A pretty penny saved is a pretty penny earned

On Marginal Revolution, Tyler Cowen linked to this page with pictures of some extravagant public libraries.

While these libraries are beautiful, I think they also demonstrate the careless spending that takes place when bureaucrats get a hold of other people’s money.

It reminds me of this post of mine where I eventually get around to suggesting that if libraries were not paid for by third parties through tax dollars and donations, we would likely still have libraries, but they’d look less like jobs programs for architects and artists and more like Blockbuster, Netflix and Redbox.

I’m sure all of these libraries have fans who can’t imagine the world without them, but it’s easy to treasure something that you didn’t pay for directly.  If these folks were asked to cover the cost of the library, few would.

“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.