The Virtues of American Philanthropy

One of the things I really like about Tyler Cowen is that he is one of the few economists I know who speaks positively about charitable giving. He even has a chapter about that in his new book, Discover Your Inner Economist. (Highly recommended!)

His latest post on the virtues of American philanthropy doesn't disappoint:

This fascinating article raises the question of whether charity is worthwhile and how charity -- "imposing" the desires of the rich on social priorities and wealth redistribution -- fits a theory of social justice. In particular, why should the charity of the wealthy receive such significant tax breaks or even be seen as morally legitimate? Henry Farrell adds much more.

I am a fan of the tax break for American philanthropy for several reasons:

1. Organized religion is the biggest beneficiary. Religious organizations help poor people, help shape a unique and vital American ethos, and encourage people to have more children. The demographic effects alone probably makes this self-financing. ($40 billion in foregone revenue is one estimate.)

2. The arts receive about five percent of U.S. charitable donations. I am more than willing to stomach this degree of anti-egalitarianism in the non-profit subsidy, and yes we do get more beauty for it. Furthermore the alternative of more direct government arts funding would not work out well in the relatively Puritan United States, even if you think it has worked well in Europe.

3. Philanthropy for higher education is a major reason for American strength. Note that American higher education a) benefits the entire world, and b) is a major reason why we are richer than Western Europe (wasn't there a recent NBER paper on measuring this effect?) The tax break is a politically acceptable way to subsidize elite intellectual activities -- which benefit virtually everyone -- yet without having government control those activities.

4. Allowing and encouraging people to give away their money causes them to work harder. Demonstration effects spread the power of this subsidy by creating social networks which favor philanthropy.

5. The general proliferation of non-profit institutions makes America a much more innovative and diverse place, intellectually and otherwise.

6. Relying so much on private philanthropy chips away at the dangerous attitude that there are clearly defined social priorities to which everyone must pay the same heed.

But do read the NYT article and Henry's post for very different perspectives.

Fostering a spirit of giving also makes for better neighbors, is good for the soul, and helps develop an active appreciation and sympathy for others. Not only that, but it feels good too.