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Stop Corporate Charity

December 29, 2010 2 comments

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There are many reasons to oppose corporate charity. It is deceptive, immoral, and border-line criminal. It hinders economic growth for the wealthy as well as the impoverished, and promotes a culture of ambiguity, pompous grandstanding, and anti-productivity.

Under a strict construction of the ethics of contractual agreements, corporate charity is an act of theft against the corporation’s stockholders and other investors. This is obviously so because a corporation is by definition a for-profit entity, and its investors lend their capital to the corporation ostensibly to receive a return on investment in proportion to the corporation’s profits. Investment carries risk, of course, and if a corporation fails to produce a profit by the honest inadequacies of its executives, that is business. On the other hand, if it fails to produce a profit – or fails to produce as much of a profit – because the executives made a decision to donate some portion of revenue to charity, however small a portion it may be, the investors have been cheated out of returns they were owed under their agreement with the corporation. This is exactly the same crime as occurs when executives defraud investors by embezzling company funds into their personal accounts. It is only treated differently because of differing public attitudes about perceived greed and perceived charity, which, right or wrong, should have no bearing on whether theft is a crime.

An argument can be made that the situation is not so clear-cut because corporate charity has gained widespread acceptance, or at least widespread acknowledgment. Since almost all corporations engage in at least some level of charity, it could be argued that investors understand at the time they decide to purchase stocks that some portion of their funds will be given away rather than used for real investment purposes. That’s not a totally invalid point, but it’s extremely shaky. If a consumer buys a sealed box labeled “a dozen eggs”, but knows at the time it probably only contains ten eggs because a short dozen scam is widespread and typical in his town, the fact that he knew he was most likely getting scammed doesn’t make the scam okay. This is what is happening with corporate charity: investors are being scammed out of a portion of their investment, but they expect they probably will be. That doesn’t justify it.

Furthermore, even if we accept the argument that an expected scam is not truly a scam, that leaves open the question of precisely what is expected. Maybe investors only expect that the corporations in which they choose to invest will donate one percent of their money, but the corporations actually donate two percent! Maybe the investors expect that each corporation will steal whatever the average amount of stealing is, but in fact some corporations by definition must steal more than the average. Clearly there is no way to reason out of the reality that deliberately non-profit actions by an explicitly for-profit institution is a criminal act of theft against investors. This alone should be sufficient to compel any honest person to oppose all corporate charity.

This is nowhere near the end of it, though. As with almost all criminal acts, the damage done by corporate charity really extends far beyond the simple breaking of an abstract principle. The principles of contracts exist for a reason, and the violation of them has severe negative consequences for everyone. When executives steal from investors to donate to charities, they decompartmentalize the economy, blurring the lines between production and consumption, and making it harder for investors as well as consumers to make informed choices. Compartmentalization and specialization are necessary in a productive society, because they allow for the greatest success for the most productive entities and the most immediate failure for the unproductive ones. Both production and charity are made more efficient when they are handled separately.

Consider an entrepreneur who innovates in automobile technology, reducing the costs of high-speed transportation sufficiently that millions of families who were previously too poor to afford it now have access. Good for him. His company will likely make a very large amount of money selling these cheaper automobiles, and it should, because that profit is the incentive that brings about innovation. It’s a reciprocal relationship – the entrepreneur is wealthier precisely because he made poor people wealthier. The more people to whom he is able to provide transportation affordably, the more money he will have. In this way he has done a great service to himself as well as to others around him.

Now suppose this entrepreneur donates huge portions of his money to charity, or worse, steals from the investors in his company and donates their money to charity. No matter what sociology professors may say, this is economically a bad idea. It is known that the entrepreneur is talented in production. There is no reason to believe he is talented in charity. He has an inarguable eye for opportunity in investment. He may very well be no more competent than any other bloke when it comes to giving aid. In reality, it is almost assuredly true that he would do a far greater service to the poor – which is to say, would raise their standard of living by a far higher amount – if he would use this money to reinvest in research and development to continue to make his automobiles more affordable, or to add new safety features, or to market a line of trucks, or whatever else he discerns is a wise productive investment. Remember that, if he sells a million automobiles a year, then for every dollar by which he is able to reduce the price of his automobiles the poorer people save a million dollars. Simultaneously, his sales will increase, so he will become richer, and have more money to reinvest. That’s economics, and it works.

When entrepreneurs reinvest accumulated capital and thereby lower the cost of consumer goods, they have another effect which is even more profound. By raising the ratio of value produced to labor required, investors raise real wages for just about everyone. This means that while people need to pay less money at the store to get the things that they want, they also take home more money from their standard day job. That’s a compelling argument against corporate charity and for corporate investment from the standpoint of the working class people. As for those who are too uneducated, disabled, or disinterested to labor for a living, the argument is – believe it or not – even stronger. That’s because it is an empirically demonstrable fact that donations by ordinary people to private charities actually rise super-linearly with income. This means when people make more money, they give even more of the money they make to charity. Thus, a successful investment in research and development will in the long run raise charitable donations more than if the same amount of money were simply given directly to charities – and yet it will do so without the need for criminal deception and the taking of other people’s money. So why don’t these do-gooder corporate executives who want to help the poor start by helping their employees and stockholders, and let people donate to charity with their own money?

One can speculate further that there is yet another mechanism by which corporate charity ultimately reduces charitable contributions, and that mechanism is uncertainty and lack of information. It is assuredly true that, when people donate to charity, they value knowledge of where their money is going, and want to know that it is being used effectively. They want to know how much of their income they donate, and smoke and mirrors surrounding charity will cause skepticism. It is therefore very likely that corporations which engage in charity using money taken from investors without their direct knowledge or consent really discourage other people from donating explicitly and thus reduce total donations. In much the same way that people tend to avoid taking it upon themselves to help the unemployed and homeless when governments claim to provide protection, so also they probably scale back charitable donations when corporations claim to do it for them. This reduction in charity is perception-based, not results-based. So when governments and corporations fail to provide the benefits they claim, and the downtrodden are left to suffer, nevertheless members of the community do not respond, do not take up the burden of charity themselves, because they are told someone else is taking care of it, so it must be someone else’s fault. A mixture of pathological blaming and self-righteous grandstanding takes the place of real work by individuals to help their fellow men, and everyone is worse off.

Finally, corporate charity is used as a rationalization for bad corporate policy, rent-seeking, interference with public policy and government officials, and generally poor quality of products and services. It tends to be a last-ditch effort by inefficient executives to avoid the progress inherent in a free market. Suppose one company is able to sell a product for ninety dollars, while another sells it for the slightly higher price of one hundred dollars, but has a better reputation due to engaging in more charitable programs in local communities. That sounds nice, but almost certainly the latter company’s contributions really do not constitute ten percent of its revenue. Therefore, consumers would do better to buy the cheaper product from the less charitable company and donate just some of the money they save. Some of them will do this, but others will make the mistake of falling victim to feel-good reputation-building that obscures real market efficiency. A greater good is done for a greater number of people by pursuing the most efficient, not the most heartwarming economic goals.

Thus the executive who commandeers funds entrusted to him by others and uses them for his own purposes – even ostensibly charitable ones – is presented with an incentive structure which rewards grandstanding and hollow self-promotion, while the executive who commits the investors’ funds to their intended purpose is required to produce real benefits for the consumers in order to stay afloat. This leads us to a final and critical point which those of you who know me well may have realized was coming from the beginning: So-called corporate “charity” is not charity at all. It is avaricious crime which damages the people it claims to help and helps the people it claims to damage. Executives who presume to achieve moral superiority by being sacrificial with other people’s money are not generous; they are vicious. The particular charities which they happen to favor are deemed worthy of everyone else’s support. So if an executive happens to feel especially strongly about one kind of cancer because of a death in his family, others who suffer from a different cancer must see a loss in funding because the executive is quite happy to steal from the populace and redirect contributions to his favored cause. As a result, charity organizations focus less on creating real results which they can demonstrate to the average person and more on befriending the higher-ups. So-called corporate “charity” robs the investors who risked their money to support entrepreneurship, raises costs to consumers, lowers employee wages, corrupts charities, empowers executives to an even greater extent, and ultimately does exactly the opposite of its purported goal: getting money to charities to help people in need.


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NY Times: Ron Paul was right

December 14, 2010 3 comments

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Monday’s issue of the New York Times featured a rather remarkable article titled Rep. Ron Paul, G.O.P. Loner, Comes In From Cold. An improbable divergence from the Times’ history of mostly (though not completely) ignoring the world’s most prominent living libertarian, this article serves to illustrate the increasingly mainstream nature of Dr. Paul’s anti-government philosophy. Yet it is even more than that. The article does not simply observe and comment on Dr. Paul’s stance; it admits that many other mainstream figures who once criticized and mocked him now feel they should have listened to him all along. As former New Mexico governor and now 2012 presidential candidate Gary Johnson has observed, the news media feel they missed out on the movement in 2008, and they wish they had been on board. I wish to analyze and respond to the Times’ piece, item by item, in its entirety.

Rep. Ron Paul, G.O.P. Loner, Comes In From Cold

WASHINGTON — As virtually all of Washington was declaring WikiLeaks’s disclosures of secret diplomatic cables an act of treason, Representative Ron Paul was applauding the organization for exposing the United States’ “delusional foreign policy.”

For this, the conservative blog RedState dubbed him “Al Qaeda’s favorite member of Congress.”

A video of Dr. Paul speaking confirms this is true – and important. I’m glad the article opens with a strong statement relevant to current events. The dust hasn’t settled yet on the Cablegate controversy, but as of this writing, The Journal’s public opinion poll shows 89% of responders calling Wikileaks founder Julian Assange a “hero” as opposed to just 11% who regard him as a “villain.” This contrasts starkly with the views of the political establishment, who almost unanimously seek to silence or assassinate Assange.

There’s no sense in being timid about this. Dr. Paul believes wholeheartedly that the federal government is an excessively secretive and destructive organization which lies and deceives in order to achieve devious goals, especially regarding the occupation of foreign countries. He supports (and I support) anyone who, by peaceful means, attempts to expose the government’s deception to the public, and that includes Wikileaks. If anyone out there disagrees, he or she may as well stop reading and move on to another article.

It was hardly the first time that Mr. Paul had marched to his own beat. During his campaign for the Republican presidential nomination in 2008, he was best remembered for declaring in a debate that the 9/11 attacks were the Muslim world’s response to American military intervention around the globe. A fellow candidate, former Mayor Rudolph W. Giuliani of New York, interrupted and demanded that he take back the words — a request that Mr. Paul refused.

Once again video confirms that this debate occurred. What the Times fails to clarify here is that a myth sprung up surrounding this particular debate – namely, that Dr. Paul claimed the United States “invited” a terrorist attack – which is a pure fabrication. His true stance is much more matter-of-fact. He simply believes that blowback is a predictable consequence of an interventionist foreign policy, rightly or wrongly. Dr. Paul does not claim – and no libertarian claims – that the 9/11 attacks were morally justified or that Osama bin Laden should continue his vendetta against the American people. Rather, the non-interventionist philosophy holds simply that such attacks will occur as a result of United States meddling, regardless of whether they should, and as such policy-makers need to adjust their strategy from intervention to peace in order to keep the American people safe.

During his 20 years in Congress, Mr. Paul has staked out the lonely end of 434-to-1 votes against legislation that he considers unconstitutional, even on issues as ceremonial as granting Mother Teresa a Congressional Gold Medal. His colleagues have dubbed him “Dr. No,” but his wife will insist that they have the spelling wrong: he is really Dr. Know.

Correct again. A more interesting example in recent memory would be when Ron Paul cast the only “No” vote against granting subpoena power to an executive commission designed to investigate the Deepwater Horizon (BP) oil spill. Public opinion on Dr. Paul’s decision was low, but he cited the absence of any clause in the Constitution authorizing such a subpoena, explained that there were already other procedures in place for cleaning up oil spills which did not involve the shifting of power from the legislature to the executive branch, and lambasted the federal government for dealing with the oil spill inefficiently and using unprecedented executive authority.

Now it appears others are beginning to credit him with some wisdom — or at least acknowledging his passionate following.

After years of blocking him from a leadership position, Mr. Paul’s fellow Republicans have named him chairman of the House subcommittee on domestic monetary policy, which oversees the Federal Reserve as well as the currency and the valuation of the dollar.

I want to thank the author of this article, Kate Zernike, for going out on a limb here. I have heard from many fairly trustworthy people that the last time Ron Paul was in line to chair this subcommittee, the GOP simply abolished the subcommittee entirely rather than permit him to speak out. However, I can’t for the life of me find any primary source confirmation dated to the time this allegedly happened, 2008 or earlier. Everyone agrees that Ms. Zernike is right, but I can’t prove it. If you have a source for this information, please share.

Mr. Paul has strong views on those issues. He has written a book called “End the Fed”; he embraces Austrian economic thought, which holds that the government has no role in regulating the economy; and he advocates a return to the gold standard.

This is not true at all. I guess I shouldn’t be surprised, but I continuously am, at how even reporters who seem to care about their subject and do research can remain agonizingly ignorant of very simple economic issues. It’s par for the course for the NY Times to fail to be clear about how economics actually work, but to make an outright false statement … well, that’s par for the course, too.

Dr. Paul emphatically does not advocate the gold standard. He advocates for freely issued hard-asset currency in the long-term and legalized competing currencies in the short-term. Neither of these two things is the gold standard. Ron Paul firmly believes that no one should be forced to accept a currency which he or she does not value, whether that currency is a Federal Reserve note or a gold coin or anything else.

Furthermore, Austrian economics is not a political ideology, nor any opinion of any other form. Austrian economics is an objective method of studying economic phenomena. It makes no value judgments about what people should or shouldn’t do. A great economics professor, author, and personal friend of mine, Dr. Steven Horwitz, wrote at length to explain what Austrian economics is and what it is not, in case any reporters from the NY Times want to educate themselves.

Nevertheless, the real gem of this article consists of the subsequent several paragraphs:

Many of the new Republicans in the next Congress campaigned on precisely the issues that Mr. Paul has been talking about for 40 years: forbidding Congress from any action not explicitly authorized in the Constitution, eliminating entire federal departments as unconstitutional and checking the power of the Fed.

He has been called the “intellectual godfather of the Tea Party,” but he also is the real father of the Tea Party movement’s most high-profile winner, Senator-elect Rand Paul of Kentucky. (The two will be roommates in Ron Paul’s Virginia condominium. “I told him as long as he didn’t expect me to cook,” the elder Mr. Paul said. “I’m not going to take care of him the way his mother did.”)

Republicans had blocked Mr. Paul from leading the monetary policy panel once before, and banking executives reportedly urged them to do so again. But Republicans on Capitol Hill increasingly recognize that Mr. Paul has a following — among his supporters from 2008 and within the Tea Party, which helped the Republicans recapture the House majority by picking up Mr. Paul’s longstanding and highly vocal opposition to the federal debt.

Aides, supporters and television interviewers now use words like “vindicated” to describe him — a term Mr. Paul, a 75-year-old obstetrician with the manner of a country doctor, brushes off.

“I don’t think it’s very personal,” he said in an interview in his office on the Hill, where he has represented the 14th District of Texas on and off since 1976. “People are really worried about what’s happening, so they’re searching, and I think they see that we’ve been offering answers.”

If there is vindication here, Mr. Paul says, it is for Austrian economic theory — an anti-Keynesian model that many mainstream economists consider radical and dismiss as magical thinking.

This quality of journalism coming out of the NY Times is nearly unheard of. Rarely if ever have reporters been willing to take up this stance with such clarity: The establishment said one thing. The libertarians said the opposite. Time passed, and more and more people are thinking the libertarians were right. That’s just not an easy thing to admit to.

Even framing the debate that way is rare. Typically mainstream papers do their absolute best to portray every issue as a conflict between one vague tyranny and some other vague tyranny. When the NY Times summons the will to talk about monetary theory, it almost invariably discusses the arguments for government-created inflation versus government-created deflation. The idea of monetary choice is never mentioned, either because the mainstream reporters don’t want us to know about it, or because they sincerely can’t even imagine it.

But that is changing – fast – and this article proves it. I wonder how many people read the NY Times on Monday and then Googled Keynesian or Austrian economics. I wonder how many of them managed to find the rap video which explains the difference between Keynesian and Austrian views on the causes of and cures for the Great Recession.

Freedom comes when libertarians take control of the dialogue of the day and define the terminology to be used in discussion. As long as people are taught to think in terms of what kind of lifestyle will be forced upon them, progress cannot be made. But when ideas like those of the Austrian economists and others who identified the nature and significance of individual choice start to enter the discussion, the genie is let out of the bottle. A human being, once taught that he is capable of making decisions different from those of others around him without entering into violent conflict with them, cannot be de-educated, and cannot be silenced.

It is unnecessary for me to continue to pick a part the minutiae of this article with commentary. You can see the significance. Now read the remainder of it, observing the terms which I have chosen to emphasize. You will find that they have certain key characteristics. Namely, they are specific, which is to say, they refer to a definable idea or object which can be qualified and observed, they are relevant to serious issues that face America today, and they are oriented around a discussion of choice, meaning that they either are associated with advocates for violent intervention in the lives of peaceful people or associated with advocates for peace and freedom. By helping to shift the dialogue of our day to center around these words, the NY Times has (perhaps inadvertently) made a substantive contribution to the libertarian movement.

The theory argues that markets operate properly only when they are unfettered by government regulation and intervention. It holds that the government should not have a central bank or dictate economic or monetary policy. Once the government begins any economic planning, such thinking goes, it ends up making all the economic decisions for its citizens, essentially enslaving them.

The walls of Mr. Paul’s Congressional office are devoid of the usual pictures with presidents and other dignitaries. Instead, there are portraits of Ludwig von Mises and Murray Rothbard, titans of the Austrian school. For years, Mr. Paul would talk about their ideas and eyes would glaze over. But during his presidential campaign, he said he began to notice a glimmer of recognition among those who attended his events, particularly on college campuses.

Mr. Paul now views his exchange with Mr. Giuliani in 2008 as a crucial moment in his drive for more supporters. “A lot of them said, ‘I’d never heard of you, and I liked what you said and I went and checked your voting record and you’d actually voted that way,’ ” he said. “They’d see that the thing that everybody on the House floor considered a liability for 20 years, my single ‘no’ votes, they’d say, ‘He did that himself; he really must believe this.’ ”

His campaign that year attracted a coalition that even he recognizes does not always stand together: young people who liked his advocacy of greater civil liberties and the decriminalization of marijuana; conservatives who nodded at his antidebt message; and others who agreed with his opposition to the Iraq war.

During George W. Bush’s presidency, he was out of favor with the reigning neoconservatives who were alarmed at his anti-interventionism. He still gives many conservatives fits with comments like his praise for WikiLeaks.

And many of those who follow the Fed closely say his ideas are “very strange indeed,” in the words of Lyle E. Gramley, a former governor of the Fed who is now a senior economic adviser at the Potomac Research Group. “I don’t think he understands what central banking is all about,” Mr. Gramley said.

Putting such a critic of the Federal Reserve chairman, Ben S. Bernanke, in such a prominent role, he added, could damage economic confidence. [Editor’s note: Business is driven by the animal spirits!]

The public doesn’t understand how serious the problem was and why the Fed had to take the action it did,” Mr. Gramley said. “Having someone in Congress taking shots at the Fed makes the situation uneasy.”

Still, Mr. Paul says, his colleagues respect his following outside Washington. “I was on the House floor today,” he said, “and somebody I don’t know real well, another Republican, he was talking to two other members, and he knew I was listening. He pointed at me and said, ‘That guy has more bumper stickers in my district than I do!’ ”

Interview requests are so common that Mr. Paul has set up a camera and studio backdrop in his district office to save him the hour’s drive to television stations in Houston.

His bill demanding a full audit of the Fed, which he had unsuccessfully pushed for years, attracted 320 co-sponsors in the House this year.

And the lunches that he has held in his office every Thursday, where lawmakers can meet intellectuals and policymakers who embrace Austrian economics, have become more crowded, drawing Tea Party celebrities like Congresswoman Michele Bachmann of Minnesota.

“For a long time, a lot of people in Congress on both sides of the aisle agreed with Ron a lot of the time but felt it wasn’t safe to go there,” said Jesse Benton, a longtime Ron Paul aide who ran Rand Paul’s Senate campaign.

The father is about to gain even greater visibility. He says he will use his new chairmanship to renew his push for a full audit of the Fed and to hold a series of hearings on monetary policy.

On Web sites for Ron Paul fans, there are urgent pleas for a father-son (or son-father) “Paul/Paul 2012” ticket. But in an interview, the senior Mr. Paul seemed taken by surprise by the suggestion of teaming up. While he is bursting-proud of his son, he is not necessarily ready to yield the spotlight: He is pondering another presidential run on his own.

“I’d say it’s at least 50-50 that I’ll run again,” he said, adding that he would look at where the economy is. (Aides add that it would depend a lot on what his wife, Carol, says.)

But for all the ways the Tea Party echoes Mr. Paul on fiscal issues, it is not clear such support would carry over into a presidential campaign. The last time he ran, he won less than 2 percent of the vote, though that was before the Tea Party became a force in politics.

Even many Tea Party conservatives are not on board with Mr. Paul’s beliefs about scaling back the United States military worldwide. And Paul supporters look on the Tea Party with some disdain.

Mr. Paul acknowledged the sometimes competing interests among Tea Party supporters and his fans. “What brings them together is this acceptance that there’s something really wrong, that we’ve spent too much money and government’s too big,” he said.

That, he added, was why he had to work at keeping up his influence, particularly in spreading the word about the cost of foreign interventions.

Still, he noted: “We’re further along than I would have expected in getting our message out in front. I thought I’d be long gone from Congress before anybody would pay much attention.”


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