Cafe Hayek

Adam Smith on the China tragedy

Here is Adam Smith on the human capacity for selfishness and for something that goes beyond selfishness:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befal himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own. To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters.

Yes, we are selfish. Yes, many of us slept well last night in the aftermath of the death of thousands in China. But our selfishness does not tell the whole story. Yes, we are self-centered. But there is more to the human enterprise or at least we like to think so.

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Sowell on 'giving back'

I really dislike the phrase "giving back." So does Thomas Sowell:

“Giving back” is a similarly mindless mantra.
 
I have donated money, books, and blood for people I have never seen and to whom I owe nothing. Nor is that unusual among Americans, who do more of this than anyone else.
 
But we are not “giving back” anything to those people because we never took anything from them in the first place.
 
If we are giving back to society at large, in exchange for all that society has made possible for us, then that is a very different ballgame.
 
Giving back in that sense means acknowledging an obligation to those who went before us and for the institutions and values that enable us to prosper today. But there is very little of this spirit of gratitude and loyalty in many of those who urge us to “give back.”

The first part of the essay is also excellent, about the knowledge necessary to make sure that doing something for others actually makes the world a better place. Read the whole thing.

Should charity be tax deductible?

Interesting piece in the NYT on the bang for the buck that comes from the deductibility of charity:

The rich are giving more to charity than ever, but people like Mr. Broad are not the only ones footing the bill for such generosity. For every three dollars they give away, the federal government typically gives up a dollar or more in tax revenue, because of the charitable tax deduction and by not collecting estate taxes.

Mr. Broad (rhymes with road) says his gifts provide a greater public benefit than if the money goes to taxes for the government to spend. “I believe the public benefit is significantly greater than the tax benefit an individual receives,” Mr. Broad said. “I think there’s a multiplier effect. What smart, entrepreneurial philanthropists and their foundations do is get greater value for how they invest their money than if the government were doing it.”

On Attitudes Toward Immigrants

From a review, by Jonathan Yardley, in today's Washington Post Book World of Peter Quinn's new book Looking for Jimmy:

Today the Irish are so thoroughly assimilated into the larger American society that it is difficult for anyone to remember how harshly and unforgivingly they were greeted as they arrived in the great wave that began in the mid-1840s and lasted for a decade, but white America equated them with blacks and stereotyped them accordingly as "childlike buffoons, lazy, superstitious, given to doubletalk, inflated rhetoric, and comic misuse of proper English.
....
White Anglo-Saxons who regarded themselves as "native Americans" gave the newcomers a frosty welcome. In Boston, employers famously posted signs that read: "No Irish Need Apply." Irish women, who outnumbered men, "worked in factories and mills. Irish maids became a fixture of bourgeois American life. Domestic service became so associated with the Irish that maids often were referred to generically as 'Kathleens' or 'Bridgets,' " just as black railroad porters were universally, and equally patronizingly, called "George."

Thus, often, are attitudes toward poor immigrants from poor countries.

In that age (mid-19th century) before the welfare state, how did these poor, poorly educated, and hated Irish immigrants survive and prosper in America?  Involvement in politics was certainly one way.  But hardly the only way.  According to Yardley, Quinn relates how this "immigrant group" "built its own far-flung network of charitable and educational institutions," and how the Catholic Church also played a major, positive role.

See this earlier post for references to some important scholarly research on the history of private means of providing charity and mutual aid.

Xenophobia is Poor Public Policy

My friend Ryan Young has this very nice letter published in today's edition of the Washington Post:

The Jan. 31 front-page article "Va. House Approves Bill on Illegal Immigration; Aim Is to Block Access to State, Local Funds" provided a real-world example of why government should not be in the business of funding charities: The money comes with strings attached.

In this case, charities that accept funds from the state would no longer be allowed to give aid to illegal immigrants.

Put another way, these charities would essentially be required by law to be xenophobic. They would also lose their right to decide for themselves whom they help. Certain state legislators would rather make that decision for them.

The only way for charities to avoid being bullied like this is to refuse state aid.

If this legislation makes it to the desk of Gov. Timothy M. Kaine (D), I hope he has the good sense to veto it.

RYAN YOUNG
Arlington

State, Society, and Unemployment Insurance

Perhaps the difference that most fundamentally separates true liberals and libertarians from others is that, to one degree or another, true liberals and libertarians are, unlike non-liberals and libertarians, dutiful sons and daughters of the Scottish Enlightenment.  And one of the great lessons of that remarkable intellectual movement is the refinement of the understanding that state and society are not the same thing.  Society is not created by the state, and the state's activities not only do not define those of society but often diminish society's activities.

I thought of the distinction between state and society when I read this passage in Paul Krugman's column from this past Friday's edition of the New York Times:

For the fact is that F.D.R. faced fierce opposition as he created the institutions — Social Security, unemployment insurance, more progressive taxation and beyond — that helped alleviate inequality.

Did Franklin Roosevelt "create" unemployment insurance?  His administration did champion legislation that created government-provided unemployment insurance.  But Mr. Roosevelt emphatically did not create such insurance.  Here's a letter that I sent to the Times in response:

Paul Krugman mistakenly credits Franklin Roosevelt with having "created" unemployment insurance ("On Being Partisan," Jan. 26).

Private unemployment insurance was offered long before the New Deal.  As Professor Michael Rappaport found, starting around 1910 companies began selling such insurance to railroad workers.  Alas, seeking to offer such coverage to other workers, private insurers were consistently blocked by state governments.  And when New York's legislature in 1931 finally approved the expansion of private unemployment insurance, the bill was vetoed by none other than Gov. Franklin Roosevelt.

Sincerely,
Donald J. Boudreaux

The Rappaport paper is "The Private Provision of Unemployment Insurance," Wisconsin Law Review, Vol. 61 (1992).   (I cannot find a non-gated version of this paper on line.)  A summary of some of the key points of the paper is found in this Regulation article by George Leef.

Private, voluntary actions supplied unemployment insurance in yet other ways.  My friend Steve Ziliak wrote, after I sent him a copy of my letter:

As I and David Beito have independently found, fraternities, sororities, lodges, and mutual aid societies had been offering private unemployment insurance in the United States throughout the second half of the 19th century and in the early years of the 20th.  Also: sickness insurance, death insurance, worker injury insurance, and temporary charitable aid.  Fred's and Barney's membership in the Royal Order of Water Buffalo Lodge "back in the Stone Ages" isn't much of a fiction.

Steve also offers these cites:

David T. Beito, From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967

S. T. Ziliak (with Joan Hannon), "Public Assistance: from Colonial Times to the 1920s," Historical Statistics of the United States (Millennial Edition, Cambridge University Press, 2006). S. Carter, et al., eds.

S. T. Ziliak, "The End of Welfare and the Contradiction of Compassion," The Independent Review Vol. 1 (1996).

I suspect that unemployment insurance would today be much more efficiently supplied, with greater attention to the individual needs and circumstances of workers and their families, had the state not pre-empted and prevented society from creating this beneficial institution.

F.D.R. clearly did not create unemployment insurance.  It's closer to the truth to say that he helped to destroy it.

Frugal Google

When Warren Buffett made his massive donation to the Gates Foundation, my father was perplexed. Why would a man who had spent his life understanding the power of the profit motive entrust his money to non-profits who might be more profligate? I suggested that perhaps he was trying to burnish his reputation, that his success as an investor was viewed by some as tawdry. By giving money to a charity, he would look like a nice person, regardless of the outcomes. People would judge him by his motives.

Google is taking a different path, as the New York Times reports:

The  ambitious founders of  Google, the popular search engine company, have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming.

But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes.

Google probably understands that as Milton Friedman points out, people spend their own money more carefully than they spend other people's money.

Liberal Values and Mandates

Addendum: When I wrote the following post, my understanding of the goings-on in Massachusetts was only that the Massachusetts government prevents adoption agencies from discriminating against homosexual couples.  Inexplicably overlooking the final paragraph in the link I included in the post, I did not realize that Catholic Charities accepts government money.  I agree that receipt of government funds changes matters significantly.  Government has no obligation to continue funding any agency that discriminates against homosexuals -- but I continue to believe that govenment has no business dictating which types of people private organizations can or must do business with.

.........

A dear friend -- one of the smartest people I know -- and a man of the left, sent me an e-mail taking issue with my refusal to condemn the decision of Catholic Charities to pull out of the adoption business in Massachusetts.  The reason Catholic Charities is pulling out is that the Massachusetts government prohibits adoption agencies from refusing to serve gay and lesbian couples.  Being Roman Catholic, Catholic Charities does not believe that children should be adopted by homosexual couples.

I am not Catholic.  And although I'm not homosexual, I don’t share Catholics’ antagonism toward adoption of children by gays and lesbians. If I had my druthers, no adoption agency, including Catholic Charities, would regard homosexuality as a liability for couples seeking to adopt children.

But why condemn Catholic Charities for agreeing to serve some but not all couples seeking to adopt children?  Why force Catholic Charities’ contributors and employees to choose between adherence to their creed and their wish to facilitate adoptions? Why not instead condemn the legislature for its in-your-face insistence that adoption agencies share the full set of liberal values that the legislature apparently endorses -- an insistence that, anyone should see, risks reducing the amount of charitable work done on behalf of children needing homes and of couples seeking to adopt?

I say that Massachusetts' legislators only “apparently" have liberal values.  A true liberal tolerates others’ peaceful views; a true liberal doesn’t cram his or her values down others’ throats; a true liberal understands that an open society requires that different people with different views be allowed peacefully each to act on his different views, with time sorting out the bad from the good – and even modifying the good in beneficial ways.

And a true liberal doesn’t insist that Mr. A will be allowed to give generously and voluntarily of himself and his resources to persons W, X, and Y only if he also gives, against his wishes, to person Z.

Why not let Mr. A himself choose who will be the object of his charity?  Why penalize charitable instincts by forcing those with these instincts to deploy their charitable impulses in ways beyond their own choosing?

Suppose a Jewish organization is created to facilitate the adoption of young children by Jewish parents.  Should the legislature say “No No! We’ll have none of that!  If you’re in the adoption business, you can’t discriminate against Catholics, Muslims, Hindus, and any one else who seeks to adopt.”  Or suppose a charitable organization is created to facilitate the adoption of children by gay and lesbian couples.  Should the legislature demand that this organization also spend its time and resources facilitating adoptions by heterosexual couples?

All such mandates reduce the supply of charitable efforts.  What’s so liberal about that?

The Blame Game

Whose fault is it?  Who's to blame for the deaths?  In one of the angriest and most bizarre columns I've seen in a normal newspaper in a long time, Harold Meyerson lets off steam in the Washington Post (rr):

We're not number one. We're not even close.

By which measures, precisely, do we lead the world? Caring for our countrymen? You jest. A first-class physical infrastructure? Tell that to New Orleans. Throwing so much money at the rich that we've got nothing left over to promote the general welfare? Now you're talking.

I wish I had time just to blog on this graf, but keep going:

As a matter of social policy, the catastrophic lack of response in New Orleans is exceptional only in its scale and immediacy. When it comes to caring for our fellow countrymen, we all know that America has never ranked very high. We are, of course, the only democracy in the developed world that doesn't offer health care to its citizens as a matter of right.

This is a total non-sequitor, but let's just stick with the facts, from a USA Today story, 9/25/2003.  The headline:

France heat wave death toll set at 14,802

Whoa.  France provides health care as a matter of right, doesn't it?  Surely the French care about the poor and the elderly and the helpless, don't they?

The bulk of the victims — many of them elderly — died during the height of the heat wave, which brought suffocating temperatures of up to 104 degrees in a country where air conditioning is rare. Others apparently were greatly weakened during the peak temperatures but did not die until days later.

The new estimate comes a day after the French Parliament released a harshly worded report blaming the deaths on a complex health system, widespread failure among agencies and health services to coordinate efforts, and chronically insufficient care for the elderly.

Sound familiar?  Sadly, too familiar.  But then again, I'm biased.  Meyerson blames my world view for the deaths in New Orleans.  His closing graf:

The world looks on in stunned amazement, unable to understand how a once great nation has grown so indifferent not just to its poor and its blacks but even to the most rudimentary self-preservation. Some of it is institutional racism, but the primary culprit is the economic libertarianism that the president still espouses whenever he sells his Social Security snake oil. It's that libertarianism, more than anything else, that has transformed a great city into an immense morgue.

Who knew that the Prime Minister of France was an economic libertarian?

Lileks has some nice insights and lots of humor here on the issue of blame.

Oh, and it turns out part of the problem is that the Army Corps of Engineers didn't spend its budget all that wisely.  Hit the link.  It's the best reporting on the preparedness issue I've seen yet and it actually has a few facts.

Who'd have thunk it?

The Washington Post (on the front page) makes a remarkable discovery (rr):

Many Displaced by Katrina Turn to Relatives for Shelter

Wow.  Incredible, isn't it.  There's actually an article, too.  First graf:

Owing to stealthy acts of hospitality that are largely invisible to government, aid agencies and the news media, hundreds of thousands of people displaced by Hurricane Katrina seem to be disappearing -- into the embrace of their extended families.

I'm not so sure about the word "stealthy."  Stealthy makes it sound like they're trying to hide.  I know it may appear that way to the government, the aid agencies and the news media who now want to show their incredible responsiveness, but stealthy?

I've been wondering about the centralized vs. decentralized aspect of this disaster since it was announced that the people in the Superdome would be moved to the Astrodome.  Were they cattle?  Or antiques?  If I were in the Superdome without food and water, surrounded by waste and terrorized by a few evil thugs and someone said, "Hey everybody, we're getting out of here.  We're going to Houston" I'd say whoa.  Hold on.  I don't want to go to Houston.  I certainly don't want to go to the Astrodome.  Get me to dry land and I'll find my own way, TYVM.  I don't understand the attitude of "what are we going to do with these people now that they're not dying right away."  These are human beings, not checkers or even chess pieces.  They have desires.  They have knowledge.  Some even have families and churches and friends.

Helping the Poor Around the World

The tsunami tragedy has people talking about whether the rich countries of the world will now finally do something about helping the poor countries.  The idea is that we'll be shocked out of our lethargy and finally do something.  This argument assumes no one trying now.  But unfortunately, we have been trying for a long time with very little success.  William Easterly sums it up nicely in a depressing but accurate essay in Foreign Policy:

While aid advocates have been effective in increasing aid flows (if all foreign aid given since 1950 had been invested in US Treasury Bills, the cumulative assets of poor countries by 2001 would have amounted to $2.3 trillion), the goal of increased living standards and reduced poverty in the typical poor country has not been attained. In response (and fitting in with the campaign to estimate aid requirements of achieving certain goals) aid agencies have tended to redefine their mission as being more one of disbursing money than achieving economic development. Thus, such aid agencies have established a tradition of focusing on the volume rather than the effectiveness of aid.

The problem isn't lack of effort, it's lack of results.  And the reason for that unfortunately, is that most poor countries are not really poor, as I heard Arye Hillman explain it.  His point is that the richest people in the poorest countries live as well as the richest people in the richest countries.  The real problem is that in most so-called poor countries, the powerful people, the government and their friends, live at the expense of the rest of society.  Some people actually claim this is the way the US works.  These glass-is-always-almost-totally empty types have never been to Iraq in the old days or Zimbabwe under Mugabe or Cuba under Castro or any other place where a true thugocracy is in place.  In such places, sending money, unfortunately, rarely helps the poor.  It gets diverted in creative ways to those in power.

The best way to help those countries is to encourage reforms that disperse power either through political change or economic change.  A good place is to start is to lower trade barriers as today's Wall Street Journal (sr) suggests.

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Adam Smith and Self-Command

Most people assume that Adam Smith was a passionate defender of selfishness.  But Sam Fleischacker notes that Smith

rejects the notion that human beings are thoroughly selfish, put about by Hobbes and Mandeville. But for the same reason he rejects the idea that human beings ever were or ever will be capable of the passionate altruism or patriotism on which utopian thinkers pinned their hopes (Thomas More before Smith; Rousseauvians in his time; Marxists later on).

The ultimate virtue for Smith, Fleischacker argues was self-command, the ability to get beyond one's narrow self-interest:

The foundation of all virtue for Smith is "self-command," the ability to control our feelings, to restrain our passion for our own interests and to enhance our feelings for others. But we achieve self-command only after the disapproval of others has led us to develop a habit of dampening our self-love. The first great "school of self-command," says Smith, is the company of our playfellows, who refuse to indulge us the way our parents do; when we are adult, the major arena in which we need constantly to attend to the interests of others, and restrain our self-absorption, is the market. When I try to strike a bargain with someone else, and especially when I try to hold down a regular job, I need to try to meet other people's needs instead of just bleating about my own:

 

[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this.... It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages. (WN I.ii.2; 26-27. Online: par. I.2.2.)

Fleischacker goes on to point out that we often misread the famous Smith quote about the butcher and the baker:

 

The point of these famous lines is not that my butcher and baker are self-interested but that I know how to "address" that self-interest, that I know how to "shew them that it is for their own advantage" to do something that will help me. But my ability to address their interests takes me beyond myself, whatever it does to them; I must go beyond my own self-love in order to enlist theirs in my aid. And it is that ability to restrain our own self-love, and understand and further the interests of others, Smith says, that distinguishes human beings from other animals. So participation in the market fosters human character, helps us develop a trait crucial to our ability to be courageous, kind, or in any other way virtuous.

The whole of Fleischacker's essay is here.

Adam Smith on the Tsunami

Timely thoughts from the author of The Theory of Moral Sentiments:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befal himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own. To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble?

This insight about our feelings for ourselves and others remains spot on, even in a world where our sensibilities of distant misfortune are heightened by television and pictures in the paper.  But he raises a deep question:

When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble?

Most of us are able to go about our business today enjoying life, getting ready for New Year's Eve parties, laughing and joyous while millions of our fellow human beings across the sea are sobbing for lost loved ones.  Yes, we feel pangs of sadness while we read the paper and watch the news.  Our hearts go out to them.  But Smith's point is that the intensity of that feeling is nothing compared to how we would mope about if we were to face a small personal tragedy.  So how is it then, that faced with the tepidness of our empathy, we give substantial sums to private charities to help the victims in Asia?  Why do most Americans applaud the decision by President Bush to commit taxpayer money to help the victims?  Smith's answer:

When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence, and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of this impartial spectator. It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the smallest injury to another, in order to obtain the greatest benefit to ourselves. It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own characters. 

Are Americans Stingy?

My wife and I made a donation today to help people suffering from the tsunami.  Will it help?  I sure hope so.  It's almost impossible to know.  We gave it to an organization we trust and expect the money to do some good.

President Bush is also feeling generous today.  Stung by a UN officials calling Americans stingy, he upped America's donation from a paltry $15 million to a more robust $35 million.  The Washington Post reports:

The Bush administration more than doubled its financial commitment yesterday to provide relief to nations suffering from the Indian Ocean tsunami, amid complaints that the vacationing President Bush has been insensitive to a humanitarian catastrophe of epic proportions.

Actually, the Bush Administration more than doubled our financial commitment, ours as in mine and yours, the commitment from taxpayers, the coerced part that comes out of our tax dollars.  Only in Washington can you spend other people's money and look more sensitive.  But the reference to insensitivity is mainly an illusion to Bush clearing brush in Crawford, Texas rather than getting in front of the cameras.

What I would have preferred is for Bush to send little or no government aid and instead to encourage Americans to give privately as we did this morning.  I suspect private aid has a chance of being more effective, even if because of free-riding there are people who will give less than they would if coerced via taxation.  It will be interesting to see how it compares to the government aid.  Even though that $35 million will discourage some private giving, I'm sure it will be a sizeable number.

Because of the temptation of free-riding, a case can be made for government provision of aid in these cases and I made that case twenty years ago, here.  While the logic of that argument remains, such arguments assume that private and public spending are equally innovative, equally effective and equally flexible.  This is not the case.  One of the chapters in my book The Invisible Heart, lays out the case for private provision of charity.  Essentially, the argument is that a world of private charity will collect less money for the poor than the world of government aid, but perhaps it will be spent more wisely, offsetting the loss from giving the poor less money.  Neither side is iron-clad, but adding to the case for private provision is the argument that it is private giving is more likely to genuinely transform the giver than is tax collecting.

If you fear private giving as being too stingy (in the real sense of the word), then an alternative is to offer large tax credits for giving than simply the reduction in the price of a dollar of giving equal to one minus the marginal tax rate.  A large enough tax credit can overcome the free-rider problem and still maintain some of the advantages of private giving such as flexibility and innovation.

When spending other people's money, it is good to remember Grover Cleveland.