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01/06/2007

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doug

I don't understand your point about taxes. Consider two scenarios:

1) Bill Gates gives $1B of Microsoft stock to the Bill & Melinda Gates Foundation (avoiding $150M in taxes on long-term capital gains), which then spends it on activities that (let us assume for the purposes of argument) do nothing otheer than enhance the reputation of Microsoft and perhaps Gates. The federal government gets nothing and Microsoft gets $1B of benefits. Microsoft and its shareholders (including others than Gates and the Gates Foundation) get whatever benefit this PR generates. They will eventually pay tax (corporate tax on earnings, capital gains) on whatever it produces.

2) Microsoft spends $1B on the same activities, which are an operating expense. It reduces Microsoft pre-tax operating income by $1B, reducing its corporate income taxes by about $410M (assuming the statutory corporate tax rate of 41%). Microsoft shareholders (including Gates and the Gates Foundation, which I think own around 40% of Microsoft) have about $590M less in earnings, but somewhere between $0 and $1B in improved reputation, for whatever that's worth, so maybe that's a wash or maybe they're better off.

I think if you do the second calculation correctly, Gates personally is better off, the federal government collects less tax, and Microsoft shareholders (other than Gates) a little worse off.

Bernard Yomtov

I think you are evading the question I and others raised: On what grounds should some charitable contributions be tax-deductible and others not.

Is it fair to say that I, as a taxpayer, derive less benefit from money spent to improve health conditions in Africa than I do from money spent to, say, expand a church building in some far-off part of the US?

As for the paragraph that suggests the world would be better off if Gates and Buffett invested privately, that is questionable on several counts:

1. Social benefits do not equal private benefits. It may be more profitable to provide medical care to Americans than to Africans, but why is it morally superior, especially when the marginal benefit of a dollar spent may be much higher in Africa?

2. By spending money, whether through foundations or otherwise, Gates and Buffett increase demand, which in fact stimulates investment.

3. Similarly, to the extent the foundation money is spent on investment in human capital, which clearly includes education and health care, there will be a return on the money, possibly a very substantial one. That return will not be realized by the donors, but by the recipients, but it will still be there.

Matt Sigl

Your response to the criticisms of heartlessness is well reasoned but, I suspect your fears are somewhat misplaced. A great debate must be had, and empirical research must be done, about the best tactical way to save the lives of third world citizens. This is a debate that I am sure the Gates' deal with every day. A modicum of research about their foundation on their website shows that battling poverty, as well as disease, is an important part of their program. Nevertheless, to deny the importance of the most basic medical care for these people (including something as simple as circumcision for men and access to condoms for all) is a hard sell for any but the most calcified conscience. Undoubtedly, medical charity alone will not ameliorate the problem in entirety but, your suggestion that it will make the poverty and disease worse is somewhat unfounded. Principle among your fears is the thorny issue of population control and such concerns are not without purchase. Any good medical care will involve better reproductive education; this needs to be a large part of any charitable program. Period. However, unless the connection between medical treatment and overpopulation can be shown inevitable in any given instance, it seems to me that we have a duty to treat the diseased of the 3rd world as not merely expendable variables is some vague, indifferent (and probably poorly conceived) utilitarian calculation. Certainly the currently living has greater pull on our moral obligations than do the yet-to-be-born. Their are of course instances where our "current" ethical demands can be trumped by obligations to future generations-sacrifices needed for global warming come to mind-but, in the case of giving basic medical care to children dying of malnutrition in the third world, I doubt that our choice of action be an either/or between medicine and development. Basic human decency demands we embrace both.

Jack

Matt you sum it up well;

"Their are of course instances where our "current" ethical demands can be trumped by obligations to future generations-sacrifices needed for global warming come to mind-but, in the case of giving basic medical care to children dying of malnutrition in the third world, I doubt that our choice of action be an either/or between medicine and development. Basic human decency demands we embrace both."

That's life since the beginning of the species isn't it? Grow corn from sunup til sundown during the growing season, sacrifice some current consumption by putting away seed corn for the future and doing the best one can to care for sick or failing family menbers and friends or helpless members of the tribe?

I've noticed of Alaskan native history that they seem to hunt and fish for themselves in times of plenty but when times were tough to share in the largesse of downing a large animal and whale hunting/processing had to be a communal affair. Appropriate technology and "doing what works" as compared to a slavish devotion to "The Market" and its increasing domination by corporate interests no longer remotely concerned national interests, much less those of cities and smaller venues.

The tax comments show that others found as I did that the tax question is so complex it would take computer modeling even to sort it out plus a week long retreat just to consider the "rightness".

At the closer to home level it looks as though many more availled themselves of taking the 6000# GVW Hummer/gas-hog than bought a more modest car and got their tax deduction by charitable giving than by aquiring a dinosaur with an attached tax break. I'd assume Gates/Buffet et al would have similar options on a grand scale. But is personal enrichment a top priority for those in the $50 billion of assets range?

As for giving MSFT products? Isn't this a very common means of giving in America? With local businesses donating something that promotes themselves at local fundraisers? Perhaps in the case of Gates it's because we plenty nervous about his position as a near monopoly?

I end up concluding that "efficient" disposal of a bundle has as many tough choices as does making it! Jack

David

Posner writes:

"It strikes me as also quite possible that Gates and Buffett and the other multibillionaires would do more good for the world simply by investing their accumulated personal wealth in commercial enterprises, increasing the worldwide pool of capital, resulting in lower interest rates and more investment, including investment in new drugs!"

This seems to go beyond the old "trickle down" theory into arguing that altruism is actually bad for the economy. I doubt that many of us, Posner included, truly wish to test the limits of that theory. Indeed, if not for charitable donations, the University of Chicago (and other like institutions) might cease to exist.

I reiterate my comment that Posner's view of the Gates foundation in particular, and hence charity in general, seems colored by politics. A typical "neocon" flaw, I think, is moving beyond the notion that markets are often more efficient than regulated economies to the faith-based belief that "greed is good." Not that Posner is a "neocon," of course; indeed, he might dispute that the term has any true meaning..

Jim

The AAA report on drunk driving doesn't make much sense numerically. So 40 million people make 950 million trips a year when they are drunk? That is about 24 trips per year per person.
So every other weekend, 1 in 10 people on the road on a Friday or Saturday night are drunk? The 2% arrest rate refers to the chances that someone who took a drink might get caught. It seems artificially depressed, and the number of drinking drivers (trips per year) is much higher than personal experience would indicate while driving around on a weekend night. In my metro area (L.A.) this statistic tells me that I should see about 500,000 drivers on the road on Fri and another 500,000 on Sat who are drunk (every weekend of the year). Once again, bad statistics are being used to manipulate public policy.

Jake

One commenter touts the idea of "moving beyond the notion that markets are often more efficient than regulated economies." Before we pay heed, let him first define what he means by a "regulated economy," then cite an example where this idea has actually succeeded.

Jack

Jake... I guess I'm one of the main proponents of combining intelligence, foresight, and a working democracy (if such can be found) into creating a mixed economy not too much different from what we have in the US.

There are areas, such as the fashion shoe business or driving down the cost of computers in which "The Market" excels beyond any challenge. But, in areas involving "the commons" democratic action and government oversight excell. Examples would be such as "the market" fishing out the cod of Cape Cod and the Grand Banks, or today's oil giants profiting mightily by emptying our common reserves at the fastest and most profitable rates possible.

We as a nation would be far better positioned had we trusted "The Market" less and responded intelligently after the warning bells of the early 70's and our dependence on foreign oil increasing by one percent every year from that era's 35% dependency. Instead, inaccurate signals from "The Market" lured us into buying the largest fleet of gas hogging dinosaurs the world has ever seen as well as building millions of homes that are "suited" for an infinite supply of "$20" oil and relevant gas prices.

Medicine too seems highly problematic in terms of Adam's Invisible Hand guiding us wisely both because the consumer can not be knowledgeable of the product offered and its proper pricing, but because we aren't in much of a bargaining mood when we're in pain or facing a serious operation.

"Where's a regulated economy worked?" I'm not a fan of truly "regulated economies" but the economic miracles of post War Japan and Korea were highly regulated, and most in Russia have yet to see the benefits of its rapid privatization and deregulation and their experiment is showing risks of failure due to it creating super billionaires but spreading poverty.

As for the US, I suspect we'd have been bouncing from one economic crash to another for the last 75 years were we not "regulated" by Fed Reserve, Anti-Trust, minimum wage and work rules along with collective bargaining and a whole variety of "limit switches" on NYSE "markets".

So I like the concept of "moving beyond" and as we approach certain limits: pumping out all of our oil, having ships that can ruin the ocean's fisheries, and global warming, that something beyond our aging "capitalism" is trying to be born and that will feature more guided cooperation and less of what passes for "competition" in "The Market".

Leisel

I fully applaud the criticisms of altruism as it currently operates and Posner's position in general. I will use anecdotal evidence here, but I've worked in several aid agencies in developing countries and far too much money is being poured into far too flimsy programs which will not yield significant development results. Rather, it creates a culture of dependency and manipulation--where vast sums are spent on ideas supported by shoddy research, infrastructure that doesn't work or last, and programs that get misused by populations that are unprepared to accept them.

In the meantime, less "sexy" causes-- like the plight of the elderly in transitioning economies, drug-resistant tuberculosis and shadow political structures (and subsequent economies) that completely undermine legitimate political and economic reforms--these causes get left in the dust. Meanwhile needy areas remain on fire while wealthy Americans pour their money into organizations that sell the satisfaction of helping others but do little to establish long-term solutions and wide-spread benefits.

It's too popular to say "send money to Africa!" and it's too trendy to get involved in Aid agency work and advocacy for anyone to listen when someone, like Posner, says-- "wait a minute here, will this REALLY work and do we have the data, strategy and insight to accomplish it?"

Mark A. York

"We know that health is far more a function of education and income than of medical treatment, and I would therefore give priority to efforts to increase education and income in these countries, recognizing too that their poverty is in major part a result of a lack of a good legal and political infrastructure."

Really? Their poverty is by large a function of ravaged ecology for starters. I see the Gates' effort as a sort of triage. No. It is triage at this point. Those people are hosed for a myriad of reasons, all complex. One educational Achilles Heel is sexual practices of the populace. The "I won't wear a condom routine." On the other hand, the ole West to the rescue by parachute, as in journalism, doesn't lend much credence to local competence. There isn't much but it should be cultivated. Gates may be prodding that along, so Judge the two disparities aren't as divorced as you paint them. That's political ideology my learned friend. Bend just a bit more. Just a bit.

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