The most common sin of economists is to take a point which is true in part and mistake it for one which is true in full. We so enjoy being contrarian and refuting sacrosanct beliefs with the clean and frictionless logic of economics that it doesn’t quite satisfy to point out that these beliefs are simply less true than people think, but must insist that they are fully false. Case in point is this Steven Landsburg post, which Robin Hanson praises, in which he argues that misers are just as admirable as philanthropists:
In this whole world, there is nobody more generous than the miser—the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.
If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer—because you produced a dollar’s worth of goods and didn’t consume them.
Who exactly gets those goods? That depends on how you save. Put a dollar in the bank and you’ll bid down the interest rate by just enough so someone somewhere can afford an extra dollar’s worth of vacation or home improvement. Put a dollar in your mattress and (by effectively reducing the money supply) you’ll drive down prices by just enough so someone somewhere can have an extra dollar’s worth of coffee with his dinner….
Landsburg’s point would be completely valid and convincing had he simply argued that the miser is more like a philanthropist than is commonly believed, but to fully satisfy the economist itch he must argue that the miser not morally distinct from the philanthropist. What’s missing from Landsburg’s analysis is the common sense fact that the world is full of areas where the social gains from a dollar spent are much larger than a dollar. Whether it is giving the global poor mosquito nets, education, vaccines, other medical care, or just cash, it is clear that it is easy to spend the money in ways that generate huge social gains. Likewise it is not hard to identify areas of basic research with large spillovers that are underinvested in. Of course Landsburg knows there are many ways to spend money and generate much higher social returns than burning money or putting it in the bank, which is why his article in Slate advising people how best to donate to charity didn’t simply advise them to burn it.
In reply to Landburg, Karl argues:
This is because the miser is withholding his assessment of the most utility maximizing uses of his money and that assessment is a valuable thing. Even if the miser knows very little he knows something and as always ignorance is not abdication.
I agree, but I would go a step further than this: the miser is not simply withholding his assessment, but he is signaling that he does not care that the money could generate massive welfare gains, and so he does not care about massive welfare gains. This is because it is simply not credible for a miser to argue that he cannot identify areas where there are large social benefits, or use the money to hire people to identify areas with large social benefits, therefore the only option that remains is sociopathic indifference.
In reply to Karl, Robin argues that he’d “still guess that the miser does more good than the average rich-nation philanthropist”. Surely there are many philanthropists who are terrible at philanthropy. Someone who spends millions creating a public museum filled with Damien Hirst sculptures is generating lower social returns than if he were to miserly put the money in a bank or burn it. But this simply reinforces my original point: Landsburg could’ve made a truer and more persuasive argument had he simply gone with a more modest version of it. That is, he should have said misers are better than some philanthropists. The problem is that most people are already pretty capable of identifying low value philanthropy and begrudging it as a waste of money. If you explained to them that putting the money in the bank or burning it is similar to giving it away to society at large, they would agree that some this is better than some philanthropy. But the contrarian victory there would not be enough to satisfy an economist, and so the argument is oversold.

7 comments
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Sunday ~ December 18th, 2011 at 7:19 pm
justin
A dollar saved and then lent out could also have a return of more than a dollar. What reason is there to believe the dollar lent out will be less valuable than the dollar donated?
This seems especially if you take Robin Hanson’s view that the donated dollar is likely to be more about signaling how much you care than actually helping.
Monday ~ December 19th, 2011 at 1:19 am
Pat L
The lent dollar will presumably be put toward the purpose that generates the highest private return (not regarding positive or negative externalities), whereas the philanthropist should be targeting the highest net social benefit.
If there exist possible donations with large, easily identifiable social benefits, then the philanthropist should come out ahead. The social benefit of things like art museums may be easy to misjudge, however.
Sunday ~ December 18th, 2011 at 9:19 pm
Ben
This requires you to buy the neoclassical fallacy that lending is constricted by savings. Which simply isn’t true. Misers damage the economy because their dollars don’t always spur more production.
Sunday ~ December 18th, 2011 at 9:45 pm
justin
Ben- Then why does the bank pay me for my deposits? You can argue that the fed is going to determine overall spending so it doesn’t matter, but at that point you’d have to admit that a miser won’t effect anything either.
Monday ~ December 19th, 2011 at 1:09 am
Ryan P
If it’s most philanthropists, and there’s excellent reason to believe that this is true for any particular reader but that any particular reader is likely to believe they’re the exception to the rule, does it really make much of a difference?
A real economist is one who always prefers a complicated footnote that is in some ways more technically correct to a well-put, concise phrase that is also correct 99.9% of the time.
Monday ~ December 19th, 2011 at 10:07 am
dbunn
But do philanthropists and misers have the same beliefs about their potential ROI? Here’s a new paper on those beliefs from VoxEU- http://bit.ly/sKk2Tw
Tuesday ~ December 20th, 2011 at 6:06 am
Tel
Philanthropists generally target their pet hobby horse… but they sure beat misers in the PR department and that’s where it counts!