Easily my favorite thing about blogger Megan McArdle (the former Jane Galt) is her willingness to deal with economics questions in conversational terms, without often resorting to mathematics or theory. Often, it makes her look bad to the casual reader, but I generally find it to be extraordinarily daring. Politics is a realm where the ultimate sin is to say anything, true or false, in a manner which can be taken as offensive (paging Rep. Stark!).
Today, Ms. McArdle made a post about charity in response to a comment which Ezra Klein highlighted on his blog.
Interestingly, this is exactly the argument that was offered for why socialism would be better than capitalism. I don’t find it ridiculous; indeed, in 1935, I’m sure I’d have found it incredibly compelling. It took a genius like Friedrich Hayek (and ultimately, the collapse of the Soviet Union) to show why giant national solutions rarely outperform a competitive market.
The problem, it turns out, is that the central planners with the big picture have to design one-size-fits all programs that by their nature have more error built in because they don’t have good local information. Also, when the planners make mistakes, as they inevitably will, those mistakes are bigger. They are also harder to detect because again, the planners have a much poorer grade of information about what is happening on the ground than local players do. And because there’s no competition, there is no one to grade your performance against, and also, much less incentive to fix mistakes–particularly since those mistakes tend to generate constituencies devoted to protecting them. (See subsidies, farm.)
(You should follow the link to see the comment from Klein’s blog and the full response from McArdle)
But what Ms. McArdle fails to address is the question of inherent inefficiencies in the charity marketplace. Surely we are all rather familiar with this: the families of 9/11 victims all got richly compensated for their losses, while the families of soldiers or Katrina victims get compensated very little for their losses. Israel receives more private donations than the total need to eradicate African malaria.
So, why doesn’t charity perform at the same levels as a competitive market? What are the economic mechanisms that make charity an inefficient market (particularly in the sense of deviation from the mean – markets are at their highest efficiency when the rate of deviation is low)? Since this is a generally progressive community, I thought the responses would be interesting. It seems to me that on this score, Hayek is clearly generally correct (although if some intrepid soul wants to attempt to disprove Hayek, that would at least be a laugh). Yet, it also seems to me to be obvious that the charity market is a market failure in many ways. Of particular interest to me is the question of charity gaps: certain charities are of very high repute, and get funded well, such as Doctors Without Borders. Yet, despite the general willingness of Americans to pay for preventative health care of poorer Americans, no comparable organization of national reputation exists. I would theorize that charities emerge due largely to the inventiveness and dedication of their founders and leaders, and that high need causes lacking quality leadership in the charity market are bypassed. But, of course, I could easily be wrong.
What do you think?
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…I hope this question doesn’t bore the piss out of everyone. It seems to me that the case made by Hayek against central planning is excellent, but that the question of market inefficiency in charitable markets demands better answers than currently exist. I don’t think we’ll solve anything here, but we might at least have an interesting conversation.
Hayek just always left me cold…
As for the charity question, in a society such as the United States where the myth of individual accomplishment, where the “everybody” can be a millionaire or a President still persists, charity is heavily wrapped up in judgement.
I have only lived here for ten years or so, long enough to be a student of observation of the American psyche and I am still stunned by the degree to which Americans cling so deeply to their own myths and untruths. Let me be clear, I am not making an assessment about intellect here. I know a umber of very very bright people who believe everything they have ever accomplished is due solely to their own efforts and abilities. They never consider fate, or the support of others.
To me it would follow that the concept of charity is heavily embedded with notions about the deserving and undeserving as played against the back drop of a society that fetishizes the individual.
Sorry if this is all incoherent shirt.
With regard to health care…I’d argue that there is such an organization. It’s the US government in the form of medicare and medicaid, and to some degree the VA. When you get real sick and end up as an expensive liability in a competent American hospital that isn’t overloaded they will move heaven and earth to get a person on a poverty program, and in most cases they will get you the care you need. If you are middle class they will ruin you first, of course, and since the system is based on desperate need shoehorned into the relevant government rules and regulations, in a context the country can’t begin to discuss, some people will fall through and die. But — for all it’s faults — the charitable institution already exists. Trying to help it would be zero sum — it is written into law as the aid of last resort, and so it will just suck any money you give it and demand more…
Mileage varies…
I distrust the assumption that “markets are efficient” this reflects a fundamental lack of grounding in economics which I willingly submit to. I see that assumption as being partially mythical. Nobody will concede that they often “work” by accident and require massive intervention to function. We believe they work in modern capitalist societies because we want to. Yes, it is fair to call me an economic moron. I see market efficiencies playing out by faith in the same way some of us believe in horoscopes.
Here’s a video:
Jacqueline Novogratz on patient capitalism
… which I hope works (wasn’t from YouTube) featuring Jacqueline Novogratz, who worked in Africa trying to help small businesses there. She feels a mix of philanthropic and capitalistic efforts are necessary to help folks, as one or the other separately have inherent flaws.
From the site:
This is a remarkable video and a remarkable story, imo.
Pick any easy essay questions? My family is fed and clothed through allegiance to a socialist institution…..the U.S. military. Yet the service provided by this basically socialist setup institution serves a capitalist economy. I only have one answer to your question and that’s Dharma: ‘that which upholds or supports’ (from the root ‘Dhr’ – to hold), here referring to the order which makes the cosmos and the harmonious complexity of the natural world possible. Before blogging I spent a lot of time volunteering for different charity work concerning disabled children and I had another mom I learned tons from. She called Home Depot when they were building new stores all over the place and made her way to the right people and arranged for them fully pay for and install a playground for disabled children behind the facility where our children went for physical therapy. The owner of the facility declined the offer though because of all the tax difficulties it would bring….oh well but I was fascinated at what this “mother” had accomplished. Then we celebrated her birthday at the Golden Bee a few months later and George Lopez showed up after he had done a show. Pretty soon he was sitting at our table because the war had just started and both of our husband’s were in Iraq, he was showing his support. Then she starts talking to him about disabled kids and two months later a Fiji water box sloppily taped up arrived at my doorstep. I hadn’t a clue what was in it but when I opened it it was a bunch of T-shirts (one signed) and various other George Lopez items with a note to auction them off at the next local MD fundraiser. I don’t know what the answers are other than squeaky wheels seem to matter, many people care, we live in a nation in constant revolution and change and what a ride it is.