Measuring Generosity

In Why the Rich Don’t Give to Charity, Ken Stern writes that with all the attention given to donations from wealthy people, “you would be forgiven for thinking that the story of charity in this country is a story of epic generosity on the part of the American rich. It is not.” Stern notes:

One of the most surprising, and perhaps confounding, facts of charity in America is that the people who can least afford to give are the ones who donate the greatest percentage of their income. In 2011, the wealthiest Americans—those with earnings in the top 20 percent—contributed on average 1.3 percent of their income to charity. By comparison, Americans at the base of the income pyramid—those in the bottom 20 percent—donated 3.2 percent of their income. . . . [S]ome experts have speculated that the wealthy may be less generous—that the personal drive to accumulate wealth may be inconsistent with the idea of communal support.

Of course, Stern’s argument requires us to view generosity in subjective terms. Given that the 80th percentile in income in the U.S. is about 5 times that of the 20th percentile, the top 20% is surely donating far more dollars than the bottom 20%.

So what is the best way to measure generosity? It depends. If you are deciding whether to focus your fundraising efforts on the top quintile or the bottom quintile, you should probably focus objectively on dollars and choose the top quintile. Similarly, if you are choosing a career and want to maximize your charitable giving, you should focus on your ability to give dollars even if doing so reduces the  fraction of  your total income you will later give.

If, however, we’re considering how much giving “hurts,” percentages of income capture some useful information. But they are still rough proxies because we  don’t necessarily experience the “hurt” of giving in percentage terms. From a purely subjective perspective, it may hurt the average rich person a lot less to give 3% than it hurts the average poor person to give the same percentage. After all, the rich have already taken care of their basic needs for food and healthcare before they open their wallets. But research could support the opposite conclusion: maybe it hurts the average rich person more to give a given percentage. That would be one explanation for the findings Stern discusses.

To make all of this even more accurate, we should control for tax incentives to donate that depend on wealth. We should also control for “charitable donation substitutes.” Two effects stand out: First, rich people may view a significant portion of their taxes as charity. Whether a person addresses the healthcare needs of the poor through taxes or through a private donation, they might think, does not entirely change its charitable nature. True, the tax expenditure is compelled. But some rich people may reduce their charitable donations because they believe, correctly or incorrectly, that they are already making substantial  donations by paying their taxes. Second, people give not only money but also time and energy either to formal charities or to friends and families in need. I don’t know how such behaviors compare between rich and poor, but poor people may give much more in this respect than rich people. And I’m sure I’m only scratching the surface of the complex issues raised here.

The subjectivity of generosity aside, there is an even more important issue about how to measure the good that donations actually accomplish. Stern offers this interesting tidbit:

Of the 50 largest individual gifts to public charities in 2012, 34 went to educational institutions, the vast majority of them colleges and universities, like Harvard, Columbia, and Berkeley, that cater to the nation’s and the world’s elite. Museums and arts organizations such as the Metropolitan Museum of Art received nine of these major gifts, with the remaining donations spread among medical facilities and fashionable charities like the Central Park Conservancy. Not a single one of them went to a social-service organization or to a charity that principally serves the poor and the dispossessed.

(Cross-posted to Prawfsblawg)

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