Unfortunately, international disputes can put free trade in jeopardy. When states respond to apparent ‘distortions’ by slapping tariffs on incoming goods, they’re trying to retaliate. In reality, they’re hurting their own citizens. What good could possibly come of trade wars?

Today, the line between ‘foreign’ and ‘domestic’ producers is more blurry than ever before. The MacBook I’m typing on right now was sold to me by an Irish retailer, having been assembled in China from parts produced in Taiwan and Korea. It was designed by American engineers, and some of Apple’s profits no doubt return to private investors here in Ireland too. Who benefited from my purchase? Lots of people, some foreign and some domestic.

Even if international trade wasn’t integrated in this way though, tariffs and quotas would still hurt domestic consumers. Unfortunately though, there are strong interests aligned with governments throughout the world determined to restrict trade and maintain their dominant position in markets free from foreign competition. This is a simple example of a collective action problem: small groups of firms and workers find it easier to organise themselves than millions of disparate consumers – even when the benefits to the former are outweighed by the costs to the latter.

This isn’t the whole story though. Many consumers just support protectionist measures because they think free trade sends jobs overseas. They don’t understand the full benefits of free trade, and it is this ignorance that allows governments to retaliate and spur trade wars. Think of the Republicans complaining about China’s undervalued currency.

What have we learned? Firstly, game theorists would say that removing restrictions is a dominant strategy in determining optimal trade policy. No matter what the other guy does, you should always try to keep trade as free as possible. Secondly, some governments don’t determine their trade policy with regard to the greater good and will instead try to subsidise or otherwise benefit their exporters. Thirdly, if you give the irrational, ignorant public an excuse, they will try to slap trade barriers on your goods and services. So much for the dominant strategy.

What if  the public knew the truth and adopted the dominant strategy instead? Then foreign nations would suffer no punishment or retaliation if they imposed trade restrictions on our exporters. They would exploit this advantage by benefiting their favoured firms and importing goods into our markets. If we threatened to retaliate, they wouldn’t believe us – it’s not a credible threat because we know we’re hurting ourselves in the process.

So how do countries maintain a credible threat of retaliation under the status quo? By hiding the costs from the consumer, and exploiting his ignorance. If they knew the truth, would consumers suffer trade restrictions on imported goods in order to benefit a single exporting firm? Probably not. The threat of retaliation is only credible under the status quo because it’s not rational.

Revenge isn’t rational in general. If somebody does hurt you, it’s never optimal to follow through on a threat of vengeance. The threat of vengeance is only credible because the decision to pursue it is not rationally considered. So in a world with free trade on the edge of a knife, it’s not so bad that the public sometimes cry out for trade restrictions. If they didn’t, our deterrence of same would lack all credibility.

© The Free Marketeer 2010

The most interesting question that I’ve addressed in a debate recently has been whether there should be a market for adoption and surrogacy. Although the concept jars with most people, the real reason to oppose such a market isn’t immediately clearly.

After all, if two individuals can make themselves happier through the exchange of money for services, what business does the state have in prohibiting it? We have markets for everything else, and there’s strong evidence to suggest that organs trade should be legalised. So what is the difference between a kidney and a baby?

Markets are great because they allocate resources in the most efficient manner. With some caveats, goods and services are delivered to the person who values them most and consequently offers the highest price. There is a pretty obvious problem applying this analysis to the market for adoption. From the perspective of economists, the difference between the market for babies and other goods is simple: we care about the commodity too.

So if we are trying to allocate unwanted children, there is a clear trade-off. Should they be allocated with primary consideration for the parents or the children? The public systems today world-wide typically involve no financial exchange, but send the child to the best home. Thus, any arrangement whereby the child was sold to the highest bidder doesn’t send the child to the best home.

Even if the parents need to surpass some basic minimum standard, the situation can hardly improve substantially. Are we sure it’s worse? Obviously wealth should be a factor in considering the ability of a family to care for a child, it shouldn’t be the determining one. As a signal of desire and willingness to care, it’s equally not credibly because the imposition of financial payments varies wildly depending on your circumstances. The conclusion: children will be worse off.

It’s also worth noting that the current market for adoption has more supply than demand. The supply here typically comes from unwanted pregnancies. So what impact does the legalisation of a market for adoption actually have? Well, demand is completely unaffected. There are still as many people looking for children, although now they can be distinguished by the price they’re willing or able to pay. Supply has to rise in response to a non-zero price. This means more children on the market, and therefore more children without loving homes.

Let’s consider it in more detail though. Now that there’s a market for surrogacy, they may prefer to hire a surrogate at a premium for a new-born baby, than adopt an older child in the care of the state. Thus, surrogates satisfy more of the demand for kids and parents substitute away from adoptees.

Of course, most of these surrogates wouldn’t be having children if there wasn’t a financial incentive. Voluntary surrogacy rates don’t nearly satisfy demand under the status quo, after all. So with a market for surrogacy and adoption: existing children are more likely to remain without a loving home, due to an increasing number of children who otherwise wouldn’t have existed. There’s also going to be an increase in unplanned pregnancies, pushing the supply up even further. Why? Because the value of unwanted children just jumped. Not to mention the parents who might have kept the child for its sake, who instead sell it on for profit.

The result of all this? More children in care and not in loving homes, which is a bad thing. In many ways though, this analysis is confused by not having a framework in which to consider babies who wouldn’t have existed without the policy’s introduction. But a world with fewer children lacking adoptive parents and growing up without a loving family sounds better.

Depending on your perspective, there may be another factor to take into consideration. Since there’s now a resale value on unwanted children, the opportunity cost of an abortion just got higher: you now have to weigh the benefits of termination against the foregone adoption revenue. Whether this further increases the supply of unwanted pregnancies and children looking for a home depends on another, more sinister question: what is the price elasticity of demand for abortions?

Inspired by conversations with Dave Byrne.

© The Free Marketeer 2010

If the addition of another worker to the company is profitable, the entrepreneur will hire him regardless of what tax rate he is paying. This is the decision criterion of the rational utility-maximising capitalist, he says. Although Frank’s logic is extremely elegant, it is ultimately flawed.

I’m obviously not going to defend the economic policy of George W. Bush. But bear with me. In this case, the former President was claiming that tax cuts for small business owners created new jobs. The success of this policy clearly relies on the assumption that richer business owners hire more workers. Or does it?

In his book, Professor Frank responds by explaining the basic hiring criteria of any business. If the revenue brought in by another employee exceeds the cost of hiring him, the new recruit will be hired. That hiring criterion clearly exists independent of the tax rate suffered by the business owner, or his individual wealth. Thus, Frank argues that tax cuts for small business owners don’t have any impact on employment. Workers are hired or not hired either way.

But suppose we were talking about tax breaks for workers. Clearly, you are more likely to take up employment in a low-tax environment. As the government takes more of your wage in taxes, it becomes less worth-while working. If tax rates become really high, you will eventually decide to ditch your job in favour of chilling out on the beach or spending time with your family.

Why? Because workers have to decide whether the wage (benefit) is worth the work (cost) necessary to obtain it. That’s cost-benefit analysis. Similarly when they’re deciding how hard to work, entrepreneurs have to decide whether the profit (benefit) is worth the work (cost) necessary to accrue it. They are faced with the same opportunity cost of working – not spending time with their family, or not playing golf.

So claiming that entrepreneurs will always hire a worker if it’s any way profitable is like saying that workers will always accept a job if it pays any wage at all. That’s rubbish. Since they’re both rational, capitalists and labourers alike need promise of sufficient reward before they are bothered getting up for work in the morning. They are similar in that regard, I guess.

Thus, it could be argued that small business-owners might decide to work that bit less hard, and spend a little more time at home or on holiday, if tax rates are too high. But when tax rates are low, they get more benefit from identifying opportunities to expand their business – all the while generating profits and creating new jobs. Professor Frank’s reasoning holds in a world where capitalists can immediately identify profits and easily pursue them. But that’s not the real world.

In the real world, identifying profitable new paths for your business takes time and effort – that you could be devoting to other things. By making it more attractive with a tax break, President Bush was indeed encouraging small business owners to create jobs for the American economy. It’s up to your personal stance on government whether raising that extra tax revenue would be worth destroying those jobs, but claiming as Frank does that it has no effect is just plain wrong.

Of course, substituting work for leisure isn’t the only impact that changes in the tax rate have. When people get paid less because of higher tax rates, they are poorer and can afford less stuff. This might spur them on to work harder and longer hours, so they can get back to the wage they had before the tax hike. So do tax breaks really encourage small business owners to create employment? Or does it allow them to take it easy and retire earlier? This commentator doesn’t know, nor does he claim to.

© The Free Marketeer 2010

Given the enormous patronage power that the Seanad offers to the Taoiseach and the rest of the political establishment, this is either an extremely foolish move by Enda Kenny or a truly noble one. The question is: will the public reward him enough to balance the internal political opprobrium?

There are clearly some talented public representatives in the Seanad, which was once described by former Tánaiste Michael McDowell as “a cross between a political convalescent home and crèche” (although he has since revised his position). If the Seanad was abolished, no doubt the best and brightest would migrate to the Dáil. No harm done.

There are some other credible risks associated with its abolition. Critics of the plans have appealed to the spirit of bipartisanship present in the Seanad, and the good work that they do in crafting legislation. No doubt members of the Dáil might find themselves with more work to do in its absence, but frankly there is room to expand the hours that TDs clock in Leinster House actually debating legislation. Hopefully, the already snail’s pace of progress will not slow further.

As regards misuse of temporary majorities? This commentator is no expert on the checks provided by the Seanad on the Dáil. But given that the Government typically engineers a majority in both houses at any given time, it seems that there would need to be an unlikely confluence of factors necessary before the Seanad could become necessary or willing to stop abuse of power by a temporary majority in the Lower House.

So why does anyone care whether the Seanad gets abolished? Patronage is undoubtedly the deciding factor. Not only does the Taoiseach of the day get the opportunity to make personal nominations of eleven members, an extremely useful tool in rewarding cronies post-election. But the processes which elect the remaining members (with the exception of those representing the country’s college graduates) benefit the leadership of the individual parties.

How? Because the balance of power in the various nominating and electoral committees varies widely, and is made up of TDs, senators and local councillors. These parties have a strong interest in obeying the party leadership when voting and nominating. They will take direction from them on the best candidate and the best interests of the party to which they have sworn allegiance. Unfortunately for Irish politics, it doesn’t pay to rock the boat or object to directions from the Party leader.

So we are left with the Seanad as it currently stands, full of political favours and party cronies – with the odd independent thrown in for good measure. Since all the party leaders (including Enda Kenny of Fine Gael) benefit from the patronage that the undemocratic elections to the Seanad affords them, nobody wants to change anything. Historically, only small non-governmental parties have objected to the process. Fine Gael is changing that.

Irish politics without the Seanad would be less wasteful and more honest. But this commentator wonders.. If the Taoiseach can’t give out seats in the Seanad as favours, how will he reward party hacks in future elections? It may not be pretty. More likely, we may not make it that far as Enda Kenny finds that abolishing the Senate will make his life more difficult.

© The Free Marketeer 2010

It’s all very well-meaning, and certainly makes consumers feel good about themselves. But does Fairtrade actually make life better for the poorest farmers in the world? The more ethical policy would be to embrace free trade and stop keeping prices artificially high.

Fairtrade do actively try to identify the poorest farmers, but this has some unfortunate side-effects. Because this creates costs in obtaining creditation, it disadvantages the poor who have little access to capital and live hand-to-mouth. This explains why Fairtrade is most common in Mexico (a relatively affluent country) as opposed to Ethiopia or Rwanda (extremely poor countries that really need our help). The unfortunate side-effect of this? The poorest countries then lose business to more affluent farmers, because demand flows to the Fairtrade products coming from Mexico.

If poor farmers make it into the Fairtrade scheme though, things aren’t much better. Fairtrade bureaucrats will kick out farmers if they break rules meant to exclude the rich who don’t need help. What are some of the indicators that the farmer should be kept out of the scheme? If you’d rather maintain small business status than join a co-operative, Fairtrade don’t want your coffee. Apart from the unnecessary infringement on individual agency, the co-operatives are often corrupt and the incentives created discourage effort from individual farmers. But if they don’t join up, they’ll lose business.

Now, consider the Fairtrade farmer who’s considering expanding his farm and hiring full-time workers. It’s clearly an economical decision if he’s considering and can afford it. Indeed, mechanisation and economies of scale are the only way to develop these industries. But if the size of his farm goes beyond 12 acres, he’s kicked out of the Fairtrade scheme. Thus, it’s more profitable to maintain his small farm and spurn the expansion of his enterprise – along with the boon to local employment this would bring. How do these regulations help the developing world?

So if you want to help people in the world’s poorest nations, it’s better to spurn Fairtrade and donate the difference in price to the countless charities promoting foreign economic development. Moreover, donating to them provides help that doesn’t require the recipient nation to spurn modern technology and continue using out-dated techniques on crops that perhaps the country is ill-suited to (as Fairtrade does). There is no doubt that these countries need our help. But they should be encouraged to look forwards, not backwards.

If you consume Fairtrade products, read the literature and educate yourself to the real harm that this well-meaning organisation is doing. Even if you question the reasoning behind them, you can’t challenge the facts: only about 5% of the price of a Fairtrade chocolate bar even makes it to the relevant country. So when you pay that 20% more for the Fairtrade feel-good factor, where do you think all that money goes?

Unfortunately, shops treat Fairtrade as a kind of high quality line. They know that consumers will pay the premium in the hope that it is justified by the amount that actually supports farmers in the developing world. Thus, prices and profits rise to reflect the inelastic demand with respect to price. So where does that price premium go? If you’re an ethical consumer, you should be asking that question.

Republished as “Fairtrade for some, poverty for others” in Trinity News (23rd of March, 2010).

© The Free Marketeer 2010

Whether you call it networking, cronyism or simply the Old Boys’ Club – using contacts and connections to obtain an edge in the job market seems necessary in today’s competitive world. Should proponents of meritocracy really condemn such mechanisms?

Graduate recruiters spend an awful lot of time and money trying to identify talented prospects, something which is only profitable because it is so difficult to do well. For example, this author has been brought to dinner on more than one occasion by firms simply by virtue of being a scholar.

This uncertainty can be a frustrating curse or fortuitous blessing, depending on your perspective. However, it is certainly something which can be exploited for your interest. How? Since firms are seeking credible demonstrations of talent, students in their penultimate year of university should by all accounts be competing as vociferously for internships as they will for eventual employment – knowing that such a policy will reap dividends the following year. But such action though might not even be enough to land employment with the best firms. Why?

Frustratingly, many positions seem to the outsider stitched up by virtue of connections and contacts. The solution: adapt to market conditions by choosing your references wisely, and considering any possible links that you or your lecturers might have to the organisation in question. Of course, the alternative would be to claim that the market is corrupt and full of nepotism. Does this imply that it’s not meritocratic? Not necessarily.

When your connection make a plea on your behalf, it’s not a costless endeavour for them. If you secure a job for a friend or (say) family member who turns out to be completely useless, it hurts. Your networking contacts will see you as either a poor judge of candidate quality or a more concerned with nepotism than providing reciprocal and mutually beneficial recommendations. Either way, they won’t be listening to your advice in filling future positions.

So if a friend puts in a good word for you, it’s a credible signal of your talent because it costs your friend to put his reputation on the line. It’s a credible signal that you’re determined too. How can we deduce this? Presumably, because otherwise you wouldn’t be getting your friend to do the favour for you. After all, there’s no such thing as a free lunch and you must be offering him something in return for getting you the interview (or whatever).

In the end, employers will only adhere to recommendations from the Old Boys’ Club if they end up being profitable. Otherwise, such companies will lose custom to more efficient competition and perhaps go out of business. There’s still plenty of room for abuse through cronyism – After all, your recommendation need only be slightly better than operating under uncertainty to be worth listening to. But the central conclusion: Old Boys’ Clubs could be contributing to the separation of individuals based on merit.

But there are limits to the extent that it does. If contacts are incredibly important in the actual business of work, then talent may eventually take a back-seat. This is clearly unfair to individuals who are talented but didn’t have the benefit of attending the right school or mixing in the right social circles.

There’s also collateral damage to these same people even if cronyism does make the market more efficient. If employers couldn’t receive advice from networks and connections, they would have to find the most talented recruit using more conventional methods. Unfortunately for some, that would make the company less profitable than under the status quo.

Republished as “No country for old men” in The University Times (10th of March, 2010).

© The Free Marketeer 2010

This author disagrees however. After all, geopolitics is simply a market for power and influence and America was until recently a monopoly vender. As any economist knows, that’s bad news for consumers.

Despite all the talk of co-operation, international relations is based on reciprocal concessions. Development aid, whether it comes from the European Union or the World Bank, comes with conditions. Tariffs are only abolished on foreign exporters if quotas are removed for domestic firms selling their goods abroad, et cetera. The failed Doha Round of WTO talks is a pretty good example of this diplomacy in action.

After the decline of the Soviet Union, the United States become the monopoly vender of global political, economic and military power. They also possessed a monopsony on the purchase of influence from smaller states throughout the world, and their privileged position had consequences for the kind of reciprocal concessions that took place.

If a poor developing nation needed US influence to be deployed in a political dispute, they couldn’t shop around in the past. America was the only game in town, and it knew it. Thus, the US had the freedom to raise the price of that help through the roof – whether they were looking for privileged access to domestic markets for American firms, support in political disputes, or whatever.

Conditionality of development aid places the issue in starkest contrast. Industrialised countries know the reciprocal benefits of economic growth in poorer nations, and thus have a strong interest in their development. Of course, there’s no such thing as a free lunch. But today, at least developing countries have a few options.

With the rise of China, America can no longer place demands as onerous smaller states. Instead, they must compete for the influence and favours that they are receiving – competition for control of natural resources today is fierce, and in many respects the US is losing this battle (exacerbated by the recent economic crisis).

Who benefits from this competition? Poor, developing nations throughout the world stand to gain considerably – and as the EU rises, the market for geopolitical power and influence will become even more competitive. So if you are welcoming the decline of America as global economic hegemon, you are welcoming increased consumer choice for developing nations – but with a caveat: some poor nations may not have leaders with noble intentions, and they have increased bargaining power too.

In the future, poor nations will generally though receive better and more free trade, more development aid, and more political help than in the past. That’s basically a very good thing, given the very real need. The multi-polar geopolitical stage of the future will fight more competitively for the privilege of investing in the future wealth-creating capacity of the world’s poorest people. If that requires the decline of America’s status as global hegemon, this author welcomes it.

© The Free Marketeer 2010

The Irish Times reports on the continuing failure to reach a settlement on devolution in Northern Ireland. Given the critical importance of these talks though, it may be prudent to give into the demands of the Democratic Unionist Party (DUP) and radically revise the current policy on parades.

The DUP have very little incentive to agree on a date for devolution currently, especially given the upcoming elections in the UK. It is politically impossible for their leader, Peter Robinson, to concede this issue without looking extremely weak – unless he can sell it to his people with a minor victory. The other parties to the talks need to accept these political realities.

The situation so far: Sinn Féin are accusing their partners in government, the Democratic Unionist Party (DUP), of reneging on commitments made concerning devolution of policing and judicial powers to the Northern Ireland Assembly. But the DUP claim they never committed to a specific date, and are refusing to do so until the Parades Commission is abolished.

The Parades Commission arbitrates disputes over contentious parades by Loyalist orders through predominantly Nationalist neighbourhoods. It has a pretty decent record to date, and each year there are fewer and fewer incidents. Its members are selected by the Northern Ireland Secretary, and they have the power to restrict or regulate parades at their relative discretion.

Given that the Northern Ireland Secretary is decided by the Prime Minister of the time, it is fortunate for the last few years that Labour have maintained a very balanced view of affairs in the North and acted as a neutral arbitrator. However, this could all change with upcoming elections and the real possibility that the Conservatives may come into power. Their leader, David Cameron, will almost certainly be reliant on the Unionist parties of Northern Ireland to support his government. Thus, there is strong potential that the next Prime Minister may be compromised – as evidenced by Cameron’s recent ‘secret’ talks with Unionist leaders.

It’s unlikely that David Cameron would do anything radical or stupid to disturb the relative peace and progress in Northern Ireland today. But it is plausible that he may make commitments of support and sympathy. Even if he does act in good faith, Nationalists in the North may lose faith in his neutrality on the less substantive issues. Thus, instead of remaining recalcitrant in the face of DUP demands, perhaps Republicans should ask themselves: Is the Parades Commission really worth keeping?

There is a severe lack of democratic accountability on its members – not unheard of in Northern Ireland’s political landscape, but not desirable or excusable here. There is simply no reason to believe that the Northern Ireland Executive is incapable of making selections for a radically revised Parades Commission, in consultation with all parties and interests in the Assembly. A reconstituted mechanism to regulate parades in the North could be traded off to the DUP for a settlement on devolution, along with perhaps other concessions on issues such as the Irish Language Bill.

Given that all parties to the current talks want to entrust policing and judicial powers in the Northern Ireland Executive, it’s clear that the political landscape has changed sufficiently to permit bipartisanship on at least those issues of critical importance. If devolution is so important to Sinn Féin, why can’t they think outside the box for a solution that all parties can agree to?

Inspired by conversations with Ed Davitt.

© The Free Marketeer 2010

Their objective is to enable a positive culture shift towards every-day charity, with the founder and all the employees motivated to join the company by their desire to make the world a better place. So how does charity shape up as an economic motivation?

Altruism can be explained by evolutionary psychology, as a system of ‘generalised reciprocity’ – like an insurance policy. The society would be more likely to thrive and survive if misfortune for one member could be smoothed by charitable transfers from other members of the group, but with the knowledge that you were safe from destitution if you suffered some bad luck too.

Thus, humans rationally evolved to reward altruism. What impact does this have on our society? Firstly, individuals engaging in charitable activity receive different rewards to conventional entrepreneurs. Rather than receiving profits in accordance with the value they create for consumers, they receive praise from their peers – not to mention the positive feeling that they are making the world a better place.

People reward altruism by looking upon the perpetrators more favourably, and this creates incentives for philanthropy. Of course, the recipients can’t recompense suppliers of charity in the traditional manner (payment through the price mechanism). Thus, granting social status to honor altruism is directly analogous to giving money to the poor – They can’t pay for the goods and services they need, so you are ‘paying’ instead.

Thus, you should always remember your part to play in provision of charity. By praising members of our college community who give time to SVDP, you are helping the poor. By lauding Suas volunteers, you are making a difference in the lives of the world’s poorest people. Who knows? It might make voluntary work seem so attractive, that perhaps one more person might think it worth their while to join the Voluntary Tuition Programme. That makes the world a better place.

Of course, there are costs when we reallocate social status because it’s fundamentally a zero-sum game. If people reward charity by looking upon the individual more favourably, there is less ‘social status’ to go around and less to be gained in other ways. When these alternative means of achieving social status (being funny, looking attractive, etc.) yield lower returns for the investor, they are going to invest fewer resources (time, effort, etc.) in striving for them. Basically: why bother trying to be the funniest guy in the class when Johnny Do-Gooder gets all the girls? Better to spend that time and effort elsewhere.

So a philanthropic society that rewards altruism may end up being less funny, less smart, and more ugly than a self-interested Hobbsian wilderness. This author thinks that the charitable society is preferable, and will look upon you more favourably if you agree.

Republished as “Charity begins at the margin” in the University Times (10th of March, 2010).

Please note: As usual, the opinions contained herein are representative of the author only. They have been altered slightly since initial publication in order to avoid misrepresentation.

© The Free Marketeer 2010

If you’re feeling charitable, what’s the best way of manifesting this desire to help – Should I give a homeless man cash or a coffee? Because if you’re going to try and make a difference, it’s rational to maximise.

It’s true that there are support services provided by the government to help homeless people, including shelter at night. There are probably many reasons that potential candidates may be excluded from such services though voluntarily or involuntarily – drug use, mental illness, ignorance or behavioural problems.

So who do you give your money to, to begin with? Signaling theory allows us to distinguish between fraudsters and the truly needy. Since not everyone is equally desperate, this author has taken to only donating to homeless in the early hours of the morning where possible. This policy has both costs and benefits.

Sleeping rough as an indication of genuine misfortune is pretty effective, because it’s costly to fake if you have shelter to sleep in. Thus, it’s a credible signal in the same way that expensive engagement rings are a credible signal of a suitor’s long-term commitment.

On the other hand, such opportunities arise less frequently than the chance to donate to someone sitting in the street during the day. No doubt that all such individuals are worthy of some charity, but the rational donor wants to direct his funds to the most needy location. If you restrict yourself to donating during the night, you might direct funds to the most needy but total individual donations may fall.

Given the impossibility of determining how many fraudsters solicit charity on street corners during the day, the optimal response is to consciously donate more money at night that you feel that you otherwise might have. Rather than give spare change occasionally to the drug addict who approaches you at the Luas machine, it makes sense to give a decent contribution (albeit less frequently) to someone genuinely sleeping rough at night.

So if given the choice between food and cash, what do you give the person? Let’s assume that the effort involved in purchasing the food is negligible, and that you consulted them for advice on the sandwich’s contents. If you provide the individual with cash, they can use it to purchase whatever they want – including the food that you could have chosen on their behalf. Of course, they might equally spend it on cigarettes or alcohol.

Many might consider these less pressing or more frivolous needs. They might feel uncomfortable with financing such activity – perhaps even out of concern for the individual in question. This leads them to give the sandwich rather than the cash. But the cash is the more generous gift. To let your only judgement of another individual’s preferences interfere with the efficacy of your charitable act meanwhile, is hardly altruistic.

Maybe the homeless person is making a poor choice by buying cigarettes or alcohol? Not from his perspective. If you recognise that the person is in such severe need that you are willing to provide them with charity, then your only concern should be to make them feel as happy as possible given your donation.

If the homeless person spends the cash on alcohol and cigarettes, then these goods must contribute more to their happiness than food. There’s no reason to think otherwise. By (potentially) overriding their choice and giving them food instead, you’re assuming that you know what is best for them – despite not ever being in their situation or having to ever make such a choice yourself personally.

If you give them cash, they spend it in such a way to make themselves as happy as possible. If you give them the sandwich, you’re precluding the possibility that they would be made happier by something else. Might such choices be not in the longer-term best interests of the individual? Unlikely. Since future health isn’t a pressing concern for someone on the street, you might as well make them as comfortable as possible for the time being.

Alcohol and cigarettes are also products that you’re unlikely to see yourself starve to afford. When we use the term ‘starve’ here, we mean it in the most literal sense. Of course they’re likely to cut back on their food expenditure elsewhere to buy them, but why should that be any concern of yours? Give them the cash.

Of course, if we’re talking about extremely addictive drugs or serious alcoholics, this argument against cash may be stronger. For example, a crystal meth addict may seriously jeopardise his health by spending all additional income on drugs. Their short-term interests may be served by doing so, but they would clearly be better off if they took marginally better care of their health – even to the extent that this meant they could stay alive longer to consume crystal meth.

The alcoholic may find it easier to get back on his feet, or engage with public support services, if he finds it impossible to obtain alcohol. It may be painful in the short-term, but potentially good in the long-term. Does a policy of providing food and not cash make any difference in these cases? It’s pretty unlikely in the case of the alcoholic. If you meet an unhealthy-looking drug addict though, it might be worth giving them the sandwich.

Luckily, such individuals are at least somewhat identifiable. For everyone that looks like they have at least some control over their various addictions though, just give them the cash. You might feel less noble financing their cigarettes and alcohol, but they will be happier. If you’re a truly charitable person just looking to help, that should be your only concern.

Republished as “How to help the homeless” in Trinity News (10th of February, 2010).

© The Free Marketeer 2010