I attended an interesting talk yesterday at SJSU by Dwight R. Lee on the topic “Misers vs. Philanthropists: And the Winner Is?” (part of a provocative lecture series sponsored by the Econ department).
His attempt to prove that misers helped the world more than philanthropists was only a partial success, mainly because he made assumptions about how well philanthropists spent their money that were somewhat arbitrary and unconvincing (probably too favorable to many philanthropists). He did a good job of explaining why philanthropists were overrated and misers underrated. The miser who hides money in his basement provides diffuse benefits to other holders of money by driving up the value of the money, providing nobody with much incentive to understand the effect. The beneficiaries of philanthropists are much more concentrated groups of people, who notice the benefits in ways that public choice theory describes for comparable political handouts.
I’m a bit puzzled as to whether the benefits he attributes to misers are often offset by central bank policies.
The best part of his talk was the great analogy he gave to suggest in a concise way that can be understood by an average person why the fact that workers get laid off isn’t an argument against free markets. He asked whether anyone in the audience liked pain. Nobody raised a hand. He then asked whether anyone would want to be completely without pain. Nobody raised a hand at this point either, correctly anticipating the description he would give of people who never feel pain (a disease known as CIPA, which significantly reduces a person’s life expectancy). Likewise with markets, plant closures are a symptom of mistakes in resource allocation, and we can expect systems that suppress those symptoms to perpetuate mistakes.