Classic Charities

The 1806 Russia depicted in War and Peace had three big ways to “help others”: medicine, school, and alms (= food, shelter, etc. for the weak, e.g., old, crippled, poor, etc.). From this, I suggested:

Modern liberal obsessions with such areas are not a local historical accident.

Seeking more data, I found a book on what foreigners saw in 1700s England, which also lists these same three as the main forms of charity (quotes below).

What about charity-related spending today?

  • US direct donations of $291 billion by organization type is 35% religion, 14% school, 8% medicine, 5% arts, and 9% “human service”, containing most local alms, and 5% “international affairs”, containing most foreign poverty assistance.
  • US non-profit revenue of $1800 billion breaks down to 51% medicine, 14% school, 2% arts, 1% religion, 7% “multi-purpose and other human services”
  • US government spending of $3,800 billion (41% of US GDP) breaks down to 16% military, 18% medicine, 16% pensions, 15% school, and 11% “welfare.”

As government spending is now 13 times direct donations, if voters treat any substantial fraction of that a substitute for private charity, then most “charity” today is channeled via government. Pensions plus welfare makes 27% of government spending apparently going to alms, or about 11% of GDP. Total US education spending is $972 billion, about 10% of GDP.

Bottom line: About 18% of US GDP goes to medicine, 11% to alms, and 10% for school. So we now spend huge sums  (~40% of GDP) on areas related to what were once the three main charities.

I’d guess that 1750 spending on alms, medicine, and school was far less than 40% of GDP.  This all raises two questions:

  1. Why such a consistent focus on the same three charity-related areas over such a long time? In general the simplest way to help folks is to give them cash. One needs other relevant factors to explain a desire to help in other ways. And to explain a consistent focus over many centuries, such factors must stay relevant over many centuries.
  2. Why did charity-like spending grow from a tiny to a huge fraction of GDP? Why are we today so much more eager for charity-like spending?

Those promised book quotes:

If the foreigner was often critical of our customs and way of life, he usually had nothing but praise for our charities and the methods by which the poor were provided for in England. … There were “more almshouses in and about London than in all the cities of Holland which prided itself on them”.

“No rich person … dies without leaving large legacies. Most parishes in London and the country have hospitals for the sick, the poor and the aged, also charity schools, where poor children are fed, taught and clothed.” … [By] hospitals he is probably referring to some kind of almshouse, for … there were very few hospitals anywhere out of London. … As the century advanced more hospitals were built both in London and in the country towns.

Sophie de la Roche tells us of a Maternity Hospital for the wives of the London poor … These lying-in hospitals were generally well managed. From them came the maternity nurses who attended the well-to-do, and a ladies’ committee superintended their organization. The Foundling Hospital was one of the sights to which foreigners were taken. … built … so that its inmates might enjoy pure country air, was one of the beautiful things of London. (more)

Added 2p: I changed “charity” to “charity-related” in several places.

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  • http://www.uweb.ucsb.edu/~criedel/ Jess Riedel

    It doesn’t make sense to call most spending on medicine and schooling “charity”. A necessary condition for charity is a transfer from the haves to the have-nots. Medicaid is certainly charity, but Medicare and most other government medical expenditures are mostly not charity; society has just moved from individually funded to mostly collectively funded medicine for various reasons. (Yes, progressive taxation means there is some transfer of wealth, but this is very different than the normal idea of charity. To first order, the middle class is paying for its own medical care.)

    This isn’t just semantics with the word “charity” since you question why the government doesn’t just give the poor cash (which doesn’t make sense in the case of collective expenditure).

    Of course, the issues raised won’t go away if we narrow our focus to genuine charity, but it would be useful to so focus.

    • http://www.uweb.ucsb.edu/~criedel/ Jess Riedel

      Sorry, I should be clear that medicare is a grey area. There are definitely sizable transfers going on, but to some extent it operates like a mandatory insurance program.

    • conchis

      To first order, the middle class is paying for its own medical care

      To what extent is this true of the individuals who make up the middle class? I.e. Are the differences in use of health care within the middle class significant enough to mean that Medicare still constitutes a sizeable transfer from those who have health to those who don’t?

      • http://www.uweb.ucsb.edu/~criedel/ Jess Riedel

        There are transfers from the healthy to the sick simply because this is a form of forced insurance. All health insurance has such transfers, but insurance is usually considered distinct from charity.

        The question would be whether there are large systematic transfers between groups not determined by random events i.e. rich to poor, urban to rural, etc.

  • Wonks Anonymous

    Aren’t social security pensions cash, the simplest way to help the poor? And maybe some welfare is directed toward food stamps or section 8 housing vouchers, but some is EITC which is a simply cash transfer.

  • Dale Sheldon-Hess

    Given that it’s true that “in general the simplest way to help folks is to give them cash,” then it would seem the obvious answer is that medicine and education are the two things to which the general technique doesn’t apply.

    I wouldn’t be the first to argue that medicine (or as it’s applied today, medical insurance) has some special attributes that cause the market for it to fail, so just giving money would be inefficient. (Examples should be readily available at any left-leaning even-slightly-technocratic blog.)

    Nor would I be the first to make that argument for education, although it’s an argument less commonly made; point 4 here is one example:
    http://modeledbehavior.com/2010/12/21/those-teacher-numbers/

    Whereas all other necessities are best-handled by either giving people cash (food, clothing, shelter), publicly-funded services (police, firefighters, military) or a mix of the two (water, heat, light, transit). No one seems to suggest (at least not recently) that law enforcement be paid for, by the victim, on a per-crime basis, or that food stamps be replaced with government-run buffets. Perhaps each necessity really has found the delivery method that is most efficient for it.

    • Drewfus

      I wouldn’t be the first to argue that medicine (or as it’s applied today, medical insurance) has some special attributes that cause the market for it to fail, so just giving money would be inefficient.

      In Australia 40 years ago, before the Socialization of medicine, medical expenditure was half what it is today (5% vs 10% of GDP), income per head was also about half it’s current level, and yet the number of hospital beds per 1000 population was twice it’s current level. Is that an example of market failure?

      I think what market failure means in this context is – government wants to show it cares, and private healthcare is an obstacle to this, so the economic modeling is altered to demonstrate that market failure exists. The government is the consumer of health economics, so ultimately it gets what it wants.

      • Dale Sheldon-Hess

        But costs have risen exorbitantly in non-socialized-healthcare nations as well (look at the US). If anything, socialization has, on average, kept costs lower than the alternative. It’s not socialism; something ELSE is driving the costs.

        Also, fewer beds doesn’t necessarily mean lower quality care (development of minimally-invasive surgery, for example, means you don’t need to spend the night) nor does it necessarily mean lower efficiency of care (outcomes haven’t _decreased_ while costs went up, they also went up) perhaps we’re paying more because that’s working well for us? And in the last 40 years we’ve developed a lot _more_ medicine. Before, you didn’t have the option to spend $20k on a procedure that might extend your life for another 3 to 9 months; now you can. You didn’t have the option to pay $3k/mo. for a medicine that could manage a deadly (or just debilitating) condition; now you can. Maybe we’re paying more because we’re buying more.

        I don’t have all the answers here; just making a hypothesis for why it’s been “cast… plus medicine and school” all these years. My hypothesis is, medicine and school are ill-served by cash because they are far-from-perfect markets.

      • http://daedalus2u.blogspot.com/ daedalus2u

        In the US we spent twice the per capita amount for health care of countries with socialized medicine and far fewer people are even covered. Health care is a massive market failure in the US. The reason health care is a massive market failure is because it is designed to be a massive market failure.

        In the US, the health care market is extremely inefficient and is setup to be extremely inefficient. Consumers don’t know what different procedures cost, don’t know the performance vs cost trade-off of various procedures and the consumers making the decisions are not the ones paying the costs.

        The health care market in the US has developed with the insurance companies being the middlemen between the consumers who pay for it (employers mostly) and those who provide it (MDs and hospitals). The middlemen have made the transaction cost as high as possible because it is the transaction cost that provides them with profit. The insurance companies have no incentive to make health care efficient or to improve the efficiencies of transactions. They are making money on the inefficiencies!

        Health insurance is so profitable that they can afford to hire shills to blame the high cost on the usual suspects, the poor, the unemployed, gouging MDs, illegal immigrants, racial minorities, Big Pharma, government waste, taxes, anything but the real cause; health insurance administrative costs to figure out how to deny claims, and Byzantine regulations to ration care (after premiums have paid for it) by making it so difficult to obtain.

        Free markets are only efficient when they are setup to be efficient. When markets are setup to be the most profitable when they are the most inefficient, who thinks a free market can possibly end up being efficient? A free market doesn’t produce the most efficient producer, it produces the most profitable producer. If inefficiency is more profitable, that is what you will get.

      • Drewfus

        It’s not socialism; something ELSE is driving the costs.

        And in the last 40 years we’ve developed a lot _more_ medicine.

        And between 1930 and 1970 we developed a lot more medicine than had existed prior to that. Did that push the costs up in that period? Actually i think the spending on healthcare as a portion of GDP was fairly stable for a century or more prior to the 70′s, showing no sign of rising with technology advances. And why should new technology increase costs anyway? For example, are MRI scans more expensive now than when the technology was new?

        My hypothesis is, medicine and school are ill-served by cash because they are far-from-perfect markets.

        If that’s true, then in 1970 i guess i was born in a failed hospital.

        I take your point that health care is an inherently hard subject, and really no one has all the answers, but just give me an answer to this – why are markets, unlike perhaps any other entity in our society, judged against perfection, but that which will regulate or even outperform them – the government – is either not held to the same perfectionist standards, or is simple assumed (implicitly), to be perfect?

      • Drewfus

        In the US we spent twice the per capita amount for health care of countries with socialized medicine and far fewer people are even covered. Health care is a massive market failure in the US. The reason health care is a massive market failure is because it is designed to be a massive market failure.

        I believe that public healthcare spending in the United States amounts to almost 50% of total healthcare expenditure. In Australia its something like 67%. The GDP comparison is almost 18% vs ~10%. Per capita incomes are similar. Conclusion; U.S. public spending on healthcare is greater on a per capita basis than in Australia. So which country has the most socialized health system?

        Oz also has lots of private healthcare and health insurance, but this is not resulting in some huge chunk of GDP being siphoned of by the insurance companies, as per your model.

  • http://daedalus2u.blogspot.com/ daedalus2u

    In no way can Social Security be called charity. Social Security is still in surplus by ~2.5 trillion dollars. That is trillion with a “T”.

    Until that money has been paid back, there has been a subsidy of the tax cuts for the wealthy by the FICA taxes on wages.

  • nazgulnarsil

    charity isn’t about help. giving people cash in a scheme like the negative income tax doesn’t give you the opportunity to signal and enforce values.

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  • emily

    That’s right Jess, the purpose of charities is for those that have much to give to the ones that don’t. At first I thought celebrities or rich persons are doing charity events just to meet and talk to each other, make business, but Yuri Mintskovsky proved that there are people thinking about the poor and their wellness.

  • John Laing

    And to explain a consistent focus over many centuries, such factors must stay relevant over many centuries.

    Factors like physiology? Humans still need food, shelter, and medical care to not die, and we still don’t like dying, so it’s hardly shocking that we’d devote significant resources toward such ends. You seem to have defined “charity” rather broadly as well, so as to encompass nearly any institution that’s large enough to benefit from economies of scale.

    Money simply does not provide comparable not-dying benefits to those who possess it. If there is a drought, and the price of corn suddenly dectuples, a loaf of bread purchased before the news got out retains it’s ability to nourish; a pocketful of calibrated copper-alloy disks does not.

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  • GaryP

    Social Security is charity! (Disclaimer: I receive SS).

    Everyone who collects SS receives much more in benefits than their contributions (with interest). This is especially true of lower income workers and obvious for recipients that receive benefits even though they never contributed to SS (SSI, I think it is called).

    SS is broke today because the US govt stole the money to spend on pork but it was always going to be broke because the benefits did not match the payments made.

    If you get something for nothing, that is the definition of charity. Anyone that gets social security is sponging off the young if they live long enough. SS is set up that if you live an average lifespan you are a charity case. Quit lying to yourself about this.

    • http://daedalus2u.blogspot.com/ daedalus2u

      Right now, SS is 2.5 Trillion in surplus. How is that “broke”? The debt has nothing to do with past or current SS payments.

      The politicians who spent the SS taxes said it was going to be paid back. The current members of congress don’t want to do that. It is the current members of congress that are “stealing” the social security trust fund, not the ones that used it and said it would be paid back.

      The reason that SSI was structured the way it was so that people who were too proud to take charity would take SS benefits. It was a subterfuge to trick people, who would rather die homeless of starvation in the gutter, rather than take charity, to take charity so that society wouldn’t have to deal with people dying in the gutter of starvation. Current members of congress would prefer to see people die homeless in the gutter of starvation rather than raise taxes, even though taxes are at historic lows.

      Paying someone SS is a lot cheaper than putting them in prison. Prisoners have the right to food, shelter and medical care. Why do non-prisoners not have these?

      So, were credit default swaps charity? Was Madoff’s ponzi scheme charity? Are tax credits charity?

      If Social Security is charity, why are you accepting it?

  • GaryP

    SS contributions were spent as general revenue because we elected people that wanted to spend more money than they were willing to impose taxes for. In other words, they were lying about going even deeper into debt as a society than the “deficit” admitted. This was done by the political class, both Dem and Rep, because WE ALLOWED IT. The politicians that spent it KNEW IT COULD NEVER BE PAID BACK. They also knew that wouldn’t be obvious until they were retired on fat pensions and that the American people are so stupid that they would blame the people who finally said “We are broke” instead of the people who made us broke.

    The SS money (the 2T you mention) is GONE. If you loan money to someone that can’t, or won’t, pay it back, you are a fool. As a society we were fools. Wanted to have our cake and pretend we were saving cake for later. We ate it all already. We had the sugar high. Our society cannot be taxed heavily enough to without economic collapse. That is why Obama and the Dems did not raise taxes during 2009-2010. They just increased spending because that money was “free” as long as the US can borrow. That time is almost up.

    SS is charity because it was set up (intentionally) to give people something for nothing. Originally, it was a way for FDR to buy votes by giving money to people that had not paid into SS. Ever since then, it has been a way to buy votes from old people, the disabled, etc. by giving them more and more generous benefits even after it was obvious (from an actuarial standpoint) that the benefits were unsustainable. We have long known that cutting benefits, raising contributions, raising the retirement age were required and Congress has done a little bit, but never enough to fix SS longterm. They pretended to fix it and left the real pain for later. LATER IS HERE NOW!

    Tax credits are not charity. They are a legal way to give money to political supporters. This is why Congress (and the President) love to give money to any group that will pay them bribes (ie political contributions). Right now it is “green” energy (GE, windmills, solar, ethanol) and unions. In the past it has been railroads, oil, farmers, homeowners, etc. This has gone on since governments first started because the real purpose of political organizations is to trade favors for power.

    Governments are not the solution to corruption, they are the source of corruption. Governments must exist (to provide a legal system and national defense, for example) but to minimize government corruption you must minimize what government does. Today the government is about 30% of the entire economy (more if you count state and local). 90% of that is corruption. If you want more government, you want more corruption. The communist governments were the most powerful governments ever seen; they were also the most corrupt.

    Finally, I accept SS because I must live in the world that we, as a society, have created. I contributed to SS for 40 years. It would be foolish not to get something back from that.

    I wish we would face the fact that entitlements are going to destroy our society and our freedom. We obviously will not face that and therefore we are doomed. Not in centuries, not decades, but in years. Our young people cannot pay all the bills that we ran up. If we cut benefits, raised retirement age, etc. we could prolong the ponzi (i.e. SS), if we cut enough, we could even turn SS into a viable system, but we will not face facts. We talk about an imaginary $2T and pretend that we can just pass laws to paper over the fact that we are broke (as is Europe, Japan, and, yes, China). Greece today, England tomorrow, the US next week. We have run out of other people’s money.

    • http://daedalus2u.blogspot.com/ daedalus2u

      The US certainly could pay back what it has borrowed from the SS trust fund. US tax rates are at historic lows. Much lower than during most of the time when that SS surplus was being accumulated.

      http://krugman.blogs.nytimes.com/2011/06/24/phony-deficit-hawks/

      If you look at the chart, taxes as a fraction of GDP are lower than they have been since 1950.

      If Congress would raise taxes back to what they were during the 1960′s, when growth was high, unemployment was low and to the rates that were present when the SS surplus was accumulated there would be no deficit. Or even better, back to the levels during Clinton when there was much higher growth.

      When Clinton left office, revenues were 20.5% of GDP. What did the gigantic Bush tax cuts produce?

      http://krugman.blogs.nytimes.com/2011/06/22/reagan-and-revenues/

      The people who were taxed for those SS revenues were paying SS on wages. That was in addition to income taxes. Why is it ok to screw over wage earners but not to tax hedge fund operators?

      I would like to stop corruption in government too, but throwing poor people under the bus to die in the gutter isn’t the way to do it.

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