The Philosophy of the Economics of Public Policy

Posted by benganzfried on December 14, 2009

The WSJ had a recent piece on the funding of non-profits and foundations, see here for another brief review.  The article is thought-provoking and as I will show, can help one more clearly define where they stand on political issues.  Pablo Eisenberg, the author of the Journal op-ed, argued that “Much of current philanthropic giving, by foundations and individuals neither meets the needs of our charitable organizations nor addresses some of our most urgent needs.”  Eisenberg then offers nine changes that would better enable foundations and others to make a difference for the nonprofits and the people they are designed to help.

First, increase the distribution percentage that foundations must give to charities.  Second, increase general operating support, which means spending more money on day-to-day operations and normal activities of the organization while cutting down on spending for special-project funding which, according to the author “gives foundations more control over the agendas of their grantees, responsibilities that should be vested in the boards and staff of nonprofits.”  Third, increase multiyear funding– which means increase grants that give grantees long-term support.  Fourth, adopt rolling grant making.  Fifth, allocate more funds to the truly needy.  Sixth, reach out to local groups and undeserved regions.  Seventh, simplify application and reporting procedures.  Eight, improve public accountability.  Nine, fund the watchdogs.   

This piece will not comment on many of Eisenberg’s suggestions since I’m not an expert on the economics of public policy, and I also do not think that I have much original to add.   The essential problem he grapples with: How can foundations meet the needs of charitable organizations and best help the worst off?– has been extensively debated.

What I can add, however, is to try to point out how one’s position on these issues defines their views on politics.  The philosopher John Rawls is famous for proposing the ‘veil of ignorance’ whereby you imagine that societal roles were completely re-fashioned and redistributed, and that from behind your veil of ignorance you do not know what role you will be reassigned.  For example, in the imaginary society, you might or might not be intelligent, rich, or born into a preferred class. Since you may occupy any position in the society once the veil is lifted, this theory encourages thinking about society from the perspective of those who will be worst off.

This is the guiding moral idea between Eisenberg’s claim that organizations should be required by the government to provide more for the poor, minorities, and gays/lesbians. 

Another major strand of thought is the libertarian view, famously championed by Milton Friedman.  Friedman argues that the economy works by the “invisible hand” of the market-place (first employed by Adam Smith) and that when individuals pursue their own self-interest, everyone will be better off. 

Michael Sandel and Charles Taylor–two early proponents of communitarian philosophy– offer another perspective.  They argue that we should use morality (and religion) to form our political beliefs.  In the case, the idea is that we should not approach the decision to increase funding for a charity from behind a ‘veil of ignorance’ or under the belief that there is an “invisible hand” which will make everything alright.  Rather, Sandel and Taylor might suggest that we should have a strong identity and through the morals that encompass this identity try to make the best decision.  Thus, if our identity tells us to act like Jesus in our dealings with others– this is how we should make our decision.

Whichever arguments you accept (Rawls, Friedman or Sandel/Taylor) largely determines the method that will form your political decisions.  Once your method is determined, then you are in an easier position to engage in the most fundamental questions of government: How large should our government be?  What, if any, powers should it be allowed to exert?

My personal opinion is that the question of how to best fund charities is a very important one but sometimes philosophical systems can make decision-making too complex.  A far simpler strategy I have found is one based on personal experience and feeling.  Eisenberg’s controversial claim that organizations should be required to pay more to the disadvantaged and minorities reminds me alot about the time I happened by the removal of the Ten Commandments from the Alabama Supreme Court.  It was a fascinating experience– I was part of perhaps the most progressive youth group imaginable and we had just stepped out from a talk at the Southern Poverty Law Center in Montgomery, Alabama when we saw what seemed like hundreds of video cameras outside the Courthouse.  Curious kids we were and shortly thereafter many of my peers were engaged in screaming matches with people protesting the removal of the Ten Commandments from the Courthouse.

The reasons I brought this example up are two-fold.  First, at one point one of the protestors said that she does not think we should have taxes beyond what we want to give to our local communities since there are many places her money goes that she strongly disagrees with.  Second, is that this actual experience coupled with other experiences from the group (which brought together DC-area residents from all religions, classes, neighborhoods, and backgrounds) taught me that political decisions are best made by taking in a broad perspective. 

Of course my politics should take into account how decisions will affect my family, my friends and me.  But it should also take account of how it will affect those in my community, my region, the nation, and the world.  If you have experiences with many diverse people (re: another reason why national service should be a top national priority) this process is a bit easier as my Courthouse example indicates.  If not, my observation is that reading widely in history and literature can serve as a partial substitute.


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