Stimulus, Consumption, and Charity

When it comes to economic stimulus, your greed is good. Your charity is better.

Macroeconomics does funny things to morality. In a recession, saving your pennies harms the economy. Many these days quote Keynes’ “paradox of thrift,” and rightly so. Each of us, by virtuously delaying gratification, harms the economy as a whole. We’d all do better if we collectively acted worse. (As Keynes once wrote, ineffectively, “the patient does not need rest. He needs exercise.”)

So, to promote short-term growth, greedy consumption is good. Sort of. Though universal self-denial is bad, universal charity would, as far as I know, be macroeconomically terrific. If you can spare money for a plasma TV, giving the price of a TV to a food bank instead would create just as much consumption–more, actually, since the government kicks in a subsidy through the tax system.

I’ll have a theoretical point in a moment. For now, I intend a practical conclusion: Give. Food banks are facing increased demand just as grocers are decreasing supply. (Articles here, here, and here.) This one is well-run, needy, and takes VISA–and you can give a little each month if that makes it easier.

I realize that talk is cheap. So I’ll break my usual rule of secret donation and reveal that I’ve just given that food bank $500. I may be wealthier than you. The question is, by how much. And I’m not saying that you shouldn’t buy things for the holidays. My family and I like stuff too. I’m merely saying that if your justification for making a big purchase is that otherwise the economy won’t grow, that’s not right.

End of sermon (again, sort of). The theoretical point is that economic thought has an odd history. In the eighteenth century Bernard Mandeville’s Fable of the Bees first popularized the idea that private vices, e.g. greed, could have public benefits, e.g. growth. Adam Smith’s Wealth of Nations downplayed the vice part: an impulse that furthered the public weal was, to a first approximation, good. (Smith’s earlier work expressed more qualms.) In between, David Hume’s “Of Refinement in the Arts”–originally “Of Luxury,” the more moralized terminology–defended selfish spending as good for growth, stipulating that human nature makes this the only spur to hard work. But he reminded us that this stipulation was odd, and that charitable giving, could we cultivate a taste for it, would work the same economic magic. The relevant paragraph is below, and the full essay here. But the conclusion, jarring though it is to those who think Hume simply urbane and epicurean, is simple. Greed is good. Charity, provided that it’s pursued manically, is better.


David Hume, “Of Refinement in the Arts” (“Of Luxury”), paragraph 20:

Let us consider what we call vicious luxury. No gratification, however sensual, can of itself be esteemed vicious. A gratification is only vicious, when it engrosses all a man’s expence, and leaves no ability for such acts of duty and generosity as are required by his situation and fortune. Suppose, that he correct the vice, and employ part of his expence in the education of his children, in the support of his friends, and in relieving the poor; would any prejudice result to society? On the contrary, the same consumption would arise; and that labour, which, at present, is employed only in producing a slender gratification to one man, would relieve the necessitous, and bestow satisfaction on hundreds. The same care and toil that raise a dish of peas at CHRISTMAS, would give bread to a whole family during six months. To say, that, without a vicious luxury, the labour would not have been employed at all, is only to say, that there is some other defect in human nature, such as indolence, selfishness, inattention to others, for which luxury, in some measure, provides a remedy; as one poison may be an antidote to another. But virtue, like wholesome food, is better than poisons, however corrected.

Update: Tyler Cowen in an email says the above is “not wrong”: high praise from him. (I’m being mischievous. I asked him if I was wrong, so the reply was in fact a friendly one.)

Second Update: Those giving money understandably want it to count. So, in support of my claim that the Food Bank above is well run, here’s all their annual reports and statements (the latest audited financial statement indeed reveals low administrative and overhead costs). Here (PDF) is a summary from the L.A. Business Journal, not unreasonably counting in-kind donations (a huge amount) as the denominator when calculating overhead. Here (scroll down to the yellow ribbon) is their seal of approval from a nonprofit organization that gives such for outstanding practices; the link is broken for now, but I checked the organization’s list and the claim is legitimate.

Author: Andrew Sabl

Andrew Sabl, a political theorist, is Associate Professor of Political Science at the University of Toronto. He is the author of Ruling Passions: Political Offices and Democratic Ethics and Hume’s Politics: Coordination and Crisis in the History of England, both from Princeton University Press. His research interests include political ethics, liberal and democratic theory, toleration, the work of David Hume, and the realist school of contemporary political thought. He is currently finishing a book for Harvard University Press titled The Uses of Hypocrisy: An Essay on Toleration. He divides his time between Toronto and Brooklyn.