Is Forced Charity Bad for the Economy?
Thu, February 2, 2023

Is Forced Charity Bad for the Economy?


Most donors give not to show off their wealth but because of the internal satisfaction they get from giving. / Photo by Pearl PhotoPix via Shutterstock


Most donors give not to show off their wealth but because of the internal satisfaction they get from giving. This is why they offer donations even if their contributions are anonymous. Donors find it important to help others in need or believe their donations matter to someone they care about or someone they know. For instance, people who know someone with a disease will donate to organizations that promote research for such disease.


Forced charity and economics

Satish Bapanapalli, a manufacturing operations leader in a Fortune 500 company, opined that it is bad economics when charity is forced. This is because it only ensures the perpetuation of misery and poverty.

He cited welfare policies that are “forced” by the US bureaucrats and politicians upon people. These authorities collect taxes to finance various public services or charities of their choice, such as unemployment insurance, USAID, food stamps, and Medicaid. The bureaucrats and politicians also support charities, such as subsidies to the electrical companies, wind and solar power firms, farmers, and the steel industry, he added.

What happens if these charities run by the government are poorly managed? The budget for Medicaid that is worth nearly $600 billion can be used to purchase the highest-rated health insurance Obama Gold Plans in the US for every 74 million Medicaid enrollees and the charity will still have more than $100 billion budget to spare. However, many states said they don’t have enough funds to cover all Medicaid requests.

Bapanapalli, whose educational training is in business and engineering, believes that people who are forced by the US government to perform such a kind of “charity” are not even getting the supposed satisfaction of helping their fellow human beings due to the impersonal nature of giving through government welfare programs. In the same way, the welfare recipients may not feel grateful in the process because they have been convinced that it is not a charitable gift to them but a government-given right.


An economy grows when people use their skills to convert natural resources into goods that generate economic value. / Photo by Rawpixel via Shutterstock


This does not, however, apply to countries of the homogenous population like Scandinavian nations. Charitable people in these countries still get internal satisfaction from the involuntary philanthropy because they can relate to the recipients of chosen charities of the government. Having a big welfare state in these countries does not lead to public dissatisfaction. A population is said to be homogeneous if they are identical and not diverse. However, the more non-homogenous a country is, the more public dissatisfaction the country also experiences.



Involuntary philanthropy

In involuntary philanthropy, taxpayers or buyers of goods and services do not get the fulfillment that corresponds to their expenditure as they are forced to spend more money than they intended and their wealth goes to causes they don’t necessarily believe in. On the part of the welfare recipients or the sellers, they are also not getting proportionate satisfaction as they believe they have a right to more welfare payment. This is the amount of money paid by the government to someone who is poor, ill, or has no job. “That’s bad economics overall,” he continued.



The Keynesians economics

The circulation of money itself does not create economic value. An economy grows when people use their skills to convert natural resources into goods that generate economic value.

When a person purchases a shirt from clothing retail company Gap, a series of exchanges happen prior to that. Farmers exploit natural resources, such as land, water, and air to produce cotton. Miners mine minerals to produce the fertilizers and agricultural tools needed by farmers. All these have monetary exchanges that create economic value. An exception to this would be theft. It is an exchange that does not produce economic value.

Monetary stimulus and tax policies, on the other hand, only make the wheel of monetary exchanges spin faster. It doesn’t transmit more power in the process and leads to a “liquidity trap,” as explained in Keynesians economics, which was developed by British economist John Maynard Keynes in an attempt to understand the Great Depression. The higher the number of inefficient exchanges in the economy, the slower the growth. And with slow economic growth, poor welfare recipients will have fewer opportunities to find their way out of poverty.



Hillsdale College’s Professor in Economics and Public Policy Gary Wolfram also told nonprofit news service Michigan Capitol Confidential that the government’s redistribution of income from regular people to charities is “unjust.” This view came after the Trump administration proposed in its 2020 budget to cut federal support for the Special Olympics. Education Secretary Betsy DeVos defended the proposal. “Given our current budget realities, the federal government cannot fund every worthy program, particularly ones that enjoy robust support from private donations,” she said.



The urge to get a tax break

The Federal Reserve Bank of St. Louis, one of the regional Reserve Banks that make up the US central bank, published “The Economics of Charitable Giving.” It explained that charitable donations can be deducted from taxable income and this implies that wealthy people have the greatest incentives when it comes to donating. For them, charitable donations are the highest effective subsidy.



Charitable giving: statistics

According to marketing agency Nonprofits Source, Americans gave $410 billion to charities in 2017. Worldwide, 31% of donors give to NPOs, NGOs, and charities located outside of their country of residence. Overall revenue from online fundraising grew as well. Online charitable giving growth are as follows: 2012 (10.7%), 2013 (13.5%), 2014 (13.0%), 2015 (7.1%), 2016 (7.9%), and 2017 (12.1%), and 2018 (10.6%).




World Giving Index

In the 2019 World Giving Index provided by database company Statista, the United States and Myanmar were ranked at the top, both with an index score of 58%. They are followed by New Zealand (57%), Australia (56%), Ireland (56%), Canada (55%), United Kingdom (54%), Netherlands (53%), Sri Lanka (51%), Indonesia (50%), Kenya (47%), Malta (47%), Switzerland (45%), United Arab Emirates (45%), Austria (45%), Denmark (44%), Liberia (44%), Germany (43%), Turkmenistan (43%), and Sierra Leone (42%).

Economics explains that the top motivation of people for their altruistic behavior is the internal satisfaction derived from the act of giving itself. Involuntary giving through taxes, while the intention is noble, may result in lackluster growth in the economy. This just one reason why charity should be personal.