Friday, January 28, 2011

Mixed Feelings About the "Billionaire's Pledge"

No doubt by now you've heard of "The Giving Pledge." Founded by Bill Gates and the increasingly-irritating Warren Buffett, it is a public pledge to give the majority of one's wealth to charity. You can see who's ponying up here:

The List

How could I possibly have mixed feelings, you ask? It's all good, right?

Not exactly.

The question is not just how much social utility is created by the donation, but how much disutility is created by the extraction of the capital from our economy.

Let's examine both sides of this in the recent pledge by list member Mark Zuckerberg to give $100 million to the Newark public school system. How much utility is being created? Well, none. In fact, it's probably a big negative. Zuckerberg is demonstrably one of the smartest people of his generation, but this gift is one of the dumbest of all time, exceeded only by Ted Turner's $1 billion gift to the United Nations.

Both these gifts are examples of egregiously bad philanthropy, otherwise known as throwing good money after bad. New Jersey public schools are broken, and it's not a problem money can fix. In fact, money allows the problems to persist longer. The problem, in a nutshell, is the teachers unions, which have become a black hole of salaries, benefits, and bizarre work rules. Everything they do is antithetical to the interests of parents and students. $100 million thrown into this swamp will merely postpone the day of reckoning and allow students to be educationally abused that much longer.

Zuckerberg isn't, as we've established, an idiot. He either knows this, or could have figured it out. But that's hardly the point, is it? By some amazing coincidence, Zuckerberg was having some pr problems at the time of the gift, namely a movie called The Social Network that was making him look like a nasty piece of work. $100 million for the kids, a quick appearance on Oprah and 60 Minutes, and presto! All is well again.

The fact is, most philanthropy is accompanied by ulterior motives of some sort. Otherwise, it would all be anonymous, right?

Okay, I can hear you. You say big deal, a little ego-rubbing is a small price to pay. In some cases, I agree with you. Free markets will never solve every last social problem. In these cases, I prefer private philanthropy to solve the problem, because it will likely do a better job of it - and be more accountable - than the government. (In fact, one of the things I detest about big government is that it tends to crowd out effective private philanthropy. Just look at Europe.)

But, as with Zuckerberg and Turner, not all philanthropy solves problems. Sometimes, they make it worse. Philanthropy, poorly conceived, is replete with moral hazard.

It ain't always easy giving money away.

Ironically, I think it's Bill Gates who has his arms around this better than anyone. The Gates Foundation thoroughly analyzes where their money can create the greatest social utility for the dollar. The answer is often less-than-sexy things like mosquito netting in Africa and sewer systems in India.

But let's get back to the other side of the equation, the disutility created by removing capital from our economy. Our billionaires club presumably funds its charitable gifts by selling their company stock, or the stock of other companies. This capital creates jobs. the people that get those jobs pay taxes, buy homes, have families, and otherwise do things that create even more jobs. They even give to charity. It's a virtuous cycle, and there's no charity than can match the social utility of job creation.

For charity to be worthwhile, the social utility of a donation (not always positive, as I've mentioned) must exceed the disutility of the capital extraction from the private sector. This is not always an easy hurdle.

Mark Zuckerberg is in his 20s. He has created not just thousands of jobs at Facebook, but an entire new industry that is having profoundly positive effects. Silicon Valley is a boomtown again, and if our country is to find a way out of our current mess, the Valley will lead the way. But my point is, I don't want Zuckerberg thinking about charity. He's too valuable doing what he's doing. Later in his life, when his years of intense creativity are behind him, he can start giving it all away. I'm sure by then, when he has time to ponder the variables, he will make more intelligent decisions.


  1. Outstanding.

    I remember watching Larry King interview Ted Turner shortly after Turner made that UN pledge, which I agree was probably money largely thrown away. I don't remember the exact context, but at one point I distinctly remember Turner saying, "Yeah, but I had to make it first before I could give it away."

    I think that single sentence encapsulates so much of what most people don't understand about the virtuous possibilities of capitalism.

    I'd be interested in your thoughts on Muhammad Yunus' "Non-loss, non-dividend" concept, which in some ways tries to harness the power of capitalism in an explicitly charitable way. I see its benefits, but I'm wondering if ultimately it can't produce as much wealth as true capitalism, and therefore, can't produce as much "social utility".

    So therefore, if the goal is helping the human condition, I think the character of the capitalist becomes the biggest issue.

  2. Well argued, Scott. A related issue is the ideological corruption of foundations run by technocrats whose views the original donors (Ford, Kroc, MacArthur) would find abhorrent. Another striking phenomenon is the herd mentality of billionaires when it comes to giving. Population control, for example, was made fashionable by John D. Rockefeller III. Hundreds of millions of dollars go to population control bureaucrats who chase phantoms that spring from the Malthusian brains of academics like Paul Erlich, who predicted mass famines in the seventies, etc.