Dear Economist

Giving money away

Dear Economist,
Around South America hundreds of children have held their hands out to me and I’ve ignored many and felt terrible. But my £1 can be worth six of their currency – will I still go to heaven?
Yours sincerely
Natalie Chalk, by e-mail

Dear Natalie,

You would be astonished how difficult it is to give money away properly. Because there are few good jobs in poor countries, the understandable generosity of relatively wealthy visitors risks turning begging into a comparatively attractive profession – which is a self-defeating process.

Imagine that a poor farmer can make £1 a day, and a beggar can make £5 a day. Who would be a farmer? Farmers will leave the fields to beg until five times as many beggars are chasing the same tourists, returns collapse to a £1 a day, and the rest of the farmers continue farming. Similar reasoning applies to where families send their children: to the fields, to school or to the streets? For the same reason, guides and taxi drivers will wait hours or days for the single lucrative tourist. This doesn’t do anyone any good.

It’s true that begging often carries a stigma. Perhaps farmers would rather farm for £1 than beg for £2. Unfortunately, this is no better: your money is still doing nothing more than compensating beggars for the stigma of begging.

This process of “rent-dissipation” is not limited to beggars. For instance, the net benefit of being crushed but getting cheap goodies in the New Year sales should be roughly zero – otherwise more people would be there in the scrum.

You will only help if you can hand out money without encouraging people to chase those handouts. When you work out how to do that, your place in heaven is assured.

Also published at ft.com.

12th of November, 2005Dear Economist • Comments off