Giving money away isn't the answer

For some reason, many people decry the rich for being rich. They have the wealth and all the trappings that accompany it, whereas the poor people have to make do with so little food, having to choose at times between eating and having a roof over their heads. The rich, they claim, should be giving more (money) to the poor to ease their difficult existence. More money would aid single mothers in putting food in the empty bellies of their children. More money would provide clothing, medicine, and school supplies for those same children. More money would mean the difference between a leaking roof and patched one. More money would provide the means to ensure the old clunker saved from the scrap heap would still run tomorrow. And that money should come, no strings attached, no return obligations from the recipient of such beneficience.

And why shouldn't the money given from the rich to the poor be a charitable donation? If religious calling doesn't compel one to give to the poor, at the very least it is humane to ease the suffering of people who are worse off. And consider this--a person worth $2 billion could give $40,000 to 25,000 people and still have a cool billion left over. That's 25,000 people who could, in an instant, have as much money as a middle class person makes in an entire year. And that's only half of the fabulous wealth said billionaire had acquired. That certainly leaves plenty left for him. Right?

It seems so nice and respectable. But, I may ask, what then? Once that money is given away, what then? A family of 4 needs something around $15,000 a year to barely eek by, assuming no great calamity strikes. Assuming one such household receives the aforementioned $40,000, that money will not even last 3 years. Supposing that this household is a single mother with three children, where the mother only brings in $10,000 a year, she could possibly make that wealth last for 8. But what then? Well, what if she brings home $12,000 a year? She could stretch the $40,000 across a little over 13 years. If she brings home $13,000, we jump to 20 years. She could see her kids out of high school by that point. Why, if she managed $15,000 a year, she could just save that $40,000 for emergencies and sending her children off to college. In fact, if she invests that $40,000 in stocks, bonds, or even just a CD, she could more than double that $40,000 by the time her kids leave home for college.

But life does not run so smoothly. The additional $40,000 to supplement her meager income won't last near that long. Her car will break down. Her kids will catch pneumonia and require medication. She might decide that her kids will be healthier if they have something other than ramen noodles for each meal. They might fare better in school if they had nicer clothes. At the very least it will give the bullies one less reason to pick on them. And maybe now she can afford that new stove so she doesn't have to cook all their meals in the microwave, two of which have already burned out from overuse. Even a conservative spender making $15,000 a year will probably see that $40,000 disappear rapidly, probably in fewer than 3 years.

So what then? Should that billionaire channel another billion dollars to all those families that have spent his generous gift? Surely in 3 years' time he'll have recouped a portion of his losses. But how long did it take to make that $2 billion in the first place? 20 years? How long will it take him to earn half of that back? 3 years is probably an underestimate. Suppose, just for the sake of argument, that he could. So every three years he gives out $40,000 to 25,000 people. So that's 25,000 households out of a projected 7 million taken care of. And he can't afford to give away any more, else he'll start losing all the money he has, preventing him from making an everlasting commitment. But hey, with another 299 billionaires, we could more or less keep the entire poor population somewhat afloat, right?

However, this ignores the realities of how the billionaires (with the exception of inheritence) are acquiring their money. That billion dollars isn't just sitting around at home in piles of fat stacks of hundred dollar bills. That money is tied up in investments. A large portion is probably tied up in the billionaire's business. Another chunk is probably in the stock market. What people fail to realise is just what it means to have money invested like that. When someone invests, they are essentially loaning the money to other people, expecting them to make enough of a return in whatever business endeavors they embark upon to pay that loan back with interest. Investing in the stock market, or even just putting money in a bank account, is not some magic method of making money. That money goes somewhere, to someone, who hopefully increases the overall money in the system.

So what then, if a billionaire pulls a billion dollars out of investments? That's a billion dollars less going to people who would otherwise use that money to start or upkeep their own businesses. That overall money out of their pocket, which is additional money out of the billionaire's pocket. But some would argue, why is that so bad? That money was just going to people who had enough money to begin with, right? Not necessarily. A business is expensive to start up, and so loans are often necessary just to get off the ground. But where does that loan come from? In fact, loans borrowed from a bank are nothing more than the investsments people make! If there are no investments, there are no loans, because the money just isn't there. And that means businesses that never get started, or fall apart, and that's just increasing the poor population.

So, let's leave the billionaires alone, or at least not expect so much of a contribution from them. Instead, why not simply ask for the extra money people have lying around, money that would be spent on frivolous odds and ends anyway? Suppose, for example, we shopped smart and cooked all our own food and never went out for fast food. We'd save money, since cooking for ourselves is almost always cheeper than ordering out. And we could use that money to donate to the poor. Everything is happy, right?

Not really. If we estimate the poor population initially at 10% of the country, that's 30,000,000 people. Now, there are at least 6,000,000 people employed in the fast food industry (probably a very conservative estimate). If everyone stopped buying fast food, those 6,000,000 people are unemployed. That increases the poor population by 20%! That wasn't something we intended, now was it? But we had better take care of those additional 6 million as well, so we'll cut back on something else. And lo and behold, another several million people are out of jobs. We keep going at this pace, and pretty soon, nobody's will be employed, everyone will be poor, and then there will be no money to distribute around.

Giving money away isn't the answer. A solution to many problems is to see the poor employed in jobs that will earn them enough money. But where do those jobs come from? There have to be businesses that employ, and there has to be a need for those businesses. Not only do businesses have to sell items to make a profit, people have to buy those items for the products to be sold. The conclusion then is that people need to buy more--that will increase the demand for products, which will increase the number of businesses that provide those products, which will finally increase the number of jobs available. At that point, a billionaire servers a poor person better by creating a large enough business that he can afford to hire that individual.

Perhaps there's more wisdom in that adage "Give a man a fish and feed him for a day; teach a man to fish and feed him for a lifetime" than we originally thought. Certainly, we can provide for our poor better by giving them the opportunity to provide for themselves than trying to take care of them directly.