)?


Money; file photo
Question/Comment: I have always enjoyed your professional discussions and news coverage. Could you please help me understand how the U.S. government can continuously be providing billions of dollars to various countries (we have trillions of dollars in debt)? Also, why doesn’t the government collect billions of dollars owed from oil companies who have invested in our country?

Paul Solman: First of all, U.S. foreign aid as a percent of our national income is remarkably low, compared to other countries. Here’s the latest international chart (from the Organization for Economic Cooperation and Development):

Norway 0.95
Sweden 0.93
Luxembourg 0.9
Denmark 0.81
Holland 0.81
Ireland 0.54
Austria 0.49
Belgium 0.43
Spain 0.41
Finland 0.4
France 0.39
Germany 0.37
Switz. 0.37
UK 0.36
Australia 0.3
Canada 0.28
New Zeal 0.27
Italy 0.19
Portugal 0.19
Japan 0.17
Greece 0.16
USA 0.16

Second, I’ve seen some of this so-called “foreign aid” in action, namely to Russia in the 1990s. In that instance, much of the aid went for hiring Americans to teach in Russia, at handsome salaries with pricey accommodations. As Richard Posner pointed out on the conservative Becker-Posner Blog last year:

“Most U.S. foreign aid requires the recipient to spend the money for U.S. goods and services, which are often much more expensive than those available elsewhere.”

Third, some of the aid goes to the poorest places on earth, where people would die if it were withheld.

There are arguments against foreign aid, and Posner makes them here, starting with this sentence: “My own, unfashionable view is that charitable giving, both governmental and private, is more likely to increase than to alleviate the poverty, ill health, and other miseries of the recipient populations.”

He also admits, however, that a recent study finds a positive relationship between receiving foreign aid and subsequent economic growth.
But regardless of how one feels about the ethics and ultimate cost-benefit analysis, it’s hard to argue that foreign aid is much of a drain on U.S. resources. Indeed, since we’re only hiring ourselves, it’s arguably no drain at all.

As to the oil companies, I’m not sure I understand your question, but if you mean that oil companies should be paying more than they currently do, via a “windfall profits tax” say, there are surely arguments in favor: the companies have received plenty of tax breaks, as well as a true windfall as the rise in the price of oil has catapulted over the past few years.

But remember: if you tax a behavior – any behavior – eventually there will be less of it. In the case of oil companies, that means less drilling, which might be good for us all in the long run. But for the moment…