Better than charity

I agree (2nd to last paragraph), somewhat, with Google founder Larry Page: Give money to capitalists instead of charity (via Carpe Diem).

Where I disagree is that you don’t need to give them money. Rather, invest in them. Invest in entrepreneurship. Maybe get kids diddling less time away chasing college scholarships to play sports heavily subsidized by taxpayers and more time creating stuff of value.

Here’s more from me and Richard Branson on the subject.

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Warren Buffett just doesn’t get it

Last summer, Warren Buffett wrote an op-ed piece supporting higher taxes on the rich to reduce the deficit.

Warren Buffett speaking to a group of students...

He's Bluffing

Many, including myself and Mitch McConnell, suggested that Warren put his money where his mouth is and make a voluntary contribution to the U.S. Treasury, since he thought so strongly that would help reduce the deficit.

Apparently, in response to our suggestions, Buffett is offering to match any contributions made by Republicans.  He’ll even match 3-to-1 anything contributed by Mitch McConnell.

The only problem is, it makes no sense.

Republicans, and others, who suggested that Buffett make a voluntary donation don’t believe that sending more money to Washington will reduce the deficit.

To believe otherwise ignores the well established record of government spending everything we send them and then some, which is documented by our government’s accumulated national debt and annual deficits.

When I suggested that Buffett make a voluntary donation, I was calling his bluff.  I don’t think Buffett really believes that giving more money to the government will reduce the deficit.

This would be like if I told you that I was 100% certain about the Broncos winning the Super Bowl.

You ask:   If you’re so sure, why don’t you place a big bet on it and make a lot of money?

Me, in my best Buffett impression:  I’ll match anything that you bet.

You:  Why would I bet anything?  I’m not the one who’s 100% confident.  You’re dumb!

Regarding Buffett, our whole point is that if Buffett truly believed his own nonsense, he would put his money where his mouth is.

In fact, he has quite an established record of putting his money where his mouth is.

That’s how he made his billions, by placing BIG bets on investments that he was reasonably confident would pay off.

That’s also what he has done with his philanthropy.  He decided to donate his wealth to charity and to have it spent relatively quickly so that it won’t just feed generations of charity foundation bureaucrats to come.

He is also trying to persuade other billionaires to voluntarily follow his philanthropic model.

So, given his established record of putting his money where his mouth is, why, when it comes to supporting getting more from the wealthy individuals, is his talk so cheap?

“Giving back”

Syracuse University's Carnegie Library. Taken ...

Carnegie Library at Syracuse University

This post from Don Boudreaux and this opinion piece from Daniel Henninger at the Wall Street Journal are about  “giving back” to the community.

Boudreaux takes exception to the use of the phrase after receiving a promo piece from Ritz-Carlton touting their “giving back” to the community activities.

Please, though, unless your profits are the product of dishonest deals or theft, please drop the rhetoric of “giving back.”  This sort of talk implies that you possess something that isn’t rightfully yours.

Henninger defends against the idea that the government must act as the intermediary of “giving back” by pointing out that voluntary philanthropy seems to be working well:

Since the Pilgrims, no nation has seen more wealth flow back from those who earned it into the welfare of the nation they inhabit.

Andrew Carnegie alone built more than 1,600 libraries in the U.S. Today, according to Internal Revenue Service data, there are some 110,000 grant-making private foundations in the U.S. Beyond the foundations bearing the names of famously undertaxed plutocrats such as Warren Buffet and Bill Gates there are another hundred thousand or so, often run by modestly wealthy families whose foundations support a vast array of needs—scholarships, schools, hospitals, cultural institutions and even causes across the political spectrum, no doubt including windmills.

Great points.  But I think there’s a more important point that we overlook when thinking about “giving back”.

Before business owners donate a dime to charity they have already “given back” a great deal just by the mere existence of their business.

First, they’ve given back in the form of the value they create for customers who voluntarily pay for the business’s product or service.  It’s this value that differentiates us from our cave dwelling ancestors, gives us the standard of living we enjoy, enables government to exist and generates the wealth that can be donated to charity.  And that is not well understood by most people.

Many people seem to view businesses as criminal-like organizations designed to exploit customers, even though most of these same people take delight and comfort in many of the products these enterprises make available to them.  This has to be some sort of paradox or dissonance.

Second, businesses have “given back” in the form of the gainful employment they’ve provided to the employees of the business.

Because of the value of the products and services and the jobs it provides, I contend that owning and operating a successful business often does more good for the community than a charity and is the source of what allows us to donate to charity.

Even wealthy folks don’t seem to grasp this.  Once they earn their wealth, they often create charitable foundations to “give back”.  I don’t begrudge them of their right to do this.  But, I wonder if they consider whether that’s the best use of their wealth.

Henninger cites Andrew Carnegie for building 1,600 libraries.  I love libraries and I think they add tremendous value to a community.

But, we ignore opportunity cost and we don’t ask what would we have if Carnegie didn’t build a library for us?  Would we have nothing?  I don’t think so.

Donations were not used to open thousands of Blockbuster video stores across the nation, which is essentially a for-fee library.  Donations were not needed for Netflix and RedBox to find better ways to lend videos.

We might have something very different without Carnegie’s libraries, but I believe we would have something.  Without Carnegie, libraries might look more like Blockbuster than the august buildings we have now (see picture).  But, is that really so bad? Do we like libraries because of their grand buildings or because they give us access to a wide range of books, periodicals and reference materials?  My local library is not in an extravagant building and that doesn’t stop me from using it.

Rather than over build beautiful free libraries, perhaps Carnegie could have paid for the less fortunate to use Blockbuster-like fee libraries that may have emerged.  He could have invested in for-fee libraries and built an organization that could be sustained by its users rather than third party funding sources.

Which brings us back to opportunity cost.  Was there a more effective way for Carnegie to use his money?

I would argue yes.  We’ll never know how much better off and how many more jobs we would have now had Carnegie decided to invest and grow more businesses instead of building libraries that might have been built anyway.

The same goes for many of the other wealthy who are “giving back”.  They may find creative and effective ways of donating that will produce great value.  But, all I ask is that they consider that, for some, the best thing they may be able to do is to reinvest and teach others how to carry on their efforts.

Private Solutions: Getting Off Your Duff

Some folks advocate for government solutions when they see something that just “ain’t right” and “we ought to do something about it.”  There’s a few directions the discussion can take from here.

One direction:  If I agree that whatever it is “ain’t right”, I tell them so and suggest that what we ought to get off our duffs and take voluntary action to solve the problem, rather than force everyone else to do it through government.

I appreciate it when I see good examples of people getting off their duffs.  Here’s one good example of a morning radio show that does just that: The Johnny Dare Morning Show Hope for the Holidays.

People experiencing hard times write to the show and get on the air to discuss their bad situation and describe what could help make their Christmas better.  That typically involves getting presents for the kids and keeping the lights on.  The requests are usually relatively modest.  Within seconds callers donate cash and gift cards to help out.

Everyone’s involvement in the process is voluntary and they all benefit from it.  That’s good.  My only suggestion that I think could make this even better is if Dave Ramsey got involved and gave out a reduced tuition to his Financial Peace University for some of these folks.

This post will start a new category that I plan to continue in the future, featuring private solutions.  That’s a blind spot I’ve noticed with the folks who advocate government carry out their philanthropic wishes, they have a hard time recognizing the private solutions that are working or they under appreciate the effectiveness and magnitude of these solutions.