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Are Americans Stingy?

My wife and I made a donation today to help people suffering from the tsunami.  Will it help?  I sure hope so.  It’s almost impossible to know.  We gave it to an organization we trust and expect the money to do some good.

President Bush is also feeling generous today.  Stung by a UN officials calling Americans stingy, he upped America’s donation from a paltry $15 million to a more robust $35 million.  The Washington Post reports:

The Bush administration more than doubled its financial commitment
yesterday to provide relief to nations suffering from the Indian Ocean
tsunami, amid complaints that the vacationing President Bush has been
insensitive to a humanitarian catastrophe of epic proportions.

Actually, the Bush Administration more than doubled our financial commitment, ours as in mine and yours, the commitment from taxpayers, the coerced part that comes out of our tax dollars.  Only in Washington can you spend other people’s money and look more sensitive.  But the reference to insensitivity is mainly an illusion to Bush clearing brush in Crawford, Texas rather than getting in front of the cameras.

What I would have preferred is for Bush to send little or no government aid and instead to encourage Americans to give privately as we did this morning.  I suspect private aid has a chance of being more effective, even if because of free-riding there are people who will give less than they would if coerced via taxation.  It will be interesting to see how it compares to the government aid.  Even though that $35 million will discourage some private giving, I’m sure it will be a sizeable number.

Because of the temptation of free-riding, a case can be made for government provision of aid in these cases and I made that case twenty years ago, here.  While the logic of that argument remains, such arguments assume that private and public spending are equally innovative, equally effective and equally flexible.  This is not the case.  One of the chapters in my book The Invisible Heart, lays out the case for private provision of charity.  Essentially, the argument is that a world of private charity will collect less money for the poor than the world of government aid, but perhaps it will be spent more wisely, offsetting the loss from giving the poor less money.  Neither side is iron-clad, but adding to the case for private provision is the argument that it is private giving is more likely to genuinely transform the giver than is tax collecting.

If you fear private giving as being too stingy (in the real sense of the word), then an alternative is to offer large tax credits for giving than simply the reduction in the price of a dollar of giving equal to one minus the marginal tax rate.  A large enough tax credit can overcome the free-rider problem and still maintain some of the advantages of private giving such as flexibility and innovation.

When spending other people’s money, it is good to remember Grover Cleveland.