By Gustavo @ Adobe Stock
At the Cato Institute, Ian Vasquez explains that USAID failed because foreign aid doesn’t work. Vasquez doesn’t like Elon Musk’s language about feeding USAID to the woodchipper, but that’s exactly what needs to happen. He writes:
Elon Musk, head of the new “Department of Government Efficiency,” didn’t mince words when he announced last week that the Trump administration was closing the U.S. Agency for International Development. He said his team was “feeding USAID into the wood chipper” and that it was “time for it to die.”
The crudeness might not have been necessary, but the proposal itself was warranted. Foreign aid has too many (often conflicting) goals, including promoting democracy, stability and geopolitical ties. It is long past time for the U.S. government to scrutinize the entire foreign assistance program and recognize that one of the central goals – promoting economic growth – has been a failure.
That’s why it’s a good idea to close down USAID, drop economic development as a goal of U.S. foreign policy and assign the State Department to manage vital emergency and humanitarian aid. It does, however, need to be done lawfully and in accordance with the Constitution. Unfortunately the Trump administration has not been following the law in its push to shut down the agency, which needs to be rectified. But its approach shouldn’t obscure the fact that the policy change is a worthy one.
Reductions in wasteful aid may not put much of a dent in overall government spending. USAID spent about $32 billion out of a federal budget of $6.75 trillion in fiscal year 2024, or less than 1% of total spending. But the fact that foreign assistance is not accomplishing its goals fully justifies the cuts.
How does USAID spend its budget? Health and humanitarian aid make up the biggest portion of spending, with outlays of $17.4 billion, followed by economic development aid at $7.8 billion.
What has hundreds of billions of dollars in foreign assistance to promote economic development over the decades accomplished? First, the evidence shows that there is no correlation between aid and economic growth. Some countries that receive foreign aid grow, whereas others grow slowly or not at all, according to a 2005 paper for the International Monetary Fund’s research department.
Second, aid that goes to countries that have poor policies and weak institutions can actually harm growth. That is particularly true of government-to-government aid that strengthens regimes whose policies hurt growth. In those cases, aid finances the causes of poor people’s misery in the first place, often spurring corruption and greater debt.
A 2007 World Bank study that looked at 108 countries that received aid between1960 and 1999 concluded that “foreign aid has a negative impact” on political institutions and democratization. Aid windfalls – which often make up a large part of recipient governments’ budgets – weakened checks and balances and other democratic practices as countries became dependent on foreign aid.
Read more here.
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