How is the United States able to give billions to other countries when we are trillions in debt and how does it get approved?
In: Economics
Because when your country has a budget of $6 trillion a year, giving out $70 billion means only about 1.2% of the budget. The US just happens to have one of the biggest national budgets on Earth, so a tiny percentage equates to enormous amounts.
Further, most of this aid is supplies (often slightly outdated military hardware the US has been stockpiling since the Cold War) or services (e.g. humanitarian assistance) rather than actual, literal dollars. That means the US can technically “give hundreds of billions of dollars” while actually *saving* money (in the long run) on its budget sheet, because all that military hardware has maintenance costs that now don’t need to be paid.
As for who approves it? Congress for the big stuff (like large military aid or treaties made with countries like Israel), while individual agencies’ budgets take care of “smaller” stuff on the order of millions of dollars (because even a hundred million dollars is literally invisible on the US budget sheet–less than 0.002%.)
Also, some of it is required by our treaty obligations. E.g. as a signatory of NATO, the US is required to contribute a certain minimum percentage of GDP to common defense spending. The US has always committed much, much more than is required, completely voluntarily–because most of us understand the value of having a mutual-defense alliance that stands firm against totalitarian regimes worldwide.
TL;DR: Because the US is so stupidly rich, we can give away 2% of our budget and we barely notice. Congress approves big-ticket aid (e.g. “billions to aid Ukraine”), and lets agencies spend their individual budgets as they see fit.
Usually, the vast majority of the money stays right here at home. When we give 100 million dollars in food aid, it just means that the federal government, which buys up agricultural surpluses in the form of agricultural subsidies, has found a way to get rid of these enormous surpluses that we cannot sell at home (because the point of subsidies is _not_ to compete with producers). When we give 100 million dollars to Zimbabwe to help with their agriculture, it often comes with conditionalities like “you can only spend it on John Deere tractors.” Other funds are given out as grants to US-based NGO’s that spend most of their money here anyway. You know, like CARE Intl. They just subcontract that, and then that gets subcontracted again, and so on and so forth.
Plus, in the end, it’s just not that much money. I know a few billion seems like a lot to you, but it’s really not on an economy our size. We never hit 1% of government expenditures. It’s peanuts.
Lastly, the theory behind it is this (even though development aid doesn’t actually work, don’t take my word for it, ask development economist and Nobel prize for economics winner Angus Deaton): having poor countries is economically bad for us, because poor people cannot afford to buy our shit. It is in our interest to eliminate poverty.
$ is the global reserve currency so the US exports most of the inflation to the rest of the world.
“Debt” clearly isn’t what you think it is. It isn’t as simple as “money owed” because it’s also value created.
Lets me try an example to help.
You have 2 friends and $100. You borrow it to one friend. Now he owes you $100. Now lets say something comes up and that friend borrows the $100 to the other friend, and now that friend owes him $100.
There is only $100 in existence, but between all of you there is $200 in debt.
Now lets say friend pays back the friend, and that one then pays you back, all with $100. With just $100 we got rid of $200 in debt.
Take that example and scale it a billion times to get the national debt. As long as money is moving it’s not really a bad thing. It would be bad if that big scary number was one singular debt owed to one entity, but its not. It signifies money moving *around the entire planet* essentially.
We can’t without consequences. Devaluing the dollar, increased inflation, lowering the standard of living, and weakening our ability to negotiate with hostile actors are all prices we have to pay in order to spend beyond our means.
It gets approved by Congress, like any other appropriations.
As to how we are able to, there are a few reasons for it:
1. The numbers you see in the news are the value of such aid. It’s rarely cold hard cash, although in some circumstances it is.
2. We are able to because we often have surplus inventory that gets less effective due to age, deterioration, etc. over time. It’s best to give them to countries that can use them to advance our interests. In the case of military aid, sometimes it’s to allies, but not always (i.e. the enemy of my enemy is my friend).
3. Inventory that is given away through such aid program needs to get replenish. Depending on what it is, American companies have to do the manufacturing to replenish it, creating more economic activity and jobs in those Congressional districts which helps to get the votes to help pass the aid in the first place.
4. We can afford to because the amount of aid we give is an extremely small part of our budget and the return on that aid can be tremendous in terms of expending actual blood and treasure.
5. We also control the world reserve currency which makes it easier to run a deficit. Almost all developed countries run a deficit. It’s easier when you can also print the currency everyone else wants.
A lot of it is inertia.
Back during the cold War the U.S. threw bags of cash around to help our allies rebuild so that they could be successful enough to help us resist the Soviets.
American manufacturing was still ramped up from the war while Europe’s were destroyed from the was so the economy was strong enough to support this because American goods were filling the gap.
By the time the cold war ended the U.S. had been giving money for decades.
It’s that way because from the point of view of most nations today it’s always been that way.
The US operates on a fiat currency that’s very loosely backed by oil. A first curvy operates off the scarcity of the currency instead of the scarcity of a commodity like previous metals. The life cycle of a fiat currency is: supply, circulation, and death.
Supply is managed by government contracts, employment, grants, and budgets. To a certain extend, also loans (this is very complex and also functions in the death part of the cycle.
Circulation is where the money circulates between private and personal interests. This produces the GDP. When you pay somebody out somebody pays you, this is circulation. This is where money should be doing “work,” which is what produces tangible goods and services.
Death is taxes. If the government only puts money into the economy, that money will quickly become worthless nexus it’s no longer scarce. This is currency inflation and should be managed against “buying power.” When you pay federal taxes, the government destroys that money. Those federal loans mentioned earlier is another way to take money out of the economy and that is also why loan interests fluctuate. When you get a loan, the bank creates an account with a negative value from the fed at the federal interest rate + your interest rate. The bank acts as a gatekeeper, taking their toll. As you can see, we have a major problem with this system, and that it is that you need to tax where the money is pooling, and we don’t do that, hence the wealth gap, but that’s a different story.
When we offer foreign aid, it’s very rarely in money. It’s often in assets, such as food, shelter, supplies, arms, etc., often, it’s shit we just have laying around. Like our aid to Ukraine was ancient equipment that was going to be more expensive to decommission. Which was a huge deal because we discovered our most antagonistic peer couldn’t stand up to our archaic weapons from 20+ years ago when wielded by farmers and mechanics. When we send food to places like Afghanistan, we build a reputation with those people that makes them more willing to cooperate if we need boots on ground, saving us a ton of money, too.
Overall, we can aid it because we already have it, and what we don’t have, we can print money for and tax it later to Mendon the economy. Literally the only reason we can do it is because we have the buying power to do it and A LOT of slop in our economy to balance it.
Let’s say you are a bakery called the Ultimate Sweets of Arcadia. You bake bread and you sell it. And you make a bit of cash.
One day, you create a new pastry that makes you famous in the neighborhood, and you constantly sell out of it. You’re already baking as much of the pastry as you can, every day, and you’re selling out by noon, and people are still banging at your door for more. You make $1000 per day on the pastry.
If only you could afford a bigger bakery, that would be swell, but increasing the size of your bakery means spending $250,000 for a larger oven and a larger floor space for the extra workers and customers but you could make 3x as many pastries. It would take you most of a year saving up just to be able to pay for the upgrade. By then, you might lose your customers. What do you do?
This is where you go to your local bank called the First Reserve Bank of Congress and you ask them for a loan for $250,000 with a promise that you’ll pay it back in a year with interest. Of course, now that you’re making 3x more pastries, you be able to pay off the loan in less than 3 months… if you spent all your profit on that.
But you can’t. Because you need to pay the workers and you need to save up for a rainy day and you’ll need to support the local baseball team to increase your name recognition and you’ll need to hire a marketing company to help you determine what to do next with the company. Sure you’ll be able to pay off the loan, but you can also do more building with the extra cash you’re making.
When the 3 months come around, your business is doing gang busters. If you expanded to the next neighborhood over, you’ll do even better…. But that’s going to take $500,000 to get a build a brand spanking new bakery where there is none… and you don’t have the cash on hand…
But you can go back to the First Reserve Bank! And you can show them you’ve made good on your investments so far, and they’re liable to agree and loan you for your next adventure and so on.
Going into debt isn’t a bad thing if what you’re doing with the money will pay off debt anyway.
90% of the money “given” to Ukraine STAYS WITHIN THE UNITED STATES.
The money is being spent on US weapons manufacturers (etc), paying the salaries and bonuses of thousands of US workers.
This simple fact is completely missed by many people. This money isn’t just disappearing overseas.
https://www.washingtonpost.com/opinions/2023/11/29/ukraine-military-aid-american-economy-boost/
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