pull down to refresh

I'm a Bill Bonner fan - I love his takes. He and some of his associates publish now on https://www.bonnerprivateresearch.com/.
Here's a thought-provoking excerpt from the book Family Fortune, by Bill Bonner. There's really nothing in here that I disagree with - it synchs up pretty well with what I've seen, first hand, in working AT charities/nonprofits (back when I was less cynical about them), and also what I've read about, and heard from other people.
More Harm Than Good
We began to doubt the merit of charity work many years ago. A friend of ours had volunteered to go to Nicaragua during the Sandinista years. He felt guilty about the way the U.S. government had reacted to the communist takeover of the country. He wanted to help out by building houses.
So he went to Nicaragua at his own expense. There, he enlisted in a brigade of foreign volunteer workers. They toted blocks and laid bricks, without pay, helping to build shelter for the Nicaraguan population.
“You wouldn’t think a country like that would have a shortage of labor,” we suggested. “What’s the going rate for a day laborer down there?”
“Oh, it’s about $2 a day.”
“Then, when you work a week down there, it’s the equivalent of a contribution of $10.”
“Yes, I guess it is.”
“What do you earn in the United States?”
“About $10 an hour.”
“Would they be better off if you worked in the United States for a week and sent them the $400 you earned?”
“Well, I guess so. . . .”
“Forty times better off.”
“Yes, but they’d probably use the money to buy weapons—after all, the United States is supplying rebels who are trying to kill them.”
Yes, dear reader, life was not set up in a way that accommodates the fantasies of world improvers. Instead, it is almost impossible for them to do any good—except by coincidence.
Don’t believe us? Think someone who gives money to the Red Cross or Save the Whales or to fix the cleft palates of poor people must be doing good?
Not so. How does anything have value? Things don’t have value in and of themselves. They are given value by willing buyers and sellers. If no one wants a Hula-Hoop, it has no value. None. It has value only when someone has a want or a need for it. Otherwise, it is worth zilch.
While there is obviously a demand for a Save the Whales group, signaling a value to the group itself, there is not necessarily any whale saving going on. Or even if there were, you wouldn’t have any way of knowing what it was worth. Whale saving is not subject to market pricing.
Imagine a do-gooder who thinks he can make the world a better place by giving people Hula-Hoops for free. What has he done? He has taken valuable resources and turned them into something for which people may have neither a use nor a desire. He has made the world poorer.
He has done bad.
You can know when something has value only when people want it. So why not give them something they want, like bread? Then, surely you will be doing good, right?
Wrong.
If you give away bread, what happens to the person who used to earn his living growing rice? Doesn’t the competition of free bread doom him to failure? Is that a good thing?
And where would you get the bread? You have to buy it, right? And as people switch from expensive rice and other cereals to free bread, you have to buy more and more of it. So you drive up the price of wheat and bring other farmers to switch from whatever they are doing to providing you with wheat so you can provide free bread.
Does the world have more food as a result of your generous offer? Not necessarily; producers have merely shifted from producing what people wanted—and were willing to pay for—to what you wanted. And since it is free to consumers, they take it up with both enthusiasm and contempt. Unless controls are put on, they are soon feeding it to their pigs so that they can enjoy some free bacon on their free bread. Feeding bread to pigs almost certainly makes the world a poorer place. Pigs can thrive on cheaper food. So you apply various systems of control to make sure your free bread program is not abused. You hire agents and controllers. You give out ration cards. You insist that recipients register and prove that they really need the bread.
This, of course, costs money, too. You are now replacing the market system, which needs none of these things, with a system of centralized, bureaucratic management. Instead of honest buyers and sellers, now your paid functionaries decide who gets bread and who doesn’t. These management systems divert further resources from actually providing food to paperwork and administration.
Soon, you will have lawyers and auditors on the case, too. And then you will eventually discover that every loaf of bread you distribute free costs you 10 times the previous cost of a loaf of bread. This means that you have destroyed resources equal to nine times the value of the loaf of bread itself in your effort to make the world a better place.
In fact, you have done bad.
The problem is simple enough. You can know if something has value only if it is allowed to trade in the free market, where willing buyers and sellers discover its value every day. Any attempt to give away something for free, or even subsidize it (to say nothing of controlling it in other ways) distorts the price. Now you don’t know whether you are paying too much or too little. You don’t know whether you are doing good or bad.
You think, for example, that the world is generating too much carbon dioxide. You subsidize a windmill. It generates electricity, but at twice the cost per kilowatt. Have you done good? What does it mean when you say “twice the cost”? Doesn’t it mean that you actually use twice the resources? And doesn’t that imply that you also use up twice as much energy? Someone had to make the steel to build your windmill. Someone had to put the parts on a truck to bring it to you. Someone had to drive out to install it and to service it. If the inputs cost twice as much as normal, you use twice as much energy to create it.
Prices, freely determined, are what tell you when something is worth doing and when it is not. They tell you how much both resources and energy cost.
Without freely set prices, you are wandering around in the dark. That is why so many charity efforts are hapless and vain. In fact, it wouldn’t surprise us to discover that all the world improvement projects from the beginning of time to the present were a net drag on man’s happiness.
It’s a hard thing to believe. The world’s smartest, richest, and most respected people are firmly behind charities. Bill Gates. Warren Buffett. Andrew Carnegie. The Rockefellers. How dare we contradict them?
Clearly, the burden of proof is on us. We gave you some of our reasoning already. Here is more:
Bill Gates and Warren Buffett are certainly geniuses. At least at making money. Wouldn’t it be asking a little much to expect them to be geniuses at getting rid of it, too? They know what it takes to make money—good ideas, properly managed, properly funded. It’s not easy. But if you do it right and get lucky, you add to the world’s wealth. More people get more of what they want. That’s what adding to the world’s wealth means.
If you are good at adding to the world’s wealth, you will accumulate a huge pile of capital as a result. This capital represents resources that could be put to use to add even more to the world’s wealth.
So what are you doing when you give them away? Resources pass from the hands of people who add to the world’s wealth to the hands of people who . . . who what? Nobody really knows. Presumably, they are people who mean well. Presumably, they do a good job at what they do.
But if they were adding to the world’s wealth, they wouldn’t need a handout. So, by definition, they are not adding to the world’s wealth. Are they adding to the world’s well-being? Who knows? Their output is not priced and not subject to the rules of a market economy. They are operating like the government, whose output may or may not be useful or beneficial, but almost certainly lowers the world’s wealth, rather than increases it.
There's a lot of merit in those arguments, but a few points can be added:
  1. Compared to what? A lot of charitable giving is tax exempt, which means it's reducing the resources of the state. However economically futile charity might be compared to free market equilibrium prices, it's a lot better than state action.
  2. The giver's utility matters too. If I like helping people, then giving them some more resources is a win-win. (This is a different "compared to what?")
  3. We're not at equilibrium. While prices do contain more information than anything else, they don't contain complete information. There might be situations where it would be more efficient for people to be producing different things than they are, but they're constrained for some artificial reason. Infusing resources into those places could potentially enable them to undertake the more efficient ventures.
reply
Your second point is interesting ("The giver's utility matters too".)
I didn't really think about that very much, EXCEPT in the sense that charity (as in "I'm selflessly doing this to help these people") is explicitly false. Because the donor is mostly giving it to help themselves - either through a better reputation, an interesting experience, or something similar.
Take for instance the situation which happens so frequently, which is that a large youth church group descends on an orphanage in a poor third world village, and paints it. The orphanage doesn't need painting. Painting is a low skill job, you don't need to import teenagers from first world countries in order to get it done. But the group gives a large donation to the orphanage, and the kids are able to claim this experience.
Do the kids get a lot out of the experience? Probably, yes. But it's based on a lie. The kids want to be able to say that they did some necessary work for orphans. But they didn't.
It would be more honest to call it a cultural or language exchange.
A really good book is Toxic Charity, by Robert Lupton. He's had decades of history, running charitable church organizations. Church organized charity is probably vastly more efficient than government run charity, but he believes that most of it is actually harmful.
He says "One-way giving is toxic. Reciprocal relationships build community."
reply
I don't disagree and this is the motivation behind the Effective Altruism movement, although my understanding is that they're struggling to live up to that name.
What I find lacking in the "charity is pointless/harmful" case is that it doesn't really give people with resources and a desire to help others any answers about what to do with their resources. As an economist, it's hard for me to believe that simply transferring purchasing power to poorer people is not going to improve their situation.
Now, I can certainly believe that there are more efficient ways to help them, like investing in profitable local industries. However, there's no reason to think that I, or any other non-specialist, have any talent for identifying those.
reply
Robert Lupton actually has another book on this very topic - Charity Detox: What Charity Would Look Like If We Cared About Results.
His main point is that instead of handouts, people should always be required to actually do something, to receive the charity.
For instance, instead of a food bank, have a food co-op, with subsidized products, but where people were required to actually do some work, in order to receive the benefits.
This whole idea was REALLY common until recently. It was rare for the poor to be given a complete handout. For instance, here's a quote from a book I read recently (context - a horse had just broken a leg, and had to be shot):
When the trench was dug deep enough, Father pushed the carcass into it, feet up, and covered it, tamping in the soil all around.
After that, when he had an indigent or a tramp to feed, he often told him to dig an hour or so on this trench, which finally extended to the full length of the lot.
reply
That's fine. I don't think there's one correct answer, though. Models like this help solve various incentive and information problems that come from trying to deliver aid at scale. Charity doesn't have to be mass delivered, though.
I'm thinking about Donor See, which Tom Woods talked about a few times. If I learn about some poor kid whose parents can't afford a pair of glasses and I want to buy them as a gift, I really don't need her parents to do chores in return. The important thing is the credibility of the program, because the kid's situation needs to actually be as described.
reply
I find it interesting that the two people in history that are regarded as examples of how to live, Jesus and Buddha, didn't really do things like organize charity activities. They wandered around and taught individuals about inner peace. Both also decided to not have money or focus on money. I think about this often. Not the fact that there are people that do these things, this is a bit to be expected. But the fact these two individuals are looked at by a large part of the world as being as close to perfect as one can be.
reply