Cutting Foreign Aid: Well this Sounds Familiar

Perhaps, ladies and gentlemen, we’ve predicted the future. More specifically, Professor Pitney’s observation that the common citizen would call for a decrease in foreign aid as a means of decreasing the national debt seems to have proven prophetic. As this recent New York Times article points out, members of both the House of Representatives and the Senate have proposed significant cuts to foreign aid.

The Obama Administration has proposed $59 billion in spending on international affairs (a category that includes foreign aid and the budget of the State Department) during this fiscal year. The House has proposed cutting $12 billion from this expenditure, while the Senate has proposed cuts of $6 billion, both with a strong focus on the foreign aid portion of this budget. Both plans call for the largest decrease in foreign aid since the 1990’s.

However, as the article points out, many worry that the unexpected consequences from such an act could cost the US. In addition, it reflects changing priorities within the government’s agenda over the past decade. Whereas President Bush significantly increased foreign aid after 2001, at a time when international relations sat at the front of the national agenda, recent concerns about the deficit have redirected the priorities of the country's leaders towards cutting spending, even at the cost of America’s international image.

How Non-Markets Fail (Twice)

We've been talking about the ways in which non-markets can fail, and here is a great example of non-markets doubling down on their own failures. The Washington Post published this article yesterday explaining that a series of emails from Tuesday have come to light which indicate that the Obama administration may have attempted to rush the approval of a more than $500 million loan to Solyndra, a solar-panel manufacturing company. Unfortunately, the company folded two weeks ago, and American tax payers will now have to bear the burden of paying off this loan. Interestingly, this situation seems to have risen out of a double non-market failure.

First, it could be said that the failure of Solyndra, as well as its need for government loans may stem from a misguided attempt by the American government to subsidize oil, rendering it very difficult for other energy sources to compete. This failure may or may not fit easily into one of the categories of non-market failures as described by Charles Wolf Jr, but certainly reflects a poor definition of the problem by policy makers as Bardach might interpret it. The problem, in this instance, would not be that the market is incapable of supporting a solar-pannel company, but would rather be a subsidy system which unfairly disadvantages all energy sources other than fossil fuels. Rather than addressing the root problem of the flawed subsidy system, policy makers have attempted to address one of the symptoms by handing out loans to alternative energy companies.

Second, the choice by the Obama administration to rush the approval of this loan represents an excellent example of a failure within a non-market due to interfering internalities. As the Washington Post puts it:

"The August 2009 e-mails, released to The Washington Post, show White House officials repeatedly asking OMB (Office of Management and Budget) reviewers when they would be able to decide on the federal loan and noting a looming press event at which they planned to announce the deal. In response, OMB officials expressed concern that they were being rushed to approve the company’s project without adequate time to assess the risk to taxpayers, according to information provided by Republican congressional investigators."

These emails could be interpreted in a number of ways. Under the most cynical lens, this event offers an example of a non-government operating in a way which negatively impacted its final performance in order to satisfy its private goal of maintaining a popular impression that it supported alternative energy efforts and sought and earning a major talking point before a "looming press event." In all fairness, one might also interpret the same sequence of events as depicting a non-market following up on a project of interest to it. What do you think?