Monday, April 11, 2011

Private charity could never replace government anti-poverty programs

Now and then a conservative will say that if only the government would give us back our tax money we could care for the poor more efficiently than it could. Christians, specifically, point out that biblical commands to care for the poor are given to individuals, not governments. (I believe that statement is wrong in several ways, but that's not my concern in this post.) I think this idea can be soundly dismissed by looking at what we actually do with our charitable donations.

A Center on Philanthropy study determined that 30% ($77.3 billion of the total $252.6 billion) of our charitable donations go to meet the needs of the poor. Here is how it breaks out by charity type:


The study broke out all giving into the categories you see in the chart. Then it determined what portion of each category was directed toward the poor. All giving in the "helps meet basic needs" category was focused on the poor. The researchers were unable to determine what percentage of giving to the arts was focused on the poor. The rest of the categories ranged from 18% to 25%.

So when we have money to give to charity we give it for the benefit of the poor 30% of the time. How do we direct most of our charitable giving? If you make $200,000 or less per year, which is 97.8% of the population, it is overwhelmingly to religious operations. If you make over $200,000, it is split more evenly between arts, education, health, and religious operations.


Some more facts. Medicaid spending in 2009 amounted to $373.9 billion. Spending on various safety net programs (EIC tax credit, cash payments like SSI and unemployment insurance, in-kind assistance like food stamps and housing, child-care, and energy assistance, etc.) totaled $482 billion in 2010. This gives us a total of $855.9 billion, or 6.5% of GDP. Charitable contributions have averaged 2% of GDP since the 1990s (figure from the CoP study). This means that in order to cover the costs of Medicaid and the various safety net programs charitable giving would have to increase fourfold to 8.5% of GDP, assuming we redirect 100% of our tax savings into private organizations that perform equivalent services.

Do you think that is likely - especially given that we only direct 30% of our charitable giving to the poor? This also does not take into account the losses through administrative costs that would result from moving from government programs with strong buying and organizational power into multiple private organizations. There's just no way. Claiming that it would work is utopian in the extreme, which is odd since conservatives are supposed to be the anti-utopians.

If the argument based on human nature doesn't convince you then how about one from history? In 2006 Obama proposed some changes to the allowable deductions for charitable giving. In response, the Center on Philanthropy released a study examining the effect the change in tax policy could have on giving. They determined that changes in the overall economy and/or in personal income had a greater effect on levels of charitable giving than did changes in tax rates (which, presumably, would be what would change if the federal government dropped Medicaid and the safety net programs).

When you give people money back through tax cuts they will spend it in any number of ways. The best that could be hoped for is that government could devise some incentive (though income tax deductions, perhaps) that would redirect the money to benefit the poor. I'm certain, though, that most of it would be spent in some other way. But even if some incentive structure could be devised, why bother? Spending it through the present system of taxation is at least as efficient as devising some complex incentive program to make sure the money is still being spent to help the disadvantaged.

As I was putting the finishing touches on this post, The Lead posted a link to a study (pdf) showing that faith-based initiatives do not actually increase faith-based groups' involvement in social ministries. (Faith-based initiatives, you recall, were attempts to prove that faith-based institutions could serve as alternatives to government run safety net programs.) This seems to show that private organizations are limited in their effectiveness as providers of safety net services.

I have no doubt that most conservatives, particularly religious conservatives, who want to dismantle the welfare state and replace it with networks of private institutions do indeed want to effectively help the poor and disadvantaged. Nevertheless, the evidence against this idea is overwhelming.

10 comments:

  1. You forgot that 40% of federal spending comes from borrowing, not spending. And that doesn't even account for the Federal Reserve printing more money. Since unlike the federal government, churches and charities generally aren't fiscally speaking completely insane, nor could they be, it seems that comparing federal spending on the poor to private charity is the equivalent of comparing apples to oranges, or perhaps to be more precise, the equivalent of comparing the drinking habits of drunken sailor on shore leave to someone who has a glass of wine with dinner.

    Conservatism is anti-utopian. And it is dangerously utopian to believe that the federal government can continue its current rate of spending, including on programs for the poor.

    BWL

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  2. I meant "borrowing, not taxes."

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  3. The fact is that the money is being spent, regardless of its source. The amounts above are what it costs to provide people with Medicaid and safety-net services. That amount of money simply would not be provided privately.

    There are plenty of ways to control spending without screwing those in need. If it was up to me I'd start with cutting all the spending on those who really don't need the money they're getting. After that is done we'll see where we are - but there's no chance of that being done. Unfortunately there aren't many politicians who believe in the preferential option for the poor.

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  4. But the source of money is important because debt artificially inflates (by at least 40%) the spending power of the federal government, thus rendering your conclusions about its abilities versus private charities problematic. And financing four out of every ten dollars one spends through debt is completely unsustainable. Unlike charities which spend within their means, the federal government cannot continue this kind of spending indefinitely. It will either make serious cutbacks and reform entitlement programs, and the sooner they are done the less painful they will be in the long run, or it will face insolvency, which means no programs for the poor. There are no other choices.

    On top of all of this, the baby boomers are now retiring. Moreover, we have no idea how long it will take the economy to recover. As such, the federal government's fiscal policies are so daunting that I seriously doubt cuts could be made in a way that doesn't affect all classes of Americans, including the poor. And by the way, 40% of federal government spending goes to Social Security and Medicare. Seniors are the least likely of all Americans to be in poverty, which illustrates that supposed safety nets for the poor often aren't what they seem. Yet seniors vote in large numbers and are heavily resistant to cuts in programs that benefit them. In addition to major fiscal problems, political realities such as this make it very difficult to reform the system. This is why I don't see insolvency and collapse as outside of the realm of the possible.

    BWL

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  5. I understand what you're saying about borrowing as the source of so much spending. But private providers of equivalent services would be more expensive, not less, than the cost to the federal government. So, yes, borrowing is funding a chunk of this spending, but if it was left to private charities the programs simply wouldn't exist.

    I also understand that we cannot continue growing the debt indefinitely (though I think it's less of an urgent threat than you do). A lot of what is driving entitlement spending, though, is 1. the rising costs of health care and 2. the increased need due to the recession.

    Simply cutting entitlement spending doesn't help. Health care costs need to be brought down, not merely shifted from the federal government onto citizens. The Affordable Care Act has several provisions designed to lower costs. These should be enacted, funded, and then evaluated. If they work, fine. If they don't, try something else. But don't just move the costs onto the poor or the elderly.

    The principle I am unwilling to compromise is that any cuts to spending must affect the poor and disadvantaged only after everything else has been tried. Everything else has not been (and will not be) tried.

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  6. We don't know what would happen if all programs for the poor were left to private charities. There are many variables that would change in such a scenario. Nonetheless, it is highly likely that private charities would spend within their means and thus be fiscally sustainable, which is absolutely essential if you want to help the poor over the long run. Of course, the federal government is failing badly in this area.

    As you can imagine, I don't think ObamaCare will help. In fact, I think it will drive up costs and make things worse. Also, you mention the poor and elderly, but most of the elderly aren't poor. We aren't living in America circa 1937. Elderly people in 2011 are the least likely of all age groups to be poor. With 40% of federal spending going to Social Security and Medicare, what these programs amount to today are a transfer of money to younger, less well-off Americans to more affluent, older ones. Clearly, Medicare and Social Security need to be cut.

    As I mentioned, the elderly vote in large numbers. I suspect that entitlement reform will turn into a generational battle between affluent baby boomers and less well-off Generation Xers and Millennials. And the baby boomers will probably win.

    By the way, there is a good argument to be made that the welfare state and warfare state are intimately connected. It is no accident that the presidents who took American into its biggest wars were liberal Democrats who built the welfare state. For some interesting food for thought on this issue, see this article:

    http://www.lewrockwell.com/gregory/gregory209.html

    BWL

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  7. btw, this article does not address efficacy. That is not an insult to the writer; I do not believe that was the intention of the article and I did not necessarily expect it. However, the larger picture is not the amount of money giving to programs that claim to help the poor, but what actually helps those in need most effectively.

    It is my beliefe that local programs are able to, in general, help more than national (federal) programs and, these local programs CAN BE government programs, i.e. state or county. The reasoning for this belief is the same given by Hayek and Mises...an argument of aggregate knowledge. Basically, a community knows how to help its neighbors better than a community far away; they (you) know who needs money and who needs a 'kick in the rear' (this is not an insult; there were definitely times when I have needed a kick rather than a gift, and it was the most helpful thing for me).

    Moreover, this argument of knowledge extends to other problems of centralized control. As applied mathematicians, we can't even accurately predict the movement of three bodies (three masses orbiting each other) because any very small 'error' in initial measurement grows very rapidly. Error is in quotes because I am meaning the limitations of measurement, not human error (although that is a problem too).

    This is why weather can not be predicted; it is chaotic.

    The point is, how can we expect to predict the economy, or any other system, which has more than just point masses but people! Maybe we can identify qualitative behavior...but it would seem to be much better if we allow he system to 'predict itself' or to allow the system to develop as we make very short term predictions, which can be accurate.

    Anyways, back to the issues of governments:

    Please keep in mind that many conservatives are not for no government but for a very specific kind of government that emphasizes local power over central power, even down to the individual. Even the federalist papers where arguing for a federal government. The anti-federalist wanted know federal government at all. Most conservatives are for federal government, just a very specific and limited kind.

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  8. Please forgive my typos! I meant 'the' and 'no'...I am sure there are others I missed.

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  9. "If you haven't any charity in your heart you have the worst kind of heart trouble" to cure it Help people, let's unite for one good cause, be a volunteer"save lives"! mawaddainternationalaid

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  10. This was really nice to see the best information about these kind of people who donated for poor people.

    Charity for Poor Children

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About Me

I'm Rachel's husband and Darcy's daddy. I'm a Hoosier, an accountant, and an Episcopalian. Politically, I'm a progressive who believes in the preferential option for the poor. I use the blog as a sort of journal - to interact with my reading and sketch out ideas.