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A common justification for government confiscation of privately produced wealth is that many of us are selfish free-riders. To take one example, let’s think of the charity market. Under one view of charity, the one I espouse, is that charitable activities should remain purely in the private domain. If private individuals wish to contribute to the well being of others, then let them choose to do it or not to do it.

If you think private charity is an absurd idea, I’d remind you that many of the largest and most influential charities that exist in the U.S. arose in the 19th century, and their existence was not due to some elaborate way for the wealthy to avoid income taxes – there were no income taxes in the 19th century. David Beito’s From Mutual Aid to the Welfare State is an excellent history of this, so I will not recount it here. The point being that charitable activity existed long before the state got involved, and that as people got richer, the amount they contributed to charities increased in lock-step.

Fast forward to today, where lots of what was formerly done by private charities has now been taken over by the government sector – welfare, health care, and so forth (and despite this, Americans still rank as the most charitable people in the world). The theoretical underpinnings for government run “charity” is that government is the only way to overcome the “free rider” problem. The “problem” is that when a charitable case is taken care of, the benefits accrue not just to the person making the donation, but also to the people that might have made donations – and non-donors cannot be excluded from enjoying those benefits. For example, if my neighbor Lisa donates money to a food bank, many hungry people will be fed. And I, who likes the idea of hungry people being fed, get to enjoy the benefits. So, I will “free-ride” off the charitable tendencies of my neighbors. If enough neighbors feel the same way as I do, then lots more people will go hungry. As a result, government sweeps in to save the day by taxing ALL of us, and then sending those proceeds to the charities that we would have given to were it not for our behavioral failures.

This justification is absurd on two counts. The first (and unfortunately not obvious to many people) is that government welfare, health care, etc. is not charity. Charity cannot be compelled to be given at the point of a gun. Charity is only charitable when freely chosen – that is what makes it charity. If I am walking down the street and a mugger holds me up, but then takes my wallet and gives it to the destitute man on the corner that is not charity – that is theft (unless of course the person being mugged was in fact the thief in the first place). As David Henderson likes to point out – when Ebeneezer Scrooge is visited by the ghost of Christmas present and sees that unless he changes his ways he is going to have a very empty funeral he does not wake up the following day and rejoice, “then I shall pay higher taxes!” He wakes up and rejoices because he mentally frees himself to choose to be more charitable. I just don’t see how stealing thousands of dollars from people like me. Second, the “free-riding” case while making for many nice textbook problems in an economics class or politics class, is perhaps not as severe a problem in many environments as people claim it to be.Many non-coercive arrangements have been made and are possible to discourage free-riding. Social shunning is one of them, religious tradition is another, signaling theory is yet another, and so forth. And as I mentioned above, the record of charitable giving absent government does not exactly coincide with the story Progressive statists like to indulge themselves in.

I know I said I’d point to two reasons, but a third reason that this “free-rider” argument is absurd is that virtually none of the money that is stolen from me is being used toward charitable ends. I paid roughly $25,000 in taxes in 2009. How many of those dollars ended up in the hands of the charitable causes that I was “free-riding” off of other people’s efforts on? My preferred charities would be those that protect open space (privately) and those that improve youngsters’ ability to master the three Rs (our schools certainly do not do that) and perhaps a few other causes that are important to me. How many of my $25,000 are being dedicated to the things that I would have donated to were it not for my selfish free-riding tendencies? Not much. My bet is that if I had my $25,000 back, a lot more of it would end up in the hands of worthy charities than occurs now (and not all via the medium of charitable donations either – maybe I’d save that money as a downpayment to getting a productive business off the ground, which would employ lots of people).

There is an interesting behavioral economics issue that arises in this area. How are we to think about the problem of charity if the reason people give to charity has nothing at all to do with an interest in the charity per se? That will be the topic of a future post.

One Response to “Dimming the Warm Glow”

  1. snowman says:

    Wish I read this before we went over the free-rider problem in my public finance class….

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