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I mean no offense by this, Jerome, but I think you're putting far too much faith in the state to do the right thing.  That's the fallacy people fall into: Recognizing all of the bad things about the private sector and comparing those with something resembling, or even something that is, an ideal of state intervention.  The state wasn't worth the powder to blow to hell during Katrina.  Charities couldn't handle that enormous burden, obviously, because of the enormous scale of the devastation, but at least they stepped up to the degree that it was possible.

Will help be provided where and when it is most needed? Can volunteers know how to focus their efforts in the most relevant way, without forgetting anyone that needs it? Will there be enough of them, in the right place, and with the right support? What happens if they stop for any reason (lack of availability, loss of motivation, or any other personal obstacle)?

Again, I hate to use another example from the US, given the current incompetent leadership, but these questions could all be asked of the public sector, as well, except that lack of motivation should be replaced by a perceived ability to do away with programs since the public won't be paying attention.  It happens all the time, and it is not limited to America.  You can't work with the assumption that the state can answer these questions in all, or even most, cases.

Personally, I'll pay my taxes and support charities I trust to do work I bellieve in.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Nov 24th, 2006 at 12:03:15 PM EST
As an economist, how do you reconcile the emphasis of charity as aid to the poor and disadvantaged, and the free rider problem such an approach necessarily leads to?

Via the state, and progressive taxation, the free rider problem is eliminated, as is, if done correctly, administrative redundancy, another economic ineffiency of the charity approach.

In any event, using the US as an example is basically at best a red herring. Just because the Americans don't know how to do public administration (nor, often, public anything) doesn't mean it cannot be done.

It simply means it cannot be done (and this is essentially for political reasons) in America...
 

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Nov 24th, 2006 at 12:11:46 PM EST
[ Parent ]
Quite the contrary, Americans, depending on the program we look at, are damned good with bureaucracy.  (If you want to see serious incompetence, come to Britain.  America looks like a dream-come-true by comparison.)  Medicare is apparently a great example.  Others on this site will presumably -- having done so in the past -- point to the US Postal Service, although, here, they lose me, as someone who has endured a near-endless number of nightmares with the absolute morons at the USPS and will, consequently, always use FedEx when it is available.

I'm not arguing for privately- or publicly-run welfare.  I'm arguing that Jerome is wrong to assume that the state will cover all the bases.

The free rider problem is a good point, of course, but is it not an even greater problem to have citizens voting for politicians who will increase the budget while cutting their taxes?  Now we've moved into an intergenerational free-rider problem, except that, in this case, kids -- whose federal credit is maxed out by their brainless, spoiled Boomer parents -- have no say in the decision.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Nov 24th, 2006 at 12:47:55 PM EST
[ Parent ]
I'm afraid you've nailed the principal fiscal problem with America by your very last statement.

And you are also of course right to hold that the state will not cover all the bases. But it should cover most, and this is the point I think he's trying to make. There will always be places for philanthropy, but philanthropy is not a policy.

I reckon that Jerome is experiencing something very personal in this regard, and I can tell you that I went through the same thing in America, and instead of getting support for my wife staying at home to care for my son, I burned through savings and ultimately went into debt. (And let's not even get into the hospital bills which, despite my supposedly excellent insurance, piled up.) In America, getting out from under severe misfortune is left to charity (eg, American Children's Cancer Society, United Way, et c.)  This is as criminal as it is inefficient.

This being said, citizens may think they are voting for a simultaneous increase in the budget and decrease in taxes, but this is simply what the fools are led to believe. There'll be taxes to pay for it, one way or another, inflation being one such tax in all likelihood. A nation of rubes when it comes to governance is what it comes down to.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Nov 24th, 2006 at 04:09:26 PM EST
[ Parent ]
All good points, and I, too, reckon that it is something of a personal issue to Jerome, and understandably so.  His recent diary on his son was spot on.  The health care system in America, like the K-12 education system, is a joke.  What I would argue is that governments should focus on the critical components of an intelligent welfare state -- that is, health care, unemployment insurance, funding for the sort of medical research that might eventually cure Jerome's son, and other issues of this general nature.

My essential point is that nobody should expect the private sector or the public sector to accomplish everything.  They're complements, not substitutes.  Where one falls short, the other should pick up the slack.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Nov 24th, 2006 at 04:27:55 PM EST
[ Parent ]
the free rider problem is eliminated
what is the free rider program?
by wchurchill on Sat Nov 25th, 2006 at 02:27:38 AM EST
[ Parent ]
Let's say -- I am, for the record, stealing this from Wikipedia -- you live on a block that is suffering from a lot of breaking and entering.  Your neighbor suggests everyone on the block pitch in to buy a CCTV system.  It would cost £2500, or £100/person.  Everyone else might agree to this, but you might not, since you know that the syystem will protect you regardless of your decision on whether or not to throw in that £100.

In that case, you have a free-rider problem -- you, of course, being the free rider in this example.  In the case of a charity, people who refuse to donate, but still enjoy the benefits (often positive externalities), are free riders.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sat Nov 25th, 2006 at 04:22:03 AM EST
[ Parent ]
Note that in France for most charities you can deduce 66% of your donation from your taxes (with a limit up to 20% of your taxable income, and report for up to three years).

This year I donated 22500 euros to FSF France, this will cost me only 7650 euros.

What are the conditions in the USA?

by Laurent GUERBY on Fri Nov 24th, 2006 at 04:39:33 PM EST
[ Parent ]
In the US, for qualified charities, you can deduct the full gift from your taxable income, not from your taxes.  So as an example, say you are a "fat cat" making $100,000, and to simplify the example, you have no other taxable deductions.  You pay a 10% tax rate on your first $40,000 of income, and $35% on everything over that amount (simplifying for the example, there are more levels of tax rates).  So your tax bill is 10% of $40,000=$4000 plus 35% of $60,000=$21,000,,,,,a total Federal tax bill of $25,000.  So your income after tax is $75,000.

If you gave $10,000 to a charity such as the American Red Cross, that $10,000 would be deducted from your income for the tax calculation,,,so your income for the calculation is $90,000.  So your tax bill is 10% of $40,000=$4000 plus 35% of $50,000=$17,500,,,,,a total Federal tax bill of $21,500.  So your income after tax is $68,500.

The effect of this is that the charity gets your $10,000 contribution, but since you get a $3500 tax savings, the government effectively pays $3500 of your $10,000 donation--and your after tax income is only lower by $6,500, rather than by lower by the full $10,000.

There are limitations to how much you can deduct each year, but the excess deduction carries over to future years, and I don't think there is a limit on how many years it takes you to use up your deduction.

An important distinction is that the deduction is not against your tax bill in the US, but instead against your tax income--as shown in the example.  I think some other systems do their calculations from your tax payment.

by wchurchill on Sat Nov 25th, 2006 at 03:05:14 AM EST
[ Parent ]
Thanks!

Looks like France has one of the more generous tax code for donation to charities, but it looks like the media aren't aware of this :).

by Laurent GUERBY on Sat Nov 25th, 2006 at 05:16:37 AM EST
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You seem to assume there's no correlation between the size of the state relative to the economy and the quality of services provided by the state in a functionning democracy.

It seems obvious to me that in countries where the "state is evil" mantra has led to a reduction of the state share, people care less about what the state does and so the state becomes really incompetent at about everything it does (and corrupted).

Look at voter participation rates.

by Laurent GUERBY on Fri Nov 24th, 2006 at 04:52:48 PM EST
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