Income Redistribution Is Not Charity
by Manuel Lora
by Manuel Lora
"I always find it interesting that socialists treat government as a sort of supernatural entity: it affects all things without actually being a part of it. The money and actions they take have no (important) effects apart from what the socialists intend."
~ Robert Wicks
It takes a lot to surprise me these days. It's hard not to be cynical when surrounded by uninformed opinions and comments based on ignorance of economics, and by a disdain for personal freedom. Thus, I was delightfully and honestly surprised when I saw this Mises.org blog entry about an editorial in the New York Times called "Charity Begins in Washington." Having found it so incredibly laughable, I had no choice but to attempt a rebuttal.
In this brief article I shall point out the major fallacies, errors and misunderstandings in the editorial. I ask the reader to forgive my fisking.
The problems start right away:
The munificence of American corporate titans warms the heart, sort of. The Chronicle of Philanthropy reports that the top 50 donors gave $7.3 billion to charity last year — about $150 million per head. Excluding Warren Buffett's $43.5 billion burst of generosity in 2006, last year's giving easily beat the record set the year before.
I immediately must question the author's "sort of" remark. Does it not warm the heart? I believe it does, at least most people's heart. Maybe the Times employs heartless people or people so different from the rest of society that they are unable to relate to what others are feeling. This is a minor, non-economic quibble so on to substance:
This is great news for many worthy causes. Last year's top donor, William Barron Hilton of hotel fame, pledged $1.2 billion to his father's foundation, which supports efforts to prevent blindness worldwide, curb drug abuse among the young and help the homeless, among other things. Other donors targeted cancer research and children's health clinics.
Yet we'd be so much happier about all the good things America's moneyed elite pay for if the government made needed public investments.
Non sequitur! From the fact that billions of people donated money it does not follow that it would make us happier if the government took over the management of private charities. The statements are unrelated. Further, who is the "we" in "we'd be so much happier"? It just takes one person to not be happier for the comment to be false (or they could be indifferent). It also takes just one person to not be "much" happier as the rest for the comment to be false. Suppose that I wanted to donate $500 to a local church. If we were to socialize/nationalize charity, it's likely that those $500 will no longer be available to me. Thus, my charity will not receive those funds and there will be little chance that I would be "much happier."
The snide remarks made by this editorial are symptomatic of a deeper problem. The main assumption is that the state is less likely to make errors than the private sector and thus the government can and should allocate funds; to leave that in the hands of the market would be inefficient and many charities would suffer. These assumptions are wrong.
The assumption that the state is less likely to make errors and therefore this is a preferable arrangement to people donating money on their own is utterly na´ve. Free exchange is always ex ante beneficial. When two parties willingly enter into an agreement they both assume that they are each going to be better off otherwise they would not do it. If A buys a loaf of bread for $1.50 from B it means that A values the bread more than his $1.50. B, in turn, values the $1.50 more than the bread. Free exchange is always fair. The discovery of errors comes only after an exchange happens. True, it's possible to expect errors and try to anticipate them, but the knowledge needed to make the calculus of error is based on previous experiences. Only by failing can we determine that failure did in fact occur.
Unfortunately, these insights are bad news for our philistine author. All government action is aggressive; there is no free exchange. Because there is no market, there is no way of knowing whether errors have indeed happened. When the state takes resources and puts it to other uses, it necessarily does so without the consent of those from whom the resources were taken. The conclusion is unmistakable: we are unable to know that the government is making the correct decision. Its decrees do not resemble what people would voluntarily do. Thus, it cannot be conclusively said that "we'd be so much happier" if the government invested in charity.
We now continue with the rest of the editorial.
The flip side of American private largess is the stinginess of the public sector. Philanthropic contributions in the United States — about $300 billion in 2006 — probably exceed those of any other country. By contrast, America's tax take is nearly the lowest in the industrial world. Federal, state and local tax collections amount to just more than 25.5 percent of the nation's economic output. The Finnish government collects 48.8 percent. As a result, the United States spends less on social programs than virtually every other rich industrial country, according to the Organization for Economic Cooperation and Development. The Finnish government probably has money to build children's health clinics.
Stinginess of the public sector? Last I heard the budget for the federal government exceeded one trillion dollars. The United States has the largest government in history. Tax collections are barely the tip of the iceberg. The bulk of expenses are financed through debt. I guess the author never thought about this "detail." What the author wants is a better arrangement of expenses. In other words, a typical socialist view.
I take issue with "spends less on social programs" as if this were a terrible thing. What is an appropriate level of spending? How should spending be determined? Who determines the amount of government spending? How do we determine spending relative to other government programs? How do we know if there is too much charity, or too little? These questions are solved by the market when individuals establish scarcity relationships between resources and, by assigning them relative values, prices arise.
We move on to democracy and government spending:
Critics of government spending argue that America's private sector does a better job making socially necessary investments. But it doesn't. Public spending is allocated democratically among competing demands. Rich benefactors can spend on anything they want, and they tend to spend on projects close to their hearts.
The private sector is composed of people who voluntarily invest resources where they think they should be spent. A mutually beneficial activity, this is called the market. As I mentioned earlier, the market does indeed do a better job of making the proper socially necessary investments because individuals act to improve their well-being. Their actions reflect a demonstrated preference (and such preference is subjective and ordinal) over other possible courses of action. In the case of monetary exchange — buying and selling goods and services at prices established in units of money — people will spend on things that they think are important to them. Once those needs are satisfied they will move to other things which are less important to them, and so forth.
The state, because it enforces tax laws (and any law, really) at gunpoint, is not engaging in a mutually beneficially manner. People are unable to express their preference. Yet our author contends that "public spending is allocated democratically among competing demands." To be fair, that much is true. What is not true is that democracy leads to a better allocation of investments. Democracy is simply a chance to cast a vote for a politician or for an issue; it cannot pretend to be, or do, more than that. It can't allocate like people do every day when they buy any of the millions of products and services offered on the market.
Let's imagine that you go to a grocery store where your shopping list is written by popular vote. If you're lucky you'll get things that you want. Most of it will consist of items you don't need. And even if you do see what you need on the list, there's no guarantee that you'll have it in the right quantity and quality. To further complicate this scenario, there is only one grocery store available to the entire town. Anyone who dares to open another store or refuses to contribute towards the maintenance of the store will be threatened with jail time, fines or execution. That's democracy in action.
Finally, the remark about the rich reeks of economic ignorance and contempt for the creation of wealth. Wealth is created in the market as needs are satisfied; when people achieve a goal they are wealthier than they were before — the resources used to achieve those goals were put to good use. The rich are people who obtained their money by serving others. This is no mystery about this. The editorial seems to imply that "because" they are rich, they can spend on anything they want. But so can the non-rich. I can spend my money on whatever charity I want, or on any product that I can afford. The implication of the author is that the rich are not choosing correctly and that charity should not depend on them and their whims. As was shown above, however, government intervention is unjust and inefficient.
Taxes and statism
The last part of the short but fallacy-laden editorial consists of a squalid call for further government aggression and a greater destruction of private investment.
A study last year of 8,000 gifts of $1 million or more to 4,000 nonprofits found that 44 percent went to higher education, 16 percent to medical institutions and 12 percent to arts and cultural organizations. Only 5 percent were dedicated to social service groups. Nonprofit groups that rely on the largess of the wealthy are doing fine. The Cincinnati Ballet met its 2007 target of $1.1 million in just five months, the Chronicle said. Giving is down at Lighthouse Ministries, which serves the needy in Florida.
The Cincinnati Ballet received donations of $1.1 million but the Florida charity that serves the needy did not receive as much. Is the author not aware of scarcity? There is a limited amount of resources to achieve our goals. Using a specific resource such as money or time necessarily implies that any alternate use is forfeited. The author assumes that government spending has no cost, or very little, and that the costs born by society have either no consequence or that the consequences are reasonable and fair. However, every penny stolen or extorted as taxation is a penny that could have had a better, more efficient use.
But what about the charity that does not see enough money? What's so wrong with forcing people to be charitable?
Breaking news: charity requires freedom!
Charity is a virtuous act that requires freedom. Forceful charity does not and cannot exist. If A steals from B to give to C, C might be better off but became so at the expense of B. B is a victim and A is a thief. The exchange between A and B is not legitimate. Not everyone is "much happier."
A sordid conclusion
Observe the statist mentality:
Philanthropic contributions are usually tax-free. They directly reduce the government's ability to engage in public spending. Perhaps the government should demand a role in charities' allocation of resources in exchange for the tax deduction. Or maybe the deduction should go altogether. Experts estimate that tax breaks motivate 25 percent to 30 percent of contributions.
Government public spending is a parasite that destroys wealth. Deductions are islands of freedom and instead of being happy that they exist, this editorial calls for the elimination of tax deductions. Unbelievable!
And the coup de grâce:
In any event, social needs, like those health clinics, are not about charity. They are a necessity. America needs a government that can and will pay for them.
"They are a necessity." How was this determined? There are, after all, people who might value entertainment higher than health clinics and would rather have subsidized entertainment over subsidized health care. Who determines what a necessity is? Who determines the quantity and quality of the products and services needed? And finally, how will the factors of production be chosen from possibly many alternatives? Some would say that democracy answers those questions. As I show above, however, democracy is not Pareto efficient. On the contrary, democracy and income redistribution guarantees that there will be winners and losers — exactly the opposite of the market.
Ultimately, this NYT editorial is at best confused, and evil at worst. What the author describes is not charity but redistribution of wealth under the guise of charity.
The horrifying attitude exemplified here and, sadly, almost everywhere else, contributes to poverty and disrupts economic growth. Stop believing this nonsense. Charity does not begin in Washington. Washington destroys it.
January 25, 2008
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