Monday, August 23, 2010

You Can't Take It With You

Led by Warren Buffett and Bill Gates, a bunch of billionaires are taking a pledge to give at least half their money to charity. Fine by me. It's their money, they can do what they want with it. I expect it'll make them feel good. (Won't be bad PR either.)

But will it make the world a better place? Probably, though I'd want to know where the money's going. And while I like charity, money spent in the private sector helps things spin, giving people reason to invent new things and create value. Not that I'm worried there'll be such an orgy of charity that markets will vanish. But we shouldn't forget, as horrible as it sounds to some, that creating wealth is, generally speaking, a positive thing for society. Maybe even more positive than giving it away.


Anonymous Anonymous said...

I know a very personal charity that would be glad to be a recipient of their largesse.

10:56 AM, August 23, 2010  
Blogger QueensGuy said...

I'm not really clear on how a rich guy having an additional billion invested in the debt, equity or real estate markets, versus a charity spending that billion in the economy makes a practical difference. Could you elaborate?

p.s. my word verification is "provezoo" which I guess is what you put in your will if you want the money to go to animal welfare charities

3:20 PM, August 24, 2010  
Blogger LAGuy said...

Is it that hard to understand? Money put into the economy by purchasing something or investing in something goes toward someone attempting to create greater value for the public through the creation of worthwhile goods or services. Charity by definition is (ultimately) giving money to someone who's doing nothing for it. I'm not arguing against charity, it's a good thing that helps a lot. But I think you see the economy can't run entirely on charity or nothing would get done. In the big picture, you want a large portion of the economy run on people creating value, and you fill in the rest by redistributing that value.

8:05 PM, August 24, 2010  
Blogger QueensGuy said...

Our point of difference seems to be based on what happens once money gets to a charity. My understanding is that they charity then buys stuff with that money (or gives it away to folks who do), thus putting it into the economy, just like the billionaires would do with it. Your understanding of what charities do with money seems to be different, but you're not elaborating how.

7:34 AM, August 25, 2010  
Blogger LAGuy said...

What's to elaborate? I thought I was clear. Charity, no matter how else it works, is giving someone money rather than having that person earn it. The economy runs on mutually beneficial interactions--I spend money on your goods or services because that makes us both both better off. Money in such free transactions is thus used to encourage the creation of value. Charity, as positive as it is, doesn't work that way.

10:01 AM, August 25, 2010  
Blogger QueensGuy said...

I'm aware that I'm beating a dead horse here, but let me try a rough analogy to point out what I think you're missing by stopping your thinking at the moment the charity/investment decision is made. I can spend $50 at BestBuy on a video game, or I can give $50 as charity to an organization that buys video games for underprivileged kids. Please explain how the former is better for the economy than the latter. Toys'R'Us still collects the money; it just went through one extra set of hands.

11:47 AM, August 25, 2010  
Blogger LAGuy said...

Why doesn't the government just give enough money to everyone to buy whatever they need? According to you, that would work as well as any other system.

12:06 PM, August 25, 2010  
Blogger QueensGuy said...

Thank you for chastening me in such a thoughtful and helpful way. I will be sure not to make the same mistake again.

1:53 PM, August 25, 2010  
Blogger LAGuy said...

I wasn't joking in any way. According to your logic, there's no difference between giving people money (here's a $50 gift)and earning that money (I worked for the cash and now I'm going to buy myself this $50 item). If the economy can't tell the difference if it happens once, it can't tell the difference no matter how much it happens.

If people get something for free, it means they didn't work for it, thus there is less value created in the economy as a whole, whether it happens once or a billion times. It's possible to like some forms of redistribution, but it's generally a case of losing some efficiency in favor of some other value, not a case of "why not, it doesn't cost us anything?"

2:11 PM, August 25, 2010  
Blogger QueensGuy said...

Your assumption, then, is that the kid in my example would have gotten a job to earn the $50 for a video game, thus creating extra economic value in the economy vis a vis him getting it for free via charity. I get that. I am not suggesting substituting charity for all economic activity, which is the extreme position you seem to be trying to force me into.

I'm questioning how much, if at all, that is a realistic assumption for the amounts of charity we're talking about, even when it's in the multiple billions. I think, realistically, most of the time that kid would do without a video game. (We'll leave aside which result is "better" for him.) I think charity, in any realistic amount, covers gaps where normal economic activity would not substitute, either because the societal benefits are difficult to directly quantify (e.g. art), or folks would just have to do without.

I've looked to see if there's any research in this area and haven't found any. While there is good work done on quantifying the amount of charitable giving in the US and how it's affected by the economy at, e.g. the Center on Philanthropy at Indiana University's site, I can't find anything on the converse -- whether changes in the amount of charitable giving affect the economy. If you know of any, I'd be interested.

3:03 PM, August 25, 2010  

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