Giving it all away

In the Wall Street Journal, Robert Barro tells Bill Gates where he would have liked his money to go: to Barro and everyone else [HT: Greg Mankiw]. Barro’s argument is that Bill Gates (a) contributed alot to social value by founding Microsoft; and (b) will largely replicate ineffective poverty relief programs by giving his money away to development causes. Instead, Barro thinks a $300 per person donation to every US citizen would be better.

There is so much that is incomplete in this argument that it is disappointing. Taking our starting point that Gates has a ton of money, what Barro is proposing has the same impact as a tax on the very rich in the US for the purpose of expenditure on a general public good in the US. This is compared with a tax that Gates is imposing for the purpose of public good provision in developing countries. It is hard to imagine how you can really rank one over the other. Certainly though, if Barro’s choice is preferred, then what would surely be better would be a straight out handing of $300 to 300 million enpoverished people.

But there is a larger question that Barro hinted at but ignored: is it better for someone to get rich by, in part, monopoly pricing and use the proceeds for the very poorest in the world versus having priced lower and having no profits left over to distribute? We are trading off ripping off the middle class in the US and redistribution to not doing this. The former leads to more public good provision to alleviate poverty while the latter leads to more productivity in the US. It is not clear which is better in an overall sense but that is the comparison that is surely of relevance when it comes to passing judgment on Bill Gates’ legacy.

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