Giving Makes You Rich

In John Bunyan’s 1684 classic The Pilgrim’s Progress, the character Old Honest poses this riddle to the innkeeper Gaius: “A man there was, tho’ some did count him mad, / The more he cast away, the more he had.” Gaius solves the riddle thus: “He that bestows his Goods upon the Poor / Shall have as much again, and ten times more.”

Less poetically, the idea is this: Giving makes you rich. A lovely sentiment, to be sure, but quite backward-sounding to an economist. You obviously have to have money before you can give it away, right? Or in the pithy words of former British prime minister Margaret Thatcher, “No one would remember the Good Samaritan if he’d only had good intentions—he had money too.”

Well, it turns out that Gaius was right, and new economic research backs him up. Emerging evidence—crunchy statistics from real data, not the mushy self-help stuff—supports the contention that giving stimulates prosperity, for both individuals and nations. Charity, it appears, can really make you rich.

The United States is a remarkably charitable nation. The Giving U.S.A. Foundation estimates that Americans donated nearly $300 billion to charity in 2006—more than the gross domestic product (the annualized value of goods and services produced within a nation) of all but 33 countries in the world. More than three-quarters of this came from private individuals. Additional research suggests that between 65 and 85 percent of Americans give to charities each year.

How does all this generosity relate to our high average levels of prosperity? Let’s begin with individuals and families. The Social Capital Community Benchmark Survey, completed in 2000, is a survey of about 30,000 people in more than 40 communities across the U.S. and is the best single source of data available on the civic participation of Americans. The S.C.C.B.S., which takes into account differences in education, age, race, religion, and other personal characteristics, shows that people who give charitably make significantly more money than those who don’t. While that seems like common sense, it turns out that the link in the data between giving and earning is not just one-way. People do give more when they become richer—research has shown that a 10 percent increase in income stimulates giving by about 7 percent—but people also grow wealthier when they give more.

How do we know this? When two variables like giving and income are interrelated, economists use something called an instrumental variable to see which is pushing and which is pulling. In a nutshell, that means selecting something that’s closely related to donations but not directly to income, like volunteering. Volunteers tend to be money givers and vice versa because of the same charitable impulse. But income doesn’t always directly affect volunteering. (While people have differing amounts of money, they all have the same amount of time.)

We start by predicting how much money people would donate based on how much they volunteer, regardless of income. This projection essentially strips out the role of income in giving. Next, see if that predicted donation level correlates with income. If it does and the correlation is positive, it means that giving pushes up income and not just vice versa.

This is precisely what is found in the S.C.C.B.S. data: More giving doesn’t just correlate with higher income; it causes higher income. And not just a little. Imagine two families that are identical in size, age, race, education, religion, and politics. The only difference is that this year the first family gives away $100 more than the second. Based on my analysis of the S.C.C.B.S. survey, the first family will, on average, earn $375 more as a result of its generosity.

How can this be? Is it a statistical anomaly—or even a metaphysical phenomenon? While the link between giving and prosperity is not as mechanistic as returns on municipal bonds, there are some very earthbound explanations for it. Psychologists and neuroscientists have identified several ways that giving makes us more effective and successful. For example, new research from the University of Oregon finds that charity stimulates parts of the brain called the caudate nucleus and the nucleus accumbens, which are associated with meeting basic needs such as food and shelter—suggesting to the researchers that our brains know that giving is good for us. Experiments have also found that people are elevated by others into positions of leadership after they are witnessed behaving charitably.

The financial advantages of giving aren’t limited to individual givers. There is also evidence that donations push up income even more at the level of an entire nation’s economy. We can demonstrate this by looking at average household charity and per capita G.D.P. as they change over time. Charity and G.D.P. levels have moved together over the years. Corrected for inflation and population changes, U.S. government data show that G.D.P. per person in America has risen over the past 50 years by about 150 percent. At the same time, donated dollars per person have risen by about 190 percent.

These trends by themselves don’t tell us which force is pushing and which is pulling, however. To figure that out, we need to determine whether past values of one affect future values of the other. By using a method called vector autoregression, economists can see how changes in this year’s G.D.P. are affected by past values of both G.D.P. and charity. If an increase in last year’s charity levels correlates with a jump in this year’s G.D.P., it is logical to conclude that donating is stimulating the economy.

As in the case of individual income, the evidence is that increases in G.D.P. and giving mutually reinforce each other: Economic growth pushes up charitable giving, and charitable giving pushes up economic growth. Data from the Statistical Abstract of the United States and the Center on Philanthropy at Indiana University provide examples: In 2004, $100 in extra income per American drove about $1.47 in additional charitable giving per person. At the same time, $100 in giving stimulated more than $1,800 in increased G.D.P. This rate of social return shows that economic-multiplier effects are not limited to private investment. In short, giving plays a positive role in American economic growth. It is a good investment for our country. Some might even go so far as to say that donating to charity is a patriotic act.

Milton Friedman showed studies that as government assistance goes up, private giving goes down. The problem is that only 20% of government welfare costs actually go to the poor.

The biggest problem with government programs isn't inefficiency. The problem is that by creating a sense of entitlement many of the programs do more harm than good. To be sure, a private charity could implement some the policies that make government welfare so harmful, but such policies are very rare with private charities and very common with government programs.

I find it amazing how many liberals want to eliminate the stigma associated with accepting welfare, rather than recognize that such stigma plays a very important function. The proper way for a person on welfare to stop being stigmatized is not to have government provide stigma-free ways of receiving welfare, but instead to get a job. Some people may have psychological difficulties in that regard, but declaring idleness to be acceptable isn't apt to solve the problem.

Speaking anecdotally i can say this.....throughout my life, every time i got a raise in pay i raised my weekly contribution to the basket they passed around at Mass by Five Bucks. And every time i did that shortly thereafter more raises came AND promotions and things like higher per diems and business travel allowances... and along the way the stock market soared and i pulled out at the peak just before it plunged...im up to 80 bucks a week at present....i’m tellin ya each time i raised the amount that i gave; eventually way more than that came back to me...it’s happened time after time after time....way beyond coincidence.

Many other liberal programs which are widely derided as failures on FR are likewise very successful when one recognizes their real goals.

That post was worth it's weight in gold. Rush couldn't have said it any better himself. Thanks. :^)

My friends who tithe are the wealthiest friends I have. On the other hand, I have another friend who is one of the most active members in his church, but doesn’t tithe. He struggles financially. I once mentioned the phenomenon of givers who end up receiving more than they give. He hasn’t adopted it yet.

It’s just strange how this phenomenon works. I’m not sure how much this article explains it, but the phenomenon just astounds me.

It’s also quite Biblical. Tithing is more than just a concept to many Christians (unfortunately, not all). Look at the very last page of the Old Testament, in Malachi. In there is the ONLY place in the Bible where God says, in effect, “hey....TRY me on this; just TRY me”......when He is addressing tithing.

Tithe....and I absolutely, positively guarantee you that you will prosper economically. It is patently impossible to out-give God.

Great folks out there like Jerry Savelle have been preaching this for YEARS. He gives more per year than most upper class Americans even make...and more pours in every year. Accordingly, he gives more. As he put it once recently when I saw him speak at our church in NC..”Some try to give me grief for how much money I make. Whenever I hear that, I don’t get angry; I merely respond with ‘oh yeah? well check out my GIVING first, THEN come talk to me’”. He’s right.

I once mentioned the phenomenon of givers who end up receiving more than they give. He hasn’t adopted it yet.

It’s just strange how this phenomenon works. I’m not sure how much this article explains it, but the phenomenon just astounds me.

I know the article doesn’t seem to ‘splain how or why this is true only that it is true..i too have noticed that the smartest kindest richest people i know are all regular churchgoers...and givers...there’s something to this v/t it seems undeniable...

any body else care to agree or disagree with this?

[Stratton’s giving helped his community.]

Enormously, and his legacy continues today.

Some corporations dabble in philanthropy because it provides a warm puppy with which to misdirect the public's attention from corruption and thievery.

It appears Winfield Stratton lived to benefit others - not only financially, but through his mentoring, friendship, and example. That is not something that can be created via government mandate.

Thanks for mentioning Malachi. I found the passage that you mentioned. I see proof of this in my churchgoing friends who give. They are doing well. And in those who don’t give, they aren’t doing so well.

Supply side Econ 101?

“Steal nasty profits from the “poor” and send the money to buy Chinese worker slaves....”

Oh come on, everyone benefits when less taxes are paid especially when regulations are eased as well.

Let me give you an example:

What if taxes were cut to 10%, and every licensing and insurance mandate were vacated?

The “rich” could buy things in support of the local economy, and the “poor” could deliver those goods and not be overburdened by regulations...

It appears Winfield Stratton lived to benefit others - not only financially, but through his mentoring, friendship, and example. That is not something that can be created via government mandate.

The government must hate citizens such as Stratton. First of all, as DJtex mentioned above, the Strattons of our nation do 4 to 5 times a better job of helping people than government ever could. And secondly, as supercat pointed out in anohter post, government programs may not be intended to help. Instead, they may be secretly intended to harm.

Oh come on, everyone benefits when less taxes are paid especially when regulations are eased as well.

Several months ago, Rush had a caller who was slightly confused by the following two seemingly contradictory facts:

- less taxes result in higher government revenues.

- lib dems want higher taxes despite the previous fact, resulting in less money for their government social programs.

Rush explained that lib dems know that lower taxes will give their programs more money. But this isn't what they really want. Instead, they want to control people. That's why they persist in raising our taxes.

First, giving is it’s own reward.

Those who give are happier.

That happiness shows, and spreads to others.

Positive things occur in response to positive attitudes.

Second, those who manage their spending enough to ensure they have some to tithe, usually don’t waste their money.

Therefore they would probably keep more of their income than those who can’t ‘spare’ a dime for the church plate.

Here is the thin Vision Thing, Americans are generous people, the so called “rich” are the most generous of all Americans, “rich” America donates unmentioned Billions every year.

A fascinating study found that people in the South were far more generous then Northern people, for me the reasons are simple:

Abandon God’s Laws
Be taxed to death in the meanwhile

The thought of a omnipotent God is not popular in the NE at the moment, so rather then deal with “Love thy neighbor” folks in the NE have to deal with “property tax due by...”

I lived in Boston before I moved here to Dallas. I’ve never seen anyone in Boston offer chartible gifts. And though the people I know in Boston were relatively propserous (how can they not, especially when they needed to cover their high cost of living), I thought most of them were miserable and unhappy. But they seemed to be happy with their high taxes. These two things (the general unhappiness and the taxes) were some of the many reasons I left Boston.

Here in Dallas, I see people give through tithing and volunteer positions. And they are all doing well, which isn’t too hard to do because the cost of living here is relatively low. But, the people in Dallas that I know are far happier than the people I knew in Boston.

I feel you VT, it’s just different “down South”.

Not as much cynacism down South.

At least, not where I come from.

[Second, those who manage their spending enough to ensure they have some to tithe, usually don’t waste their money.]

Yes, and the deadly sin of Gluttony extends beyond food; McMansion anyone? I think one of the keys to being content and happy is nurturing simple, healthy, and self-controlled appetites.

There are also measures of wealth that are not monetary; the gifts of time and health, for example.

It seems the time and health of far too many retired folks are often squandered. I suspect many retired professionals would find themselves to be a valuable resource for homeschool providers.

....”As an abstract, the poor will spend the money, and increase economic activity in the community and that raises everyone’s boat as it were as the money stays in the community for the most part.”

Yah. And, in Walmart.

I’d expect that personal giving and government giving are applied very differently. Personal giving involves individual judgements, such as whether the recipient is truly in need, and whether the gift will improve the recipients situation. A small gift to fix up a car and keep the recipient going to work keeps a lot of capital from being idle or otherwise tied up and useless. A government payment, on the other hand, tends to increase idleness and destruction of wealth.

That would be capital flight onyx eyes, a symptom of Consumerism run amok.

Instead of the money being spent at the local grocery being spent at the local gas pump, it flies away to Arkansas, making it unavailable to the community.

It takes money to make money.

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