Foreign aid is one of the most cost effective means America has in projecting its power. It's effectiveness is difficult to assess properly, it is hard to put a concrete value on relationship building and public perception. It can also be done sufficiently poorly as to be counter-productive, such as when US foreign aid flows through a hated regime that we become associated with through our giving.
That said, the pay-off from having foreign support is tremendous. Contrast the cost of the war in Libya ($896 million) to the cost of the wars in Iraq and Afghanistan (~$800 billion and $460 billion respectively). While it's hard to untangle precisely why the Libyan public had a favorable view of the US while the Iraqis and Afghans didn't have similarly positive views* it is illustrative of the kind of difference public opinion can make on achieving strategic objectives.
A country that is seeking to get its economic house in order and to reduce spending should be reallocating resources away from the military and towards economic and diplomatic means. A shift away from foreign aid is the worst kind of thing we can do if our goal is to balance our budget. This is just another piece of evidence that makes me believe that the deficit cutters have little concern with actually balancing the budget and far more concern about making this country fit their ideological vision. This behavior is the exact opposite of what a country seeking a foreign policy within its means should be doing.
*It's not like we were giving a lot of aid to Libya, but we had been pressuring them diplomatically to open up for awhile. We have also been very active in the Mideast, particularly in neighboring Egypt. It's easy to see why Afghans weren't crazy about us since we did so little in the region, contrasting Iraq and Libya is harder. I find it plausible that our focus on Egypt may have had something to do with it.
What really worries me is statements like this:
She recalled a State Department envoy’s informing her of $250 million in relief to Pakistan after last year’s devastating floods. “I said I think that’s bad policy and bad politics,” she said in an interview at her office on Capitol Hill. “What are you going to say to people in the United States who are having flooding?”
I get the domestic politics, but Pakistan remains one of the most likely countries where some type of intervention may be necessary in the future. Giving aid to improve our image there is an essential component to reducing the risk of an Afghanistan or Iraq size debacle. $250 million is small change compared to the costs of a potential intervention (I blogged about the importance of aid there at the time). The only reason we have a perception problem is because of politicians unwilling to take necessary action domestically. These kinds of shortsighted actions are how states decline and fall. That isn't meant as hyperbole, I'm being completely serious. If the deficit cutting mania continues to erode key US competencies, such as foreign policy, by cutting long range projects for short term cuts to show the electorate we may be painting ourselves into a corner we can't get out of. If we ignore the potential benefits to government spending to avoid tax hikes we'll lose the capacities our state needs to maintain stability and prosperity. I'm getting increasingly worried.