Thursday, October 23, 2008

The Economics of Altruism

By now, everyone knows who won the third presidential debate: Joe the Plumber. We know more about Joe than both our other candidates combined. We know he owes back taxes (oops!), "has parents," and hates Social Security. Or at least, he hates that it's forced on him.

During the debate, McCain kept zinging Obama about how Obama's tax plan would mean more taxes for people who earn over $250,000 a year. Finally, Obama lost his patience and squeezed out, "Well, I don't mind paying more."

It seemed like he was taking a dig at McCain (and Joe). But what if he was just telling the truth?

I sometimes give money to poor people on the street. My sister often does. My friend J never does, and she always makes fun of me because I do. She thinks it's stupid to contribute to someone else's beer fund. Here's the thing: I don't give a damn if the guy buys beer with my dollar. I'd rather he didn't buy black tar heroin, but it's not my business.

J and I disagree, but maybe it's not because either of us is selfish or dumb. Clearly we're not facing the same "indifference curve." Indifference curves, a basic tool of beginning economics, are curved, scooping lines (usually curved, often scooping). The premise: a person forced to allocate his income between two goods will come up with "bundles."

Let's assume a person has $500, and he can spend it on one of two things. Food, or copies of Ann Coulter's newest book. He's equally happy with an apple and twenty copies of Ann's writing, or with one copy of Ann's book but a ten-course dinner at the Bellagio Hotel in Las Vegas. In other words, he's indifferent between those two "bundles." He gets the same value (economists say "utility") from them. However, he'd prefer to have 3 copies of Ann's book and five sandwiches. And even more than that, he'd like two copies of Ann's book and fifteen sandwiches.

Anyway. This guy will have a series of "indifference curves." Each curve represents a "level" of value, and at this level are all the "bundles" that he kinda feels indifferent between. However, on the next "level" up (next indifference curve) are a whole new series of bundles that he'd prefer to the first set, but that he prefers the same when compared to each other (Wikipedia does a better job with this explanation than I do.)

Now. I imagine myself and Dick Cheney, locked in a room, forced to allocate $500 between food and Ann Coulter books. Neither Dick nor I can get out until we've done it. Dick would rather starve than miss out on an Ann release. He dreams of papering the Oval Office with posters of her face. I, on the other hand, would rather spend all my money on shrimp, which I don't even like, rather that buy one copy of Ann's book (I might steal it in order to ritually deface the cover, but...)

The point is, Dick and I have different preferences. And that's really what's going on with John McCain and Barack Obama, isn't it? If charity is a good (you know, something you can buy), Obama prefers more of it than McCain does.

A practiced mendicant knows this instinctively, and it explains why he'd rather hit up a struggling female fashion designer than a bespoke-suited corporate type every time. There are a million theories as to why, but the point is that neither McCain nor Obama nor Joe the Plumber are stupid. Our preference for charity is innate and inherited, perhaps relegated to the same allele as compassion and other unknowables. But even if Obama is more compassionate than McCain, why does that take away from the compelling things that McCain, by being McCain, has done for the United States?

The even grander point is not economic but philosophical. We are endowed with different preferences for a reason, and it is these differences that enable trade (and politics). Society functions because we are different, not because we are all the same. Neither of our presidential candidates needs to be ashamed: not Barack Obama because he "doesn't mind paying more" nor Joe the Plumber because he hates it.

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