Economic Human Rights (35b): What’s So Funny About Charity?

I’ve stated before why I believe charity helps to prevent poverty, and why it’s better than government welfare, at least in principle. The welfare state, in my view, is a fallback option when charity fails (as it often does).

The usual argument against this view is that charity is bound to fail because it’s crowded out by the welfare state. People don’t and won’t assist others because they think that they already do enough by paying taxes, whatever the effectiveness or fairness of the tax system. The evidence for the occurrence of crowding out is, however, unclear, and that’s a “charitable” interpretation of the evidence.

Another criticism of charity is closer to the mark:

Charity is counter-cyclical. When the economy is booming and there’s less need, there’s also more capacity. When the [economy] is worse and there’s more need, donations dry up and there’s less capacity. That’s not a criticism of charities: It’s hardly their fault. And nor is it a criticism of the people who donate — or stop donating — to charities. When you’re worried about paying your mortgage, it’s harder to help other people pay theirs. But it’s a big part of why we need a robust, federal safety net that’s immune … from the ravages of the business cycle. (source)

Indeed, as the need for charity rises, the supply diminishes, and vice versa. That is why a theory of poverty alleviation that depends solely on charity is incomplete. However, implicit in this argument is that the welfare state is immune to the business cycle, which is obviously incorrect. A recession means a drop in tax revenues and a simultaneous increase in demand for welfare transfers (there are more unemployed etc.). Hence, a recession means a weakening of the capacity of the welfare system. That’s exactly the same mechanism that makes charity unreliable.

Fortunately, the welfare state can bridge over recessions by going into debt, something that few private charity donors will do. This means that a welfare state can keep its anti-poverty transfers going in times of increased demand for funds and decreased supply of funds.

More on charity here.

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