Charitable Foundations and Their Effects--BECKER

The United States gives more generous tax deductions when individuals set up charitable trusts than do many other countries in Europe, Latin America, and elsewhere. This, along with the long-noticed generosity of Americans, helps explain why private donations are far more important to American universities, even public universities, hospitals, religious organizations, museums, symphonies, and other American cultural and health activities than they are elsewhere. For example, American individual giving as a percentage of gross domestic product has been about 2%, while charitable giving is under 1% of GDP in the United Kingdom. The main case for giving tax breaks to individuals who set up foundations, and for exempting from most taxes the incomes that foundations earn, is to encourage decentralized private support of universities, health care, and many other activities, as opposed to relying only on centralized government support of these activities. Universities and other recipients in turn have to compete against each other for funds from the many foundations. I believe that such competition and decentralization of support encourages a more efficient use of resources by recipients, and makes it easier to finance unpopular art, music, or other activities that have difficulty getting support when governments are the dominant source of support. The Bill and Melinda Gates Foundation is by far the largest private foundation in the world, especially with its gift from Warren Buffet of stock in Berkshire Hathaway. That gift will be spread out over time, and is worth in present value between $20 and $25 billion. Since the Gates foundation had assets prior to this gift of close to $30 billion, the total assets now amount to more than $50 billion. The 20 largest American foundations have combined assets of well over $150 billion, with the Gates foundation having about one-third of this total. All twenty had assets over $1billion, including more than $15 billion for the Hughes Medical Institute, over $11 billion each for the Lilly endowment and Ford Foundation, and in excess of $5 billion for the Packard and Hewitt foundations. The Buffet gift will create an outlier in the Gates foundation, but basically foundation assets overall are not highly concentrated in the United States. American foundations do many things, and have very different orientations that range from pretty far right to pretty far left. Perhaps there is an overall tendency for larger foundations to be set up by businessmen with relatively conservative views, although neither the Gates nor Buffet foundations fall into that category. There is surely a tendency for foundations to become more liberal over time. Examples of foundations that started out conservative and became much more liberal with time include the Ford, Pew, and Packard Foundations--the Packard Foundation shifted rapidly after the death of its conservative founder David Packard. I do not know of any large foundations that moved from being very liberal to becoming conservative. The two main reasons for this shift in philosophy are 1) that the children of successful conservative self-made businessmen tend to be more liberal than their parents. There are several reasons for this, but one is simply "regression to the mean": conservative parents have less conservative children, although one might expect this to produce some foundations that go from liberal to conservative. 2) Over time foundations come under the management of professional foundation personnel instead of the founders and people they trust. Professional managers tend to be highly educated and liberal, just like the majority of journalists at major newspapers. In order to combat this shift and other shifts over time in the focus of giving, some foundations are set up with sunset provisions which require that they give away all their assets within a given time period. The largest foundation that I know of which succeeded in doing this was the Olin foundation under the guidance of the late William Simon. The Olin had a few goals, such as encouraging centers for the study of law and economics, and generally succeeded very well in achieving these goals. Bill Gates recently announced that his endowment would be spent within 50 years of the death of the last of its three trustees. Perhaps all foundations with tax benefits should be required to spend all their assets within 30 years or so of their creation--50 years seems too long to me. How well have foundations done in disbursing their wealth? As I mentioned earlier, private foundations are under pressure to do better by the competition among them to support different causes. On the whole, they seem to do a pretty good job, although I may be biased since many private foundations have over the years supported my research. However, I do believe that foundations are much too prone to spend their resources on the latest popular causes and fads. The Gates foundation deserves special mention because it is so big, and has the active management of Bill and Melinda Gates. Its emphasis on diseases of the third world seems like a good one since pharmaceutical companies are not likely on their own to invest in research on these diseases because poor countries are unable to pay much for new drugs. Hence, companies shy away from working on diseases prevalent in poor countries because they anticipate they will have to highly subsidize any drugs that they develop. Similarly, governments of rich countries generally spend their medical research support on diseases that strike their populations, which are increasingly associated with old age, while poor countries need help in fighting diseases like malaria, tuberculosis, and AIDS that strike young persons. But it is still too early to tell whether the Gates foundation will be effective. I do not believe it will be easy for a foundation that is giving away each year more money than many governments do to be highly efficient and nimble. Much is being made of the business-like approach to giving by some new foundations, including the Gates foundation. Maybe it will be better than the old approaches, but given the sharp division of labor in advanced societies, it is not surprising that successful businessmen are usually much better at making their money than spending their money on charities. Still, I do believe that the new approach can help if it does not frown on cooperation with commercial enterprises that are looking to make profits, sometimes while trying to do "good." A significant development is that Sergey Brin and Larry Page, the immensely wealthy founders of Google, decided not to take a non-profit status for their new charitable arm Google.org in order to be able to support commercial ventures that have a social purpose.

Comments

[Jack]

Ben??? Yet another contentless post? I doubt you any risk at all of "being Left" and I really am interested in how today's "conservatives" who abandoned their forbears attributes of thrift, balanced budgets and living on what they earned by farming, rather than mortgaging another "back 40" each year to make ends meet.

Since Reagan pulled this off so nicely that few even felt it being slipped to them I really have wondered if there were any cogent theories behind it, or whether it's simply "fun, fun, fun...... 'til daddy takes the T-bird away?" I like to party too, but those credit card bills and interest are really a drag and as I won't be here long enough to make even a dent in the Ten Trillion in D E B T this "conservate admin" will leave us, I really don't want to saddle our kids and there's with such a millstone around their necks that will eat one quarter of the entire Federal Budget just in debt service.

Anyway, I would like to get just a glimpse at the theories of the spend and borrow crowd, if there are such? and it's not entirely due to last selfish grasp of spoiled twits of the boomer generation who love the services but would rather not pay for them.

"Very wealthy households ...contribute a significantly higher ratio."

........ indeed, so your cherry picked piece of data claims. And the "ratio" is that of income only, and I took time to explain to you that the wealthy jigger their incomes so that much of it is injected directly into wealth building w/o ever being income. We've several examples under discussion here: Gates? Sure, he's taken "income" to to build his mansion, while his wealth is 50 billion of MSFT stock that has never been sold nor counted as income. Buffet? Prides himself on buying great stocks and never selling. Thus? no "income" not even capital gains. Walmart partners? I know some of them in Tulsa, no great shakes on income, but if you want to buy some housing development land east of town it's very likely a Walmart family member who'll be selling. Even with cap gains at 15% it's not likely he's going to sell a lot more than is needed for current expenses. What would be the point? The investment is clicking along at 10% or better so why take "income?"

BTW is is something of a trade mark of yours to work "non-sequitur" into each contentless whining post? Jack

[ben]

Yes I do mention non sequitur a lot. It means drawing conclusions which don't follow from the preceding argument. Two words which nicely capture your every post.

[Jack]

Ben..... I'd hoped that my, somewhat needling, responses might draw you out and get you to flesh out any "special" econ theories or canards you collected, but my efforts seem only to prompt yet another post of which seems designed only as a smallish platform in which to, again, display "non sequitur".

Perhaps it's best if I give you some time and space in which to create a post that contains a premise, thesis and supporting arguments?

Jack

[ben]

Jack I might put something out there if you'd just back up one of your most frequent claims. What is the harm to the average American from a trade deficit? Its your claim, not mine. There's no way I'm pulling out my textbook to make your case for you. You back up your claims.

This is the fourth time I've asked I think. If you can't back this up, can it be presumed its simply...a canard?

[Jack]

Ben: Please don't let my actions dictate your own.

And regarding your most recent lament, I gave you a partial listing of the damages done by our soaring and utterly out of control, trade deficit situation.

From what responses you've posted I end up with two conclusions, neither of which favor more of my own tutorial efforts:

A. If you have to ask it's unlikely that you're prepared to accept the information from me.

B. That your ideology and extreme partisanship dictates a knee-jerk defense and repudiation of any bad news that might reflect upon the rather obvious failures of the Bush administration's and the "majority's" attempts to lead our country.

Lastly, I'd point out that PRINCIPLED conservatives of yore would hardly require tutoring in why we should have balanced trade and a strong dollar and leave you to mull the very long list of shoddy goods being sold to those professing "conservatism" and topped by these items that would have true conservatives spinning in their graves at rpms typical of gas turbines"

Massive! and unprecedent expansion of the size and cost of federal government.

SOARING federal D E B T that will prove to be a millstone around the necks of our next generation in dealling with ANY of our communal issues.

Having NO oil policy remotely worthy of the name. Are you old enough to recall Scoop Jackson's warning that being just 35% dependent on foreign oil was an issue of national security?

Miring us down in a costly and optional war? nation building?? project by skipping, let's be generous, any due diligence or seeking the support of our traditional allies and the world in general.

Cheers! and hoping you and yours were not considering taking a pile of emaciated "Bushy-bucks" and traveling anywhere, either east or west. (This is a hint. eh?) Jack

[ben]

For someone who has so much to say about trade deficit, it is extraordinary you have so little to say to justify it. I missed the "partial listing"? How about spoiling us with the whole thing?

The presumption has to be you have no idea what a trade deficit is or how it could create or be associated with harm. I guess this was obvious given the nature of your posts, but short of you actually declaring you have no idea I'll take this as the next best thing.

I actually share your concern about government spending and public debt. I have long professed confusion over who I'd vote for in America - from the outside it looks like a competition between two parties to make government ever larger, albeit in different ways. For what it is worth, I am a traditional liberal - basically the opposite of a modern liberal and not obviously related to modern conservatives either.

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