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Bullies and Their Pulpits

Mises Daily: Thursday, January 20, 2005 by

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On January 3, 2005, President George W. Bush held a news conference to discuss the federal government's response to the awesome and terrible destruction of the natural disasters in South Asia. When he approached his podium, he was flanked by two stoic and serious men.

"The greatest source of our generosity is not our government," the President explained to the reporters before him, "it's the good heart of the American people. . . . To draw even greater amounts of private donations, I have asked two of America's most distinguished private citizens to head a nationwide charitable fundraising effort."

Those two men—the men beside him—were familiar.

They were, in fact, his predecessors in the Oval Office: his father, George H.W. Bush, and the forty-second President of the United States, Bill Clinton.

The current President proceeded to tell his audience that the two former Commanders-in-Chief would be heading a special effort to encourage donations to private charities that would assist the "relief efforts" in South Asia.

To a person who appreciates the efforts of private philanthropists, President Bush's choices of two politicians to head an effort to promote American charity might have rung a very sour note.

Why, one was inspired to consider, would the President of the United States elect to place two individuals whose careers have barely touched the private sector to head-up an initiative designed to promote American philanthropy for South Asia?

The reason is that the Bush Administration wants to make the United States look good in the eyes of others around the world. The "Compassionate Conservative" President Bush has not only decided to do this by donating 350 million in US tax dollars to the governments and people of places like Sri Lanka, Thailand, Indonesia, and east Africa, he has decided to co-opt the money donated by individuals and use it for a massive public relations scheme to bolster the image of the US government.

There can be no denying the fact that Bush's selection of two of the most recognizable, most well-known American political figures took place at the expense of many other highly qualified people. Ranging from actors, to singers, to entrepreneurs, there is a panoply of high-profile individuals to whom Mr. Bush could have turned. But those individuals are not associated with high American political office, those individuals are only connected to private enterprise. Thus, in what seems an opportunistic attempt to do not only what the politicians believe is "right," but also to look good around the world while doing it, Bush has opted to put a government mask on private charity. The participants of the free market, though their money will be collected, will not be seen by those who are helped.

The government of the United States will take the credit around the world.

Of course, this is nothing new. In an abstract way, the US government has been taking credit for private international aid since the close of World War Two. When the federal Marshall Plan showered $1.7 billion in loans and direct aid on West Europe, it was heralded as a profound success. There was little mention that the money was expropriated from the citizens of America for an entirely unconstitutional program, and that the system actually worked to retard economic growth in the area.[i] It became the template for a continuous line of bureaucratic international aid plans over the decades that followed, and has been instrumental in creating a false impression in the minds of many Americans that if international help is needed, it must be done through the "mighty" power of government.

When studying President Bush's plan to plaster a government façade over the structure of private aid in 2005, one is driven to consider whether it is more unctuous for federal politicians to worm their way into this last refuge of private philanthropy, or to continue to pursue their own so-called "charity" with tax dollars that are not supposed to be theirs to spend.

The record of government-funded foreign aid efforts is abysmal.  As noted by James Bovard, the World Bank has funded and helped prop-up the repressive governments of Tanzania, Vietnam, Indonesia, and Ethiopia, to name but a few. It has seen massive defaults on below-market rate loans, supported backwards economic policies, funded agricultural devastation, and increased the dominance of leftist politicians throughout Africa.[ii]

Seemingly few people wonder why this government-funded lending institution's practices lead to such profound failure. In fact, even as George Bush hatched his plan to subvert the image of private charity in the United States, television pundits were pushing for more government money. On January 2, 2005, ABC's George Stephanopoulis asked James Wolfensohn, president of the World Bank, if the victims of the Asian Tsunami would receive "billions" of dollars. He was told that the response from this wonderful philanthropic institution would be in the "many billions."

A person unaccustomed to challenging the paradigm of government-funded aid packages might wonder why some observers bristle so strongly at this mass push for government involvement. He may wonder why people speak out against former Presidents heading-up private charity initiatives.

The reasons are two-fold. First, there is the ethical dilemma. Government aid, be it direct financial aid, or below-market loans through quasi-governmental entities like the World Bank, can only exist at the expense of private citizens. These citizens either have their tax money taken from them based on the will of the majority in their respective controlling governments, or see taxpayer backed loans handed out to risky and oppressive regimes at rates that would undercut competitors in the free market. Either way, personal liberty is decreased.

The second reason is the practical, economic effect of government disaster relief.

There is no way that government aid can help rebuild a devastated economy as efficiently or as fast as private enterprise. The source of this truism is simple: the profit motive works to channel resources where they will not only be most efficiently spent, but also best improve the lives of those involved.

For example, if a talented landscaper on a devastated island were interested in getting disaster relief funds that would help him buy more heavy equipment and hire new employees for rebuilding projects, he might be in competition with a landscaper of less talent. (This second landscaper may or may not be politically connected, that is irrelevant to this exercise. But it deserves noting that often it is the politically connected who receive the bulk of contracts for these types of projects when they are funded through political channels. The favors are later returned during election time.)

In a market-driven economy, landscapers A and B would have to approach a bank for a loan. The banker would distinguish between the two, look at their work records, and, looking for the greatest possibility of repayment with interest, decide to whom it was willing to lend its money. This analysis of the prospects of repayment would include a study of the business proposals of the landscapers.

Consider that landscaper A could show the bank that he could secure potential clients such as hotels, because he had a reputation as a fast, efficient and trustworthy worker; he only needs more equipment to expand his business. Consider that landscaper B could not lay claim to such a reputation. It is clear that the bank would confidently lend to person A rather than person B, and in this way, it is most likely that the work will be done faster, and more efficiently, providing an improvement in life not only for the landscaper, but for the bankers, the hotel owners, and their customers.

Likewise, the hotel owners themselves would be interested in showing potential lenders that they would efficiently utilize any money lent to them in order to hire a landscaper. Again, the tendency in the private market is for capital to be directed by interested participants toward the most efficient and productive use, and that direction is dependent upon the freedom of the participants to discriminate and use their own judgment based on pricing signals.

The profit incentive, the freedom to succeed or fail, is what drives the entire system of progress. The prices that are generated via free exchange permit us to assess the priorities of resource use, to compare alternative uses, and to calculate profit and loss. There are no market prices in government work, which is why Mises compared central planning to groping around in the dark.

In addition, there is no profit incentive in government. Government not only perpetuates sloth, it encourages it by rewarding the most inefficient programs and workers with even more money. To hear media figures push for more government spending in devastated areas is to hear the siren call of bureaucracy, a chorus of the economically ignorant propping up the economically inefficient.[iii]

To hear George Bush confidently announce the appointment of two politicians to head-up what would otherwise be a private charity initiative is to hear a member of the political class who thirsts for the US government to be seen in a better light. His actions not only insult the sources of the charitable donations, they can potentially reduce one of the rewards some philanthropists derive from making donations in the first place.

While many volunteers and philanthropists donate their time and money due to the sheer satisfaction they derive from helping another person, there are those who also enjoy the satisfaction of being recognized by their neighbors for their work. This is not something that needs to be judged. It merely needs to be considered when looking at two former Presidents who will now be the faces of America's charitable collection effort. George H.W. Bush and Bill Clinton don't need to be recognized any more than they have been in their roles as Commanders-in-Chief.

It is the players in the free market, who risked their own capital, and now freely donate it to causes in which they believe, who ought to be seen around the world.

One does not help bolster the image of the United States by taking credit where credit is not due.

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Gard Goldsmith lives in New Hampshire. elggrande@msn.com. See his archive and comment on this article on the blog.


[i]Economist Tyler Cowen, in his work entitled "The Marshall Plan: Myths and Realities," published in US Aid to the Developing World (Washington, DC: The Heritage Foundation, 1985, Doug Bandow, Editor) explained that the Marshall Plan stipulated that for every US Dollar offered to a European nation, that nation had to internally secure its own equivalent and spend it on public works. This not only served to redirect the flow of useable capital from the US to politically selected European projects, it pulled capital out of the damaged European markets and moved it to those same politically favored projects. This in no way can be defined as a great leap forward in economic progress.

[ii]James Bovard, "The World Bank and the Impoverishment of Nations," in Perpetuating Poverty: The World Bank, the IMF, and the Developing World, Doug Bandow, Editor, (Washington, DC, The Cato Institute, 1994) pp. 59–65.

[iii]To be fair, it must be noted that even private charity is not as efficient at producing a desired outcome as private enterprise. The profit incentive drives private enterprise to work faster and better, to supply more products and more opportunities than even private charity. However, private charity performs better than government "charity" due to numerous factors. First, there is no "public choice" feedback, in which political connections direct money to inefficient recipients in return for later support in elections. Second, the personal connection at the heart of private charity cannot be reproduced by government. Many of America's civic organizations were started because neighbors wanted to help neighbors in emergencies. Those who were assisted had a great incentive to pay back the people who helped them, and the recipients often helped others later. The personal contact of such neighborly charity cannot be matched by any government bureau.