TruthBook Religious News Blog

by Arthur C. Brooks
November 2007 Issue

(Page one of two - as always, click on "external link" for full article)

New proof that it pays to be charitable.

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.

Labels: Americans, Arthur C. Brooks, charity, generosity, Giving U.S.A. Foundation, income, Social Capital Community Benchmark Survey, wealth