Epiphamy — The IMF
It was on the second reading of Ch. 7 that I understood what Saifedean was saying about the misery industry. In the name of “helping out” third world countries with their “development,” the western world forced massive loans onto poor countries. Such loans were supposed to fund beneficial projects which would help their economies grow. But these projects were not even chosen by the country’s inhabitants, and the development projects might displace thousands from their ancestral lands and confiscate citizen’s property through what we call eminent domain.
Then, in exchange for these problems, the countries would find themselves deeply in debt to their benefactors who are in fact loan sharks. Everything is stable at least, until interest rates rise in the normal cycle of (modern) economics. Now the poor countries become insolvent, the people suffer economic devastation, and the only solution offered is lend them even more money.
In my own life, I have seen something similar happen with college loans. Fifty years ago, because I grew up in a relatively low economic class, I was offered Pell grants to pay for my college education. This free-money welfare support was of great benefit to me. I went on to grad school and eventually worked my way up the class ladder by two rungs. I’m very grateful.
But in the ‘80’s I noticed that Pell grants were being cut in favor of college loans. Ironically, the transition from grants to loans was driven by the “free market” economics of the Reagan era. Since then, we have seen how damaging such loans would become. Today, to finance a college education, poor students must go deeply into perpetual debt. This is like indentured servitude; after college the graduates pay back these loans over most of their working life. This defeats the purpose of college as a pathway to a better life.
I don’t know what Austrian economists would say about my story, but the moral is that if you want to give someone a helping hand, it must come with no strings attached. Otherwise, your helping hand will drag them down to hell. Even if you think that giving handouts to the poor is a bad idea, forcing loans upon them is a million times worse.
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