Recent forum topics have spoken about what giving to others should involve, and mentioned the government, etc. What I’ve thought for a while is that we sometimes miss the point when discussing these sorts of things, and often accepted ideas of charity are actually not all that useful for really helping people. So this post is about how I see the role of government, taxes and private giving fitting together. There aren’t many new ideas for what we should be doing, but maybe someone will find it interesting anyway. It’s also my opinion, so other opinions welcome!
Firstly, what is wealth/poverty? With the exception of retirement investments, simply having some money is a very poor measure of wealth. Rather, what matters is how much one earns. Very few people have more than a few months worth of income saved, and indeed most people are in debt for houses, cars, etc. In fact, the reason that they are able to have houses is not because they have money now, but because they are earning enough to have convinced a bank that they willl repay the loan. Many new businesses are also financed largely on loans, again because of the earning capabilities of those businesses. This is the economic background to the “give a man a fish vs teach him to fish” argument. Merely giving someone money will help in the short term (which can be crucial), but that person is still poor as they still earn little regular income. Someone can only really be said to have escaped poverty if he/she has a regular income, that can be documented and so used for loans, retirement saving, etc.
Given, then, that wealth is measured by the flow of money, rather than the absolute posession of it, it follows that wealth and poverty is NOT a zero-sum game — that is, one person being very wealthy does not in any way imply that there are other people who are poor as a result of that person “having all the money”. That is why the “wealth” of a country is measured not in how much money it has, but in its Gross Domestic Product — basically, how much all the people and businesses earn in a year. If GDP increases, the people in a country are getting, on average, wealthier, as a result of money flowing more around the economy. There is really no limit to this process (other than perhaps natural resources, though that is not a limiting factor either given new technology). Thus the existence of large disparities in income in a country is bad not because the rich people have become wealthy at the expense of the poor people, but because the process of building wealth has not been able to build it more uniformly. (As an aside, while GDP can grow rapidly, there is a limit to it, because it takes time for businesses to establish themselves before they start really buying goods. Thus if there is high unemployment, it is impossible for everyone to simply go and get a job. In South Africa, while some people might be “lazy”, the vast majority are simply unable to find work, because the economy doens’t provide enough jobs).
Capitalism, as a system, is the best way we have of developing a vibrant economy. Crucial inventions like the company, credit, and the laws that go with it have allowed large chunks of the human population to become far more wealthy than ever before in history. There is a tendency for wealth to “trickle down”, as high earners spend lots, creating jobs making goods and services for them, and so enriching others too. But that’s a slow and not always reliable process, and so one that is now helped by government action, and private charity work.
The government has three major functions when it comes to creating wealth. Firstly, it creates a societal infrastructure that allows people and businesses to survive and prosper, by making and enforcing laws, regulating all sorts of things, ensuring that the provision of education happens, building infrastructure such as roads, and making sure that amenities like electricity, water, food, railroads, ports and so on are all available.
Secondly, it acts to stimulate the economy, by (in South Africa’s case) running parastatals like ISCOR, and all spending on public works projects. Public spending can be quite effective, because each company that gets government money then buys things from other companies, and so on — I’ve seen figures that quoted a multiplier of around 3.5, that is each government stimulus Rand causes a GDP growth of 3.5 Rand. Of course, the government can’t do it all the time, else debt rises too high, and one gets inflation.
Thirdly, and most interesting for us, the government works to reduce inequity in society. Taxes are, in priniciple at least, designed to tax wealthy people a lot more than poor people. Thereafter, the government spends a lot on services for the poor; in things like housing, pensions, subsidised education, etc. Of course it’s not always very efficient at these sorts of things, because running large organisations eats lots of money in, well, organisation.
Thus our taxes serve some very useful functions. They aren’t lost to the economy at all; but more importantly they ensure that the country and economy can function (where would we be without laws, roads, etc. etc.), and they also help the poor as well as the wealthy.
Is reducing inequity a good aim, even if (as it sometimes does), it reduces efficiency in the economy? Yes, not because wealthy people have, by being wealthy, impoverished others; but because the vast majority of poor people are poor simply because of the size of the economy. The unfairness of disadvantage resulting from factors that the people concerned can’t control is, I think, morally inescapable.
So where does personal charity/giving fit in them, after taxes? Well, it is still vital, for a number of reasons. Firstly, it is difficult for the government to tax enough to really solve the poverty problem, because it is too damaging to international competitiveness. Investors too easily see interfering governments as bad (as they often are), and foreign investment is a great way of getting new wealth, essentially for free. So the country is much better off if people give voluntarily — also because the effectiveness of that money is higher, because it’s not dragged into bureaucracy. Secondly, the government misses vital causes, for instance the funding problems as a result of the lottery (which, by the way, is a terrible idea). Thirdly, it’s good for society, because it creates links between people and gets rid of misconceptions (which will, in turn, lead to more such giving). Lastly, I also think it’s good for the giver — money can become very addictive, which is not good for one. This is a great way to re-assert control!
So, what is the take-home message from this extended ramble? When deciding what to give money too, by all means alleviate immediate problems, but remember that only creating sustainable income is really alleviating poverty. If you are wealthy, you aren’t denying others by being wealthy, but you do have a moral responsibility to help create that state in others. Taxes do help the poor, but they also help you and don’t help the poor enough. So go out, and do something good, but make sure it’s smart too!
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