The Daily Clarity

Economic efficiency, poverty and the absence of charity

There is something intrinsically troubling in there being 37 million people living below the poverty line in one of the top ten richest countries in the world. While the definition of whether  the ‘poverty line’ in this context is valid can be argued,  it is indicative of a nation highly efficient in the production of economic wealth, but not well skilled in its distribution or application for social gains. The country in question is of course the US. It is a country renowned for its  innovation and energy, until it comes to the simple questions of social equity and justice. Taxation reduction policy discussion forms the constant background refrain in the mainstream media. A universal health care system, common among other developed nations, is derided as extreme rather than as a necessary social responsibility for a developed democracy.   The US has one of the most expensive education systems in the world but performs poorly in international comparative testing.  There is something not working in the social dynamics of the nation.

It is country that sees such extremes of wealth inequity that in Los Angeles, home to Hollywood, KPCC, a major radio station, has to run a book drive to give disadvantaged  students of the city access to new books. In a country blessed with a high GDP, able to counter the  extremes common to other nations with impoverished populations such as famine, flood, and drought, food banks are under massive demand strains. Despite the abundance and surfeit  of America’s economic buffet table, 37 million members of the country live in poverty. These are more than policy errors, they mark excesses in a badly designed social system. It is not a question of intent on behalf of the inhabitants.  Americans are extraordinarily generous. An article from the The American states “… in 2006, Americans gave about $295 billion to charity. This was up 4.2 percent over 2005 levels, and charitable giving has generally risen faster than the growth of the American economy for more than half a century. “The article also compares US philanthropic characteristics to other nations when it says, “…in 1995 (the most recent year for which data are available), Americans gave, per capita, three and a half times as much to causes and charities as the French, seven times as much as the Germans, and 14 times as much as the Italians. Similarly, in 1998, Americans were 15 percent more likely to volunteer their time than the Dutch, 21 percent more likely than the Swiss, and 32 percent more likely than the Germans.”

The problem is not is the psyche of the US people, it lies in a failing of the  social contract that underpins the US consensus. The US poverty trap has more do with the policies on issues such as health care, crime/punishment, drugs, abortion, race,  and a host of the other societal drivers of the poverty in the country. The issue is that the American people want to help,  but their government is not enabling their efforts. This factor sees many individuals making their own arrangements for actualization of improvements  through charitable efforts. In his recent book, “The Life You Can Save”, academic ethicist  Peter Singer creates his  concept of the “pledge”. This is a de facto social contract that individuals can join to donate a set percentage of their income to charitable givings. The Pledge is at his web site, (http://www.thelifeyoucansave.com/). Singer breaks out hypothetical donation levels  based on earned income, and suggests the following levels:

Income Bracket

Donation

Less then 105 001 USD                               At least 1% of your income, getting closer to 5% as your income approaches 105 000 USD

105 001 USD – 148 000 USD                   5%

148 001 USD – 383 000 USD                   5% of the first 148 000 USD and 10% of the remainder

383 001 USD – 600 000 USD                  5% of the first 148 000 USD, 10% of the next 235 000 USD and 15% of the remainder

600 001 USD – 1 900 000 USD               5% of the first 148 000 USD, 10% of the next 235 000 USD, 15% of the next 217 000 USD and 20% of the remainder

1 900 001 USD – 10 700 000 USD         5% of the first 148 000 USD, 10% of the next 235 000 USD, 15% of the next 217 000 USD, 20% of  the  1 300 000 USD and 25% of the remainder

Over 10 700 000 USD                                 5% of the first 148 000 USD, 10% of the next 235 000 USD, 15% of the next 217 000 USD, 20% of the next 1 300 000 USD, 25% of the next 8 800 000 USD and 33.33% of the remainder

Singer freely admits the percentage systems postulated are blunt aggregate guides. He cites an example that one couple earning $50K  per annum may have children and greater income needs than another who have no children or mortgage,  and so the second couple could donate at higher levels. It is an interesting concept that if governments fail to create a meaningful social contract then the  individuals may create their own cooperative to fill the vacuum.  Singer also raises challenging moral nuances  as to where the funds should be  directed. He argues that perhaps aid investments should be directed where the ‘biggest bang for the buck’ is available and suggests that this may not necessarily be in the rich nations regardless of the poverty proximity.

He cites a theoretical  example of a US child raised in a ghetto environment in impoverished circumstances and with limited educational access. He argues that to make a meaningful change in the circumstances of this child , who is not in imminent danger of starvation or death, would be many thousands of dollars over years of intervention. He contrasts this with the massive impact of  obstetric fistulas in developing countries induced through rape or childbirth in adolescence.  Such a   fistula results in the uncontrolled passage of urine or feces from the bladder or rectum into the vagina. Each year an estimated 50,000 to 100,000 more women develop obstetric fistulas, resulting in social ostracizing and frequently death. The cost for an operation to connect such as fistula is around $500.  So if we assume an imaginary intervention in the surgical intervention in fistula case at $500 versus the  US ghetto aid scenario of $5,000 (which would only give access to facilities already prevalent in a rich nation but denied through social policy)  the return in human terms  be a factor of 10:1.

With finite resources available to be applied to aid, such morally troublesome decisions about the economic efficiency of aid direction become real. Jeffrey Sachs, another great thinker, in his book ‘Common Wealth: Economics for a Crowded Planet’ bemoans the same lacks of prioritization on aid and ecological disaster prevention measures. He calculates, based on available OECD data, that over a 50 year period  the donor nations of the world have granted an average of only $15 per annum per recipient of aid. This equates to $2.3 trillion of aid over the 50 year period. While this seems a large amount of money, Sachs compares it to US military spending in the same period,  which equaled $17 trillion or 8 times the amount of total aid provided to the developing world. One is left to conclude that the developed world is gifted at the creation of wealth, has philanthropic intent, but is  failing to mobilize this in meaningful magnitude. It also shows the extreme inequality of income distribution within developed nations, and the relative high cost of making corrections to the internal and external dimensions of these challenges.

In the thinking of Singer and Sachs there are ideas as a catalysts  to motivate and prioritize the change required, but it appears that the impetus will need to come from the  initiatives of the population at large  as opposed to major governmental changes in policy. It appears that as far as governments are concerned, economic efficiency is defined as  making more rather than achieving more with what is made. We will close with an ethical truism  from Singer to ponder, “If we can prevent something bad without sacrificing anything of comparable significance, we ought to do it; absolute poverty is bad; there is some poverty we can prevent without sacrificing anything of comparable moral significance; therefore we ought to prevent some absolute poverty.”