we should multiply our effectiveness estimates by dImports/d$, which is (asspull) 0.5
Don’t you mean (1 - d(Imports)/d$)?
And of course even if all of it went to buying imported goods some benefit would still accrue. If those were high-grade capital goods, it could be better than 100% domestic spending!
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 really serious gains—people able to work in ways they weren’t before. If this money leaves, that’s bad news indeed.
Now, secondly, consider: these folk are stuck on the bottom relative to their neighbors. Effectively, you can split them off as a sub-Nigeria with no economic policy at all. When they buy things from their wealthier neighbors, that fulfils the role of the export that you describe above.
Basically, I think your second and third thoughts in the OP are the dominant issues.
Don’t you mean (1 - d(Imports)/d$)?
And of course even if all of it went to buying imported goods some benefit would still accrue. If those were high-grade capital goods, it could be better than 100% domestic spending!
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.
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 really serious gains—people able to work in ways they weren’t before. If this money leaves, that’s bad news indeed.
Now, secondly, consider: these folk are stuck on the bottom relative to their neighbors. Effectively, you can split them off as a sub-Nigeria with no economic policy at all. When they buy things from their wealthier neighbors, that fulfils the role of the export that you describe above.
Basically, I think your second and third thoughts in the OP are the dominant issues.
Luckily he guessed 0.5, so it doesn’t matter!