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Ask the Patriarch 199
Spend or Donate?

from: Arthur C.

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I have a moral dilemma, or my wife so indicates.

I have unexpectedly come into a nice sum of money, and there are some neat things I would like to spend it on. They are not necessities, but it's all stuff I want which would add to the pleasure of life.

My dear wife, whose only fault is that she is a bleeding heart liberal, insists that this is not the time to spend money on gratification and that in this terrible economy I should donate the money to help others whose needs are greater. She says it is the right thing to do.

I'd like a second opinion.

The Patriarch replies:


Regardless of what I say below, you still have to come to terms with your wife. I just hope what I have to say will be useful in your mutual discussion (not argument, I hope) and make it easier to come to an agreement.

I have several times on this site advocated charitable giving. I think we have a good-neighbor responsibility to those we share this planet with. However, I'm not in favor of going overboard. I don't think we should give away all our surpluses.

The economic reality is that spending money helps others. When we spend money, we help pay the salaries of working people through the entire production and sales process. Then they have money to go out and spend. And that money goes to others who re-spend again, the only leakage from the spending cycle being the small proportion which is saved. It is a reasonable assumption that spending a dollar ultimately creates ten dollars worth of economic activity throughout the world. Spend a thousand dollars on a flat screen TV, and you've generated directly and indirectly as much as $10,000 in economic activity. That's a lot of hours of gainful employment. Plus you now have a new high-definition TV for your own enjoyment.

Give the money away, and you will still create a chain of economic benefits. It will be less - possibly five dollars of activity for each dollar you give. The reason for giving being less efficient at creating economic benefit is that a lot of charity actually discourages productive enterprise. (Not all of it - you can find charities that encourage job formation rather than working subtly against it, but you have to do your research.) And once you've donated, your reward is a tax receipt to claim on your income tax, and a hopefully a good feeling. But no new TV.

So ultimately, I'm a fan of conspicuous consumption, particularly when times are bad, if you have money to spare. This is contrary to public opinion, but the fact is it keeps people working; it creates jobs. The full economic multiplier effect comes into play. And it redistributes money from those that have a lot to those that have less. There's nothing immoral about that.

Enjoy your good fortune. Splurge on some "toys." And know that by doing so, you are indeed helping others. For all the billions of dollars that governments around the world are throwing at the problem, it is personal spending that will ultimately bring the economy out of the doldrums.

That's not to say you should not listen to your wife. There are charities out there which do help people get back into the economic mainstream. It is worthwhile to divert some of your good fortune their way. I would suggest something of the order of 10% of your windfall, but that percentage is, in the end, something between you and your wife.