Is giving Israel foreign aid harmful of beneficial to the US
economy? Lets start by looking at the facts. Israel has received the most
foreign aid of any country since World War 2. The overall total of this money
has accumulated to $118 billion. As of recent years George Bush has also guaranteed
a ten-year, $30 billion aid package. The point of the United States giving all
this aid to Israel is for Israel to use it to expand their military.
As
we discussed in class, foreign aid can be good or bad. Looking at all
possibilities here, it would be bad if we give all of that money to Israel and
they took that money and bought arms from France. As we saw with immiserizing
growth, if that money is spent in France, it causes that cost of our goods to
drop since the supply has increased. Although that is one possibility, in
actuality Israel is required to spend about 75% of the aid it receives in the
United States. So just by looking at Israel and the United States, this aid seems
to be a good thing for Americans. But lets not forget this is not a two-country
world and other countries terms of trade must suffer from these actions.
This
also has me thinking about the institution implications foreign aid creates.
The overwhelming majority of this aid goes to the military industrial complex. This
clearly has special interest written all over it. Although it does create some
jobs for American citizens, it makes the owners even wealthier. This also
doesn’t mean that this money is spent because we know that the marginal
propensity to consume decreases as one acquires more wealth. That is just
another possible implication of foreign aid to consider.
Sources:
This is a very interesting take on things. I do see what you are saying about them spending it in France. But I feel that since their is that stipulation that 75% has to be spent in America then I think that this could end up helping America in the long run. This is because if they are to consume the imported goods that we exported. They might realize that these were the goods that needed all along and it would help to boost their economy. This in turn would lead to them importing more of the same goods from the U.S. thus increasing our terms of trade.
ReplyDeleteAlthough it is a good idea, I am not quite sure I agree that the United States should be sending such aid to Israel. In theory, giving financial aid to a foreign country can have a positive net benefit in the long run. In this case, I do not believe that the overall benefit would be greater than the amount in which we are giving to Israel. Even though they have to spend 75% in the United States, I believe that the United States could do more with the money intrinsically. Although the increased activity will “boost” our economy, I do not see the economy increasing by a greater amount than the amount of aid given. There are also other factors to take into account when regarding the overall impact of the decision. For example, say that the aid did have a positive net benefit for our economy. In what areas of our economy is Israel boosting? This could be creating export-biased growth, which could cause pricing to go down and could actually cause overall welfare to go down. This is theoretically possible because the United States could end up on a lower indifference curve than before due to the stretching of the budget line. This situation is not necessarily what would happen, but just an example of something that could happen. Furthermore, trade with other countries must also be considered. If Israel has to purchase from the United States, then the countries in which Israel also purchases items from could be affected. Also, the goods in which the United States are exporting to Israel could be goods that other countries normally import from the United States, potentially causing the stretching of the budget line as mentioned in the example above, not to mention other implications.
ReplyDeleteIn talking about the question "is aid to Israel beneficial to the U.S?"; I think it's important to note the fact that Israel is the only democracy in the region,albeit a parlamentary democracy. I believe this is the biggest reason why Israel receives so much aid. I believe Washington's rationale for the aid is to preserve some semblance of democracy in the middle east, and possibly the long term goal of spreading democracy in the region. If this rationale were true I beleive the real economic impact of our aid to Israel would come through a relatively more stable middle east. In saying this I'm not disregarding the economic impact of the 75% that must be spent in the U.S or the other 25% that could be spent in France or elsewhere like you mentioned. My point here is that I believe Washngton's main goal in its aid to Israel is not to necessarily to better our terms of trade with Israel rather they view Israel as a piece in a bigger picture.
ReplyDeleteWith all this being said, just because the U.S dumps a bunch of money into something doesn't mean that it's going to work. I've assumed the U.S see's Israel as an instrument of stability in the middle east, if this were true i think it would be very difficult to actually measure the true economic impact on the U.S.