“Private Charity Isn’t Enough”

A New York Times article “Hong Kong’s Umbrella Revolution Isn’t Over Yet” reports both the strong economic growth and income inequality in Hong Kong:

Over the past 10 years, the median income in the city has increased by 30 percent, even as G.D.P. has grown by 60 percent. Twenty percent of Hong Kong’s population is living under the official poverty line, but the city’s 50 richest people, according to the annual list compiled by Forbes, are worth a total of $236 billion.

Religious and secular charities encourage wealth transfers from those with middle and high income to those in need of help. An About.com article explains:

Reaching out to those in need is central to Jewish being. Jews are commanded to give at least ten percent of their net income to charity. Tzedakah boxes for collecting coins for those in need can be found in central places in Jewish homes. It is common to see Jewish youth, in Israel and in the Diaspora, going door-to-door to collect money for worthy causes. 

Islam has a long history of charitable giving, though many Islamic charities closed following 9/11. About.com offers a list of “Top 7 Islamic Charitable Organizations.

Muslims generally strive to be generous and humble in their charitable contributions, but it is getting harder to do so in today’s climate of suspicion and fear. Some Islamic charities have been shut down on allegations of re-routing funds to terrorist causes, causing Muslims to become wary of where their money is going. We advise each person to thoroughly research any organization before making a donation.

Christian churches and charities assist people all around the world.

The National Philanthropic Trust has a page of Charitable Giving Statistics, noting that 31% of the $335 billion were in religious donations:

95.4% of households give to charity.1 

The average annual household contribution is $2,974.1
Americans gave $335.17 billion in 2013. This reflects a 4.4% increase from 2011.2 

Corporate giving held steady in 2013 at $16.76 billion.2
Foundation giving increased in 2013 to $50.28 billion–a 5.7% increase from 2011.4

In 2013, the largest source of charitable giving came from individuals at $241.32 billion, or 72% of total giving; followed by foundations ($50.28 billion/15%), bequests ($26.81 billion/8%), and corporations ($16.76 billion/5%).2

In 2013, the majority of charitable dollars went to religion (31%), education (16%), human services (12%), and grantmaking foundations (11%).2

Still, even with the billions of dollars and millions of volunteer hours flowing into charitable projects, many argue that’s not nearly enough.  Here is Robert Parham on the topic:

The idea that churches can tackle national poverty, take care of those who are ill, and rebuild communities after natural disasters requires a spoonful of bad moral theology and a cup of dishonesty. –Robert Parham, Executive Director of Baptist Center for Ethics 

This quote leads an Values & Capitalism post “Private Charity Isn’t Enough.” Federal governments agencies have played an expanding role in providing for those in poverty since New Deal and Great Society legislation. How do we compare and contrast this expanded government involvement with the astonishing progress of the free economy is driving down the cost of food, clothing and other necessities, as well as pushing productivity and wages up.

 … to the extent that poverty can be reduced, the church and private charity alone are simply too small to do it. The incredible gains in social and material welfare of the poor in America have not primarily resulted from charity, churches or governments. They have resulted from (mostly) free-market economies.

The Values & Capitalism post author explains Public Choice analysis and the problem of special interests steering funding to programs quickly “captured”:

Government programs are also subject to “capture” by interest groups and politicians. Scratch the surface of any government program and you will find that it is not the “general welfare” being promoted, but the welfare of a very small and politically connected group at the expense of the general welfare. 

To examine private efforts and claim they cannot tackle a problem is only half the analysis needed. We must also examine government efforts and ask if they can tackle the same problem before we charge them to do it. The field of Public Choice Economics does just this, and you would be hard-pressed to find a case where the market is not providing something and getting government involved makes it better. If Christians have a duty to help the poor, they also have a duty to use their brains to discover ways that actually work. Intentions and actions are not enough, we need to understand how to be effective. This requires some knowledge of economic and political systems.

Rent controls and other housing regulations are an example of this process. They are promoted with claims the poor will be protected, but those benefiting most are soon well-to-do people in rent-controlled apartments (in New York City and San Francisco for example). Restrictive housing regulations tend to benefit people who already own homes whose value increases as new houses become more expensive to get permitted and built.

In Hong Kong, New York City, London, San Francisco, and other leading cities, high housing prices are a challenge to everyone except the rich. At first glance, people assume housing prices and rents are high because so many high-income people live in these cities. But that’s only part of the reason.

Consider the housing shortages caused by rent-control regulations:

Rent-control does, however, lead to abandonment. In San Francisco, a combination of rent control and strict eviction laws force many landlords to accommodate long-time tenants who pay well below market rate, leaving little revenue available to cover expenses. This has caused landlords to abandon an estimated 31,000 units—or one-twelfth of the city’s stock. Mayor Lindsay’s late-1960s rent-stabilization measure, which came right before an era of high taxes and inflation, caused New York City landlords to abandon 300,000 units from 1974-1984. (“How Ironic: America’s Rent-Controlled Cities Are Its Least Affordable,” Forbes, April 24, 2015)

Today’s building restrictions are astonishing complex and expensive to navigate. Why, and who benefits from the status quo housing regulations? The problem of high rents has its source mostly in rent-seeking, according to this 2014 Economist article on housing costs in San Francisco:

Now because the cost of living in San Francisco would not be very high, the consumer surplus available from living there would be extraordinary, and everyone would want to move there. Inflows of people would stop when the cost of making more San Francisco rose to meet the value derived from San Francisco by the marginal resident. Costs would rise, because the denser the city became the more expensive it would be to build new units (building super-tall towers does cost more, per unit, than building relatively modest apartment buildings). And the value to the marginal resident would fall for two reasons. First, the marginal resident will definitionally be someone who is relatively indifferent between living in San Francisco and living somewhere else. Everyone more eager to live there would already have moved in. And second, as people move in congestion costs within the city rise, reducing the value of San Francisco to everyone in San Francisco. 

This, ostenibly, is why we have things like zoning codes. The welfare-maximising population of San Francisco may be higher (and possibly much, much higher) than the population which maximises the welfare of those already living in San Francisco. So the city devises a set of regulations that effectively make current residents monopolists, able to artificially limit supply and raise price. Society as a whole is slightly worse off; San Franciscans are slightly better off.  

But in fact, the structure of local politics tends to magnify rent-seeking, generating enormous social costs. The benefits and costs of population growth occur in a way that practically guarantees highly restrictive building rules. The (large) potential benefits to would-be San Franciscans accrue to people who have no political power within San Francisco. The gains to San Franciscans from population growth are distributed very broadly; when a new building project allows more people to live in San Francisco, everyone in the city derives a small benefit from that growth—from the larger market size, greater opportunities for professional networking and knowledge spillovers, and so on. But the congestion costs associated with that new project are highly concentrated on the people living in the immediate vicinity of the new construction. There is a population level at which new growth entails net costs for all San Franciscans. But residents of San Francisco will limit new growth long before it reaches that level, because there will always be a strong constituency to block projects.
We therefore get highly restrictive building regulations. Tight supply limits mean that the gap between the marginal cost of a unit of San Francisco and the value to the marginal resident of San Francisco (and the market price of the unit) is enormous. That difference is pocketed by the rent-seeking NIMBYs of San Francisco. However altruistic they perceive their mission to be, the result is similar to what you’d get if fat cat industrialists lobbied the government to drive their competition out of business.

So, for those with low incomes, food and clothing costs have dropped dramatically over the last one hundred years. Housing prices are, however, still in the grip of regulators and special interests.