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The Thorny Questions Raised by Charitable Giving

The last week of the year is a big one for writing checks to charities, especially for Americans who are fortunate enough to have incomes high enough to justify itemizing their deductions. There’s something bewildering about the ritual, though. On what basis do we decide who should get our money? And how much should each receive? Normally we feel good about spending as little as possible on things, but with charitable giving, we tend to think of more as better.

I began thinking about this after I received an email from a psychology professor, Benjamin Beit-Hallahmi, criticizing what he called “the capitalist system of charities in the U.S.A.” He wrote that charities are “competing to the death for the same 50 cents.”

“Thus,” he went on, “hundreds of organizations fight hunger locally and nationally. When it comes to illnesses, there are thousands of organizations competing. This means a terrible waste of resources.” He recommended that I look at Germany, where the government performs functions that charities perform in the United States.

My psychologist friend has a point about the waste of resources, I think, as I chuck another stack of fund-raising pitches into the recycling bin. (When I spy a nickel or a quarter through the glassine window, I take that out first, with zero guilt pangs.)

Sorting out the proper roles of government and philanthropy is one important question but not the only one. Should you give locally or globally? Then there’s the old question of whether it’s better to give a fish or teach a person how to fish. That is, to help the needy directly or to try to change the world. Changing the world seems like the way to go, but what if your would-be pupil is starving and there are no fish nearby?

I’ll add one last question in the holiday spirit. You’ve been told that ’tis better to give than to receive? Well, ’tis true: Research shows that people are happier and communities are more resilient when neighbors look out for one another. But more and more, philanthropy is coming to depend on the ultrawealthy. Can that possibly be good?

When Bernie Sanders was the mayor of Burlington, Vt., in 1981, he shocked a meeting of the Chittenden County United Way by saying, “I don’t believe in charities,” arguing that government should be responsible for providing social services. The Times reported that he brought “a shocked silence to a packed hotel banquet room.”

Sanders’s opposite might be John Stossel, the libertarian commentator, who argued two years ago that charity is better than government. “Charities are free to help people who truly need help while giving a push to people who need ‘a kick in the butt.’ Government’s one-size-fits-all rules discourage that.”

Most people come down between those extremes. Howard Husock, a senior fellow at the American Enterprise Institute, told me: “There are some things that government is really good at, and it should do those things. It’s really good at writing checks for Social Security. It’s pretty good at Medicare and Medicaid.” In contrast, he said: “Government is not as good at what you would call hands-on social services to uplift people in need. Local social service organizations that have local boards and more direct accountability are more likely to intervene effectively.”

At Beit-Hallahmi’s suggestion, I looked at Germany, which has a bigger public sector than the United States and consequently higher taxes. I interviewed Rupert Graf Strachwitz, the director of the Berlin-based Maecenata Institute for Philanthropy and Civil Society. He said: “People rely on the state much more here. It’s deep-rooted. If they’re in need of anything, they look to the state, even though it is not functioning well lately.”

Even if that system works well for Germany — which isn’t entirely clear — it could not simply be grafted onto the American body politic.

Sam Bankman-Fried will be on many people’s minds this year as they write checks. The erstwhile crypto billionaire is a leading proponent of effective altruism, which is laudable in theory but has been a bit weird at times in practice. The Effective Altruism website says that “by thinking carefully about the best ways to help, we can do far more to tackle the world’s biggest problems.” That’s fine. The weird part is what some effective altruists regard as the world’s biggest problems.

A particular focus for some effective altruists is preventing a hostile artificial intelligence from extinguishing the human race. The argument seems to be that A.I. is a much bigger threat because it could kill all of us, whereas war or disease would likely leave some people alive to repopulate the planet, benefiting unborn future generations. “There could be many more people having great lives in the future than there are people alive today, and we should have some concern for their interests,” argues the website 80,000 Hours. That’s logical as a matter of philosophy but ice-cold compared with, say, donating unwrapped toys to a homeless shelter.

The problem is that the priorities for philanthropy are set by the people with the money — libertarians from Silicon Valley, crypto dudes, financiers and so on. Fund-raisers have increasingly focused their attention on these ultrarich people because they give the most money per hour the fund-raisers spend on their jobs. Other people’s preferences are relatively neglected. A study in 2007 by the Center for Philanthropy at Indiana University found that people with incomes of $1 million and more directed only 3.8 percent of their giving to basic needs of the poor, while people making $100,000 to $200,000 gave 12.4 percent to meet those needs.

“Is giving becoming a thing of the rich?” asked Josh Birkholz, the chair of the Giving USA Foundation. The share of households that give fell from 66 percent in 2000 to 50 percent in 2018, according to the Philanthropy Panel Study.

One factor in the decrease is the growth of inequality, which makes foraging for gifts among the wealthy more cost-effective. “Fund-raisers will tell you the single most important reason people give is they’re asked,” said Leslie Lenkowsky, a professor emeritus at Indiana University. Lenkowsky also cited the decline in religiosity, since churches and other religious institutions have long been a nexus for giving. The increase in the standard deduction in the Tax Cuts and Jobs Act of 2017 didn’t help, either, since it took away the tax incentive for millions of middle-class American to make donations.

This is, frankly, bad for society. Not only the recipients who get less but also the rest of us who give less. “We are ingrained to help others, whether we’re holding the door for someone, jumping in the water to save someone or writing a check,” Daniel Mansoor, the president of GoodWorks Group in Cleveland, a consultant to nonprofits, wrote in an email. When we don’t do that so much, we become poorer in spirit.

The last person I interviewed was Jane Wales, a chair of the Generosity Commission, a project of the Giving USA Foundation that has a goal of getting more Americans to donate and volunteer their time. The commission is conducting surveys and focus groups to find out the obstacles that are holding people back from giving and volunteering. It’s aiming to share its findings in reports to businesses, policymakers and foundations in September.

Wales said that a preliminary finding is that “the single biggest barrier is the sense that you can’t make a difference.” The question, she said, is, “How do you overcome that?” It’s, of course, true that an everyday giver can’t possibly match the impact of a Bill Gates or a Sergey Brin or a Mackenzie Scott. But ordinary Americans can ladle soup as easily as a billionaire can. “What worries me more is that there are fewer volunteers,” Wales said. “If average Americans feel they can’t make a difference in their own actions, what does that mean for democracy?”

I’d summarize it this way: You can make a difference. Your money and your time are needed. And the biggest beneficiary of your giving may be your own soul.


Outlook: Gurleen Chadha

Consumer sentiment in the United States rebounded in December, but “the winter boost might be reversed in the coming months,” Gurleen Chadha, a U.S. economist at Oxford Economics, wrote in a client note on Friday. The December reading for the University of Michigan’s consumer sentiment index was 59.7, up from 56.8 in November, though still well below its level of 70.6 a year ago. Chadha wrote that falling energy prices, rising stock prices and labor market stability helped sentiment, but rising interest rates, elevated inflation and economic uncertainty could depress it. “Additionally,” she wrote, “the correlation between changes in monthly consumer sentiment and real consumer spending is low, so the near-term implications for the economy may be limited.”


Quote of the Day

“Man, as I have hinted before, naturally loves to imitate what he sees others do, which is the reason that savage People all do the same thing: This hinders them from meliorating their condition, though they are always wishing for it: But if one will wholly apply himself to the making of bows and arrows, whilst another provides food, a third builds huts, a fourth makes garments and a fifth utensils, they not only become useful to one another, but the callings and employments themselves will in the same number of years receive much greater improvements than if all had been promiscuously follow’d by every one of the five ….”

— Bernard Mandeville, “The Fable of the Bees: Part II” (1729)

In last Wednesday’s edition of this newsletter, I wrote that Arturo Estrella and Gikas Hardouvelis were the first to establish that an inversion of the yield curve predicted recessions. Campbell Harvey of Duke University’s Fuqua School of Business produced similar results around the same time. (There’s a long-running disagreement about who was first, which I won’t attempt to adjudicate.)

There will be no newsletter on Wednesday.


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