Saturday, October 21, 2006

Is it really just all about ME?

Is philanthropy really just selfishness? Tim Hartford writes about the "generosity" of Americans, who donate nearly 2 percent of total national income to philanthropic causes. This is twice as much as the British give away and fifteen times as much as the Germans give away.

But, Tim says, another way to look at this is that Americans are "98 percent selfish." Worse, he says that much giving is motivated by personal concerns for status or vanity.

Tim refers to an ongoing debate on Tyler Cowen's blog about whether it makes the most sense to give all one's money to a single cause or project, or whether it is better to spread the money around. He concludes that if people were really altruistic that they would give all their money to the single thing they think would have the highest impact. Since people don't act this way, they are therefore acting on other motives, he says.

Tim's conclusion on this front demonstrates just how far economics has not come in the last 20 years since I was in grad school. Back then, we were required to apply standard approaches to what economists call "utility" to come up with exam answers that plainly contradicted the way the world worked.

Despite many years of research costing many millions of dollars, no one has been able to figure out how to rank the impact of better education versus better health versus better roads versus better jobs. Which of these has higher value? The answer is, it depends. It depends on the place, it depends on the time, it depends on the circumstances, and it depends on the preferences of the individual people involved. The best outcome is one in which those preferences can be clearly described and efficiently pursued by both the beneficiaries and the funders.

Nonetheless, Tim's article does raise a much deeper philosophical debate. Why do - and should - people give away money? My view is that a very small number of people give money for purely altruistic reasons in a manner that makes them feel bad. It is true that some people give money out of guilt or because they are told to do it, against their will, by some higher authority.

But most people give because it makes them feel good on some level. I personally give money to good projects because it feels good to contribute something to a project that uses my money effectively to help other people. If that is "selfish," then so be it - I am proud of being selfish in this sense.

So altruism and selfishness are not mutually exclusive. And the two together, when practiced on a large scale by a large number of people, can power major social, economic, and environmental benefits.

Barry Gaberman gave a talk a couple of years back where he argued that all of the small givers in the US, when aggregated, undoubtedly have a greater impact than the large foundations everyone talks about. This was a pretty strong statement coming from the #2 at one of the largest of those institutions (the Ford Foundation).

This is why GlobalGiving exists - to provide a transparent, efficient way for donors of all sizes to choose the projects they think will have the highest impact in a variety of different ways.

[Update 10/28/06: To be fair, both Tim and Tyler are excellent economists and all around smart guys whose writings and opinionsi I respect highly and are worth listening to. The purpose of this post was only to demonstrate how (a) newspaper columns can require people to condense arguments to such a degree that they involve major leaps of faith (or at least logic) on the part of the readers, and (b) the degree to which economists and those from other disciplines will strain to make reality fit their standard models, rather than revising their models to fit reality, which is naturally much harder.]