A dollar is not very much money. A billion dollars is a lot of money. Twenty billion dollars is an awful lot of money.
For most people reading this (though not for Bill Gates or for the billion or so people living on a dollar a day or less), these statements should seem pretty obvious.
But all of these can be (and have been used as) different ways of measuring the same thing. If every Australian receives, or pays, a dollar a week, the total amount is very close to a billion dollars a year. And if you have a cash flow of a billion dollars a year, and your interest rate is 5 per cent, the present value of that cash flow (the amount of extra wealth you would need to generate the flow) is twenty billion dollars.
It’s easy to stretch this gap even further. A dollar a week is about fourteen cents a day. And, if we looked at the US (about 300 million people), or the entire developed world (around a billion people, depending on your definition), the total would be that much larger. Fourteen cents a day for everyone in the developed world has a present value of one trillion dollars.
The fact that the same flow of money can be presented in such radically different ways, and that each of them is appropriate in certain contexts, is one reason public policy debates get confused.
Having posed the problem, I’ll leave it for discussion, and hope to come back with some relevant examples and suggestions on how to improve our understanding of these things.
I’ll start with one illustration. It’s commonly observed that despite receiving over $500 billion in aid in the 50 years since the shift to independence, Africa is still poor and, on the whole getting poorer. The implication is that the aid must have been wasted or stolen, and of course, quite a bit of it has been. But an aggregate number over 50 years isn’t very helpful.
Much more useful in thinking about the likely impact of aid is the amount per person per week. With (very roughly) a billion people in Africa and a billion in the developed world, the aid that’s been given amounts to about $10 per person per year, or 20 cents per person per week on each side of the transfer. So, the implied complaint of the average Northerner to the average African can be translated “I’ve been giving you 20 cents a week for years now, and you’re still poor – you must have squandered my generous help”.
This doesn’t answer the question of why Africa has remained poor while so many in Asia have grown rich, or at least much better off. But unless you impute truly magical rates of return to aid, the question “why hasn’t aid made Africans rich” can be answered very simply “there’s never been enough to make a difference”.