Recently, an article by British academic Toby Ord advocated large annual payments by western-world middle class individuals as way to achieve similar philanthropy to wealthy individuals. This is easily possible for most if not all two-professional families even in the United States which lacks the social security programs of Mr. Ord’s UK.
In industrializing America, the sometimes so-called “robber barons” Andrew Carnegie and John D. Rockefeller both amassed great wealth that they began to give away in the form of great public works and other charities before they died.
Foundations established in their names continue to disperse their wealth in the name of what they consider the greater good to the present day. These men stated that the wealthy like themselves could be more responsible and productive with wealth than governments or poor laborers. These men like Bill Gates and Warren Buffett today were among the most wealthy in the world with more money to their names than they could even hope to spend on private consumption. However, the situation faced by many professionals today is a unique one, far from insecurity as many laborers face, and yet living off of yearly salaries that clearly cover more than basic necessities.
First, can significant charitable donations along the lines advocated by Toby Ord even work in nations such as the United States without substantial social safety nets? Mr. Ord states that with an average salary of 45,000 pounds sterling ($72,700) over 35 years he would expect to pay 5,000 pounds ($8,100) in taxes and retain 10,000 pounds ($16,150) for living expenses (incidentally, his stated figures for year one were a salary of 25,000 pounds ($40,375) and a total tax and living expenditure of 15,000 pounds ($24,225)). Mr. Ord’s wife Bernadette, is a doctor with an undisclosed but higher salary, who has agreed to give away all but 25,000 pounds ($40,375) of her salary after taxes. Toby Ord certainty would benefit from this money as well, although there is no mention of whether children are present or might be expected in the future nor how that might change his calculations. These contribution levels mean that Mr. Ord can contribute over 1M pounds ($1.62M US) to charitable causes during his working career, and quite possibly more than twice that when considering his total family contributions.
For an individual in the US, one might expect a higher salary and lower taxes in exchange for no guaranteed pension and more expensive healthcare. On the other hand, living expenses tend to be significantly reduced in the US as compared to the UK. For a pair of married college graduates in the US, one might expect an average lifetime family income of $123,000 during their careers <from NCES>. Here, we will assume that tax payments will remain more or less on average similar to what they were in 2009 or about $31,000 in total ($1,780 for Medicare, $7,600 for Social Security, $18,420 for Federal income taxes, and $3,200 in state taxes). The 35,000 pounds sterling or ($56,500) in the UK for living expenses by Mr. Ord’s family would be approximately equivalent to $42,100 on equivalent living standard terms for average cities in both countries. A two-person family in the US would also be expected to spend at least $3,000 for health insurance each year and to set aside about $12,300 per year for retirement (sufficient investment for a 90% probability of generating at least 80% of pre-retirement income during a 20-year retirement). These expenses would then leave $34,600 each year (28%) for charitable donations–enough to generate over $1.2M for charitable causes during one’s career without sacrificing any necessities. This is slightly less than Toby Ord’s projection, but very close, and assumes both a lower level of overall pre-tax family income, as well as less financial security from government programs.
But would this level of contributions matter? Well, there are approximately 30 million people in the world with this level of income. If all were donating to charity at these same dollar levels (not percentages) that would be more than $1 trillion of financing available each year to address the world’s most pressing problems. This is nearly 2% of the world’s total economic output, and more than the total yearly economic output of many countries. All charitable giving in the United States is only $300 billion, and much of this is domestically directed, only $10.6 billion goes to developing nations. The US government provides another $25-30 billion in development assistance on our behalf. In European nations, the relative contributions are proportionally less for individuals and greater for the government, but the per capita expenditures are similar. These figures are dwarfed by the $1 trillion possible from concerted private donations. Even if only 10% of people could be convinced to act in this way, development assistance available today could be doubled, so it is a considerable sum.
Clearly, what is being discussed here is unusual and possibly counter-cultural among western-styled economies but not impossible as Toby Ord’s and my calculation shows. While greater amounts of financing are not guaranteed to produce more positive results, it seems likely that large numbers of significant donations could produce the same benefits of competitive efficiency towards meeting the goals of their supports as the competitive economy has done to producers of consumer goods and services. When the relatively small quantity of resources devoted to development by the worldwide group of relatively well-off and savvy investment-minded professionals it should be evident that there are substantial benefits yet to be realized in this arena rather than only being able to hope for little more than the typical status quo preserving disaster triage we normally experience.