Will donations create jobs?

I picked up the brochure on Starbucks new job creation donation project.

The brochure explains that donations will be used to give grants to community development organizations that loan money to community oriented businesses.  For a $5 donation, a community development organization can lend $35 to a business.  And you get a bracelet that says “Indivisible”.


The project sounds great.

It took me a little bit to figure out the logical flaw.

But, it occurred to me that this is a version of the Broken Window Fallacy.

It took me a little bit to recognize it since there is no destruction (breaking of windows) here.  But the Broken Window Fallacy isn’t about breaking windows.  The fallacy lies in not considering what would have happened anyway.

What would have happened if I spent the $5 on something else, like more coffee beans? How many jobs would have been created from that?

Probably about the same, or more, as what’s created from the $5 donation.

Starbucks’ efforts isn’t really about creating jobs.  Starbucks’ efforts are about creating seen jobs so it can tell you stories about them to make you feel like you are doing something good.  Their efforts ignore that you are doing just as good by spending or otherwise investing that $5, but the problem is that good is unseen and harder to tell a story about.

So, technically, yes, donations will create jobs.  It’s just not clear if they create any more jobs than if the money been used for something else.

5 thoughts on “Will donations create jobs?

  1. So what do you think would happen if taxpayers were allowed to directly allocate their taxes? Meaning…at anytime throughout the year you could go to the Environmental Protection Agency website and submit a payment. They would give you a receipt and you would submit your receipts to the IRS by April 15.

    Forcing taxpayers to consider the opportunity costs of their tax allocation decisions is the only way to guarantee the best possible use of public funds. Yay or nay?

  2. It relates to your post because the government, kinda like Star Bucks, wants to use our money to create jobs…ie Obama’s Jobs Bill.

    “So, technically, yes, [taxes] will create jobs. It’s just not clear if they create any more jobs than if the money [had] been used for something else.”

    You question the opportunity cost of a donation to Star Bucks but then have trouble seeing how my comment on questioning the opportunity costs of your taxes is relevant.

    I figured that if you’re concerned with getting the most bang for your buck with $5 that you’d probably be concerned with getting the most bang for your buck with your taxes. The only way for our taxes to provide the maximum benefit for our country as a whole is when each and ever taxpayer does with their taxes what you did with your $5.

    I was just curious if you would agree to the same line of thinking when it was applied to taxes. Personally, I do…but I’m always interested in hearing possible objections.

    • Thanks. That helps.

      I agree that taxation and gov’t spending lead to less productive — though more easily detected — outcomes than private spending that is analogous to the Starbucks job creation program. There’s two principles at play. The broken window fallacy and the converting spending from Milton Friedman’s Type I (how carefully I spend my money on me) to Type IV spending (how carefully others spend others money on other people).

      I think it would be interesting to see how taxpayers would allocate their taxes if given a choice. Though still not ideal, it would give us a better idea for what people truly value. Of course, they would want a say not only on how they allocate their taxes, but on how the rich allocate their’s as well — which seems to be the primary purpose of gov’t these days.

      Thanks for the comment and sorry about not getting it right away.

  3. No worries. I’m familiar with the concept of “other people’s money” but didn’t know that Friedman discussed it. Would you happen to know exactly where he discussed it? I’m sure I’ll bring it up in future discussions with others and generally like being able to link people directly to the source. Oh, never mind…found the video…and also found your blog entry on Keynesian economics. That’s the exact same point that I’m making…but I also expand it to include how our taxes are spent.

    If you get a chance here are a few questions which might help you better evaluate this approach… http://pragmatarianism.blogspot.com/2011/11/pragmatarian-questions.html


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