The economic case against charity.

The economic mysteries of daily life.
Oct. 14 2006 7:11 AM

Charity Is Selfish

The economic case against philanthropy.

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Selfishness is one of those issues where economists seem to see the world differently. It's not that economists are incapable of imagining—or even modeling—altruism. They can, but they usually don't. And there's a good reason for that: People aren't selfless.

The Johns Hopkins Comparative Nonprofit Sector Project estimates that charitable giving in the United States was 1.85 percent of the size of the economy in recent years, 0.84 percent in the United Kingdom, and as little as 0.13 percent in Germany. By this reckoning, then, the Germans are 99.87 percent selfish, and even the Americans are more than 98 percent selfish. That's not 100 percent, but it's pretty close.

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Admittedly, if you include the time spent volunteering, you can get selfishness rates as low as 95 percent: Step forward, the Dutch. That's still not impressive. It's also an underestimate of selfish motivations. If people really were altruistic, there would be much less volunteering.

This isn't some silly tautology. If these do-gooders really were motivated by the desire to do good, they would be doing something different. It would almost always be more effective to volunteer less, work overtime, and give more. A Dutch banker can pay for a lot of soup-kitchen chefs and servers with a couple of hours' worth of his salary, but that wouldn't provide the same feel-good buzz as ladling out stew himself, would it?

In fact, the closer you look at charitable giving, the less charitable it appears to be. A recent experiment by John List, an economist at the University of Chicago, and a team of colleagues, showed that donations are less than magnanimous after all. Using controlled trials to compare different methods of door-to-door fund-raising, professor List's team discovered that it was much more effective to raise funds by selling lottery tickets than it was to raise funds by asking for money. This hardly suggests a world populated by altruists seeking to do the maximum good with their charitable cash.

More effective still was simply to make sure that the fund-raisers were attractive white girls rather than a dowdier assortment of males and females representing all shapes, races, and sizes. This dramatically increased the average contribution, because many more men decided to give money. Altruism?

Few economists are surprised by these results. Robert Frank, from Cornell, wryly observes that those organizing fund-raising drives for the United Way tend to be disproportionately real estate agents, insurance brokers, car dealers, and other people with something to sell. Many people buy charity Christmas cards, effectively giving to charity and then posting the receipts to their friends and colleagues.

Even the way we choose to dole out cash betrays our true motives. Someone with $100 to give away and a world full of worthy causes should choose the worthiest and write the check. We don't. Instead, we give $5 for a LiveStrong bracelet, pledge $25 to Save the Children, another $25 to AIDS research, and so on. But $25 is not going to find a cure for AIDS. Either it's the best cause and deserves the entire $100, or it's not and some other cause does. The scattershot approach simply proves that we're more interested in feeling good than doing good.

Many people are unconvinced by this argument—which I owe to Steven Landsburg—because they are used to diversifying their financial investments (a bit of Google stock and a bit of Exxon, too) and varying their choices (vanilla ice cream AND bananas). But those instincts are selfish: They are not intended to benefit both Google and Exxon, nor both the ice-cream company and the banana growers. With charity, the logic is different, and a truly selfless donor would bite the bullet and put his entire donation behind one cause. That we find that so hard to imagine is just one more indication of how hard it is for us to think ourselves into a truly selfless view of the world.

None of this is to say that these contributions are worthless or economically insignificant. Just don't get too starry-eyed about the motives behind them.