Robert J. Shiller's Finance and the Good Society - Keeping a Close ...

in his new book, Finance and the Good Society, just published by Princeton University Press.

Actually, the majority of the book that deals with finance per se seems reasonable ? but I can?t say for sure because I am not an economist. However, as field director of NCRP and a career nonprofit executive, I know about philanthropy, and the section of his book that focuses on philanthropy is a mess ? and on many levels.

Still, I would leave Shiller alone if his wrongheaded arguments remained buried in a thick economic treatise. But unfortunately he also propounds them in a recent New York Times op ed. So critique them I must.

In a nutshell, Shiller advocates for an expansion of the charitable tax deduction (as well as creating other types of tax breaks for charitable giving) with the goal of helping private charity to supplant government programs to the extent possible. Shiller lays out the essence of his argument in a single, awful passage on p. 203. He writes:

?The government could give special tax incentives for contributions to organizations designated as filling particular national needs, instead of just raising taxes to pay for government expenditures for those needs. This would be an alternative form of public financing of important activities. For example, in a time of recession, directed contribution tax incentives could be implemented that would encourage donations to organizations that would create jobs for the unemployed. Or, at time of rising inequality, there could be a special tax incentive for donations to organizations that embrace the concerns of the poor or foster a sense of community between rich and poor."

Does Professor Shiller actually believe that ?a thousand points of light? of private charity can replace government in addressing the massive, systemic problems of unemployment and income inequality in an advanced capitalist economy? Worse, he wants to drain money away from government and give it to private charity during one of the worst economic downturns in our nation?s history and at a time of massive government deficits. Shiller?s naive faith in the efficacy of private charitable service provision seems especially puzzling considering the (soft) Keynesianism he has advanced throughout his career ?and which he advanced in an earlier chapter of this very book by portraying Keynesian counter-cyclical fiscal policy as a proper antidote to recession.

?The tax breaks would be much bigger than the usual contribution deduction. They could take the form of a partial tax credit, rather than just a deduction, so that the gift-giving would be just as meaningful for people in the lower tax brackets.?

The current tax deduction already drains $40 billion per year from the U.S. Treasury ? and here Shiller wants to drain even more!

?The government could afford such high tax incentives if the specifications for the qualifying organizations were written so as to encourage them to carry out work that the government itself would have to do.?

?Encourage?? If lawmakers want to tackle unemployment, should they attack the problem directly through law ? or ?encourage? voluntary philanthropic efforts? What has a better chance of reducing massive unemployment: A well-financed and centrally directed government program backed by the force of law or a scattershot, under-financed, private effort?

As we scratch our heads wondering how somebody as smart as Shiller could be so na?ve, we finally figure out the key to the puzzle. For at the end of the passage, Shiller reveals that he is less interested in solving society?s problems than in empowering donors and making them feel good about themselves:

?Such tax breaks would allow people to put their own mark on these causes, giving their own personal direction to these programs while at the same time promoting the public-goods programs of the government. They would give the wealthy a sense of personal satisfaction and at the same time allow them to feel the gratitude of others for their contributions. Such a plan might receive far greater public acceptance than one to merely ?tax the rich and give to the poor.??

Hey, Professor Shiller, is the goal to reduce our nation?s staggering unemployment rate and historic levels of income inequality ? or is it to bolster Billionaire Man?s self-esteem? Also, why do you think plutocrats would craft better solutions to unemployment and income inequality than the people?s democratically elected representatives? Whom should we trust more to make public policy: President Obama or Jamie Dimon?

Finally, informing the entire passage is an assumption that bigger tax breaks necessarily incentivize charitable giving. Yet, the most authoritative, recent studies find little or no correlation as noted in this LA Times op ed, in Giving USA 2012 (p.35), a Congressional Research Service report, a study by the Tax Policy Center and analyses conducted by the Center on Budget Policy and Priorities and The Center on Philanthropy at Indiana University. Shiller seems unaware of this research ? an oversight surprising for such a famously empirical scholar.

To summarize: With a real unemployment rate stuck above 10 percent, with Gilded-Age levels of income inequality getting worse each day, and with mounting government deficits, the very last thing lawmakers should do is drain federal government coffers and thereby lame the federal government?s ability to solve these mega-problems ? all in the hopes that ?encouraging? privately philanthropy would somehow solve these problems better. Only a strong federal government ? not a ?thousand points of light? of private charity ? can make the massive, coordinated investments in public education and? public infrastructure that can simultaneously jumpstart the economy and lay the groundwork for a greener future of shared prosperity. If that hurts the feelings of a handful of plutocrats, they can move to a different country (don?t let the door hit you on the way out, Donald).

But even if Shiller believes that private charitable service provision can somehow accomplish such gargantuan national tasks, the preponderance of empirical evidence indicates that increasing the tax breaks for charitable giving would not appreciably augment philanthropy?s means to do so.

America does not need a bigger nonprofit sector (as Shiller believes); American needs a better nonprofit sector, one that does not attempt the hopeless task of replacing government services but instead empowers marginalized communities so their voices, too, get heard in civic discourse and the corridors of power ? not just the voices of the 1% and too-big-to-fail corporations.

Sean Dobson is field director at the National Committee for Responsive Philanthropy (NCRP).

Source: http://blog.ncrp.org/2012/08/robert-j-shillers-finance-and-good.html

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