The Causes of Poverty (68): Rich People Not Giving Enough Money to Poor People

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causes of poverty / economics / poverty
An illustration of Andrew Carnegie, originally published on July 25, 1903

An illustration of Andrew Carnegie, originally published on July 25, 1903

(source)

You can criticize trade policy, immigration restrictions, bad governance or any other commonly cited cause of poverty, but you shouldn’t forget the obvious: there are a lot of wealthy people in the world who could, without losing much wellbeing (due to the diminishing marginal utility of money), help to lift every single poor person in the world to a much higher level of wellbeing.

The fact is that they could but don’t. We do have progressive taxation systems and other means of redistribution, we have development aid, we have charity etc., but none of these things yields enough money to lift everyone out of poverty. And there’s not enough public support to strengthen these redistribution mechanisms. Development aid is already unpopular at current levels, and don’t even start to talk about tax increases. The tireless efforts of Peter Singer and company to promote giving also have only a small effect.

Peter Singer

Peter Singer

The insufficiency of giving and other means of redistribution is hard to understand, in particular given the fact that rich people are generally not very dumb and able to understand the law of diminishing marginal utility. Of course, I know about loss aversion, the endowment effect, habit formation, the importance of status etc. But again, wealthy people should in general be the ones best able to overcome biases, to distinguish the important things in life from the unimportant, and to see how helping others can be beneficial to ourselves, both psychologically and socially (helping makes you feel good, and living a good life amid misery is socially untenable). But perhaps I’m wrong about rich people.

And then there’s something else stopping us from giving more (or allowing ourselves to be taxed more, which is roughly the same thing), namely the stories we tell ourselves. For example, you often hear that it’s better to allow people to look after themselves first, so that they can create the conditions in which they unintentionally help. Allowing entrepreneurs to get rich – i.e. not taxing them too heavily and not insisting that they should give their money away rather than invest it – will be much more beneficial to the poor. Many of the poor will get a job thanks to them, and their products and services will also make the lives of many a lot better.

However, this is not incompatible with giving. True, what you give you can’t invest, but we can allow people to delay their giving until the day that they don’t need to invest a lot more. The example of Bill Gates comes to mind. So we can accept that there is some truth to the story that free enterprise takes care of a lot of poverty, and at the same time insist that there should be more giving.

Bill Gates

Bill Gates

Another story we tell ourselves goes like this: giving people money isn’t a very good way of helping poor people. Many of them will just waste it, middle men will confiscate it, third world governments will misuse it, people will become to depend on it etc. Well, that doesn’t seem to be completely correct. Experiments with conditional cash transfers are very promising. And even if it’s correct to some extent, that’s just an argument to be smarter when giving money: invest it in businesses, healthcare etc.

And finally, there’s the story about agency: helping people is disrespecting them as self-authors and self-governing moral creatures. You may make them materially better off – at least in the short run because dependence on help may create motivational problems in the long run – but you take away their dignity and make them psychologically and morally worse off. People may not want to be helped, and even if they do it may not be in their best long term interest. The problem with this story is not that it’s false as such; it’s that people may not have a long term if we fail to help, and that starvation or homelessness is also an affront to dignity, and surely one that is a lot worse than receiving help.

More about giving is here. More posts in this series are here.

(image source, image source)

10 Comments

  1. Bob Wilson, Five Lamps, Thornaby. 1941-1961. says

    Your right, except for one thing: If you give $10 000 000 dollars to a registered charity only 14% reaches the poor who soon blow it in, if you give the same sum to the Government in taxes only 4% if that, reaches the poor, none of whom know about your generosity and if they did would curse you for being such as skinflint, So keep it in the family, give your family it, all of it, and start again, And before you die visit Montana or Wyoming, the rest is all tourist publicity.

  2. Speculative valuation of currencies and commodities are major cause of unfair price rise in Global Market and thus only benefiting inevitable bankrupts economy of USA ,and Europe and hurting well developing economy of
    China and India and other Developing Countries ,this all game plan is well design and Imposed either by blackmailing or bribe to corrupt leaders of developing countries
    2 . Now If We don’t stop unfair business and unfair profiting ,then we are developing more and more crops of dangerous and most violent groups ,thus will rise our more security expense (Unproductive expense)and thus in long term slow down whole global economy and this will be LONG TERM GLOBAL ECONOMIC SLOW DOWN
    Please watch this videos and judge your self causes of poverty in world
    Video no 1 https://www.youtube.com/watch?v=twTRq08QtaY&feature=youtube_gdata_player
    Video no 2 http://www.youtube.com/watch?v=KNIEb3injpc

  3. Bob Wilson, could you give the sources that support your statistics (14%, 4%) ? Here in Brazil, we have a huge govt program that gave around USD 50,00 every month to poor families since 2003. The only obligation of those families is to keep kids on school. After that, several studies discovered that children education level raised for those families, diseases decayed and local economy has grown drastically (because people had money to buy things). In 10 years, we took 20 million people from proverty. In fact, some economists said that Brazil was not very affected by the world economic crisis due to this incoming increase.

  4. Basic principle of communism is to distribute wealth. However, fundamental of religion is every one gets what he/she deserves based on individual work. What is the right solution for improvement of condition of every one in the world? The solution lies in providing opportunities to people to earn his/her bread and more. There is neither a need to share money with others nor donate to any one. Just provide opportunities to every one. Read it here: http://janahitwadi.blogspot.in/2011/02/brotherhood-universal-brotherhood.html

  5. Rapenzie says

    I agree that only a small part of charity or tax money goes to the poor but it’s still better than nothing. They could create a way so that most of the charity money goes to the poor.

    I talked with my father and brother about it a few months ago and we touched in an important part of this. People don’t think rich people should give more because they know that if they get rich, they have to give it too. People are greedy and we all know it too well. Hope it changes.

  6. Pingback: The Causes of Poverty (70): Rich People Not Giving Enough Money to Poor People, Ctd. | P.a.p.-Blog, Human Rights Etc.

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