Tuesday, May 5, 2009

Philanthropy as Taxation

Arnold Kling pulls the following section from a post by Scott Sumner:
[BTW, Bill Gates essentially taxed middle class consumers all over the developed world, and is giving almost all of the money to the disadvantged in poor countries. That's something governments don't do, and yet for his "monopoly profits" he is despised by many on the left. Nor does this fact show up in the so-called "income distribution" data that is taken seriously even by economists who should know better.]
The paragraph is in parentheses because it is one small part of a larger article about efficient markets and luck. The paragraph is really about a larger question on the social value of Microsoft and of the role of philanthropy in a capitalist system. Robert Barro stirred up debate about Microsoft's social value in a WSJ op-ed and accompanying analysis, and one of my fellow grad students has an excellent working paper, coauthored with two faculty members, comparing the Grameen Bank with Microsoft (is there a published version of this yet?). The punch line from these inquiries is that Microsoft, despite its appearance as a nasty monopolist, does provide considerable social value.

More broadly, Sumner's paragraph is a perfect example of the role of philanthropy in creating new opportunities. As Phil and Zoltan put it in their American Interest piece:
When wealth is reconstituted through giving to create new opportunities, a virtuous cycle ensues: Opportunity creates entrepreneurship; entrepreneurship creates wealth; and wealth, in turn, creates opportunity. This is the inner dynamic of American capitalism and the source of its prosperity.

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