Should Billionaires Like Steve Jobs "Give Back?"

Insufficiently Generous?

Writing in the New York Times shortly before the death of Steve Jobs, Andrew Sorkin asked whether Jobs was a generous philanthropist and, if not, why not. (The essay, entitled "The Mystery of Jobs' Public Giving" can be found here.) As the essay points out, Jobs had a personal fortune over $8 Billion. Moreover, he declined to sign the so-called "giving pledge," orchestrated by Warren Buffet and Bill Gates, whereby signatories pledge to donate a majority of their wealth to charity. Sorkin also claimed that there is little evidence that, pledges aside, Jobs actually gave a significant share of his large personal fortune to charity. Finally, Sorkin asserted that Apple itself is less charitable than many Fortune 500 companies, "despite its nearly $14 Billion in profits last year," and that Jobs closed down the company's philanthropic programs in 1997.

Sorkin finds Jobs' failure to give more to charity "surprising," and also suggests that Jobs has received a sort of free pass not granted other super-rich individuals with meager giving records. As Sorkin puts it:

"But the lack of public philanthropy by Mr. Jobs --- long whispered about, but never said aloud raises some important questions about the way the public views business and business people at a time when some 'millionaires and billionaires' are criticized for not giving back enough while Mr. Jobs is lionized."

Sorkin points to Bill Gates, Warren Buffet and Sam Walton as billionaires who, unlike Jobs, have been criticized for not "giving back" significant parts of their personal fortune to society by making philanthropy a high priority.

Here are some thoughts on Sorkin's essay:

1. Sorkin does us a useful service by pointing out the double standard applied to billionaires on the question of philanthropy. Why criticize Warren Buffet or Sam Walton for miserly giving records, while leaving Jobs unscathed? Moreover, this blogger agrees with Sorkin that there IS such a double standard, that is, that some individuals, such as Jobs, somehow avoid public criticism for a perceived lack of charity while others with similar records come under fire.

2. However, identifying a double standard and thus concluding that the same standard should apply to all simply begs the following question: what should the standard be? Should billionaires feel obliged (albeit in some unenforceable way) to "give back" a large fraction of their after-tax wealth to charity? Is criticism directed at other billionaires fair? It's reasonably clear what Sorkin thinks, namely, that all billionaires, including Jobs, should feel some sense of obligation to "give back" significant portions of their personal fortunes to the rest of society, presumably in a way that benefits individuals with more modest financial means. At the same time, Sorkin does not expend much effort arguing this case, but instead seems to take as a given that such an obligation exists.

3. Do all billionaires necessarily possess such an obligation to "give back" to society? This blogger doubts it. For one thing, the characterization of charitable donations by billionaires as "giving back," while common, is morally problematic in a free society. Mr. Jobs (and, for that matter, Mr. Gates and Mr. Walton) did not "take" their wealth from society. Nor did society "give" them that wealth or gratuitously shower it upon them. Instead, they earned that wealth, by cooperating with others to create products and services that individuals voluntarily purchased in free markets. It thus makes no sense to refer to charitable donations by such billionaires as "giving back," as though they are returning something they have passively received. The mere fact that individuals possess wealth does not thereby oblige them to give it away, though many do. Such donations are giving, plain and simple.

4. To be sure, society creates and enforces various background institutions and rules that help facilitate the creation and retention of wealth. Without property law and police protection, for instance, Sam Walton's Wal-Mart could not earn a profit buying and reselling products manufactured by others. Without the protection of copyright law, a form of property, Microsoft could not make several billion dollars per year selling its Windows operating system. As Nobel Laureates Ronald Coase and Friedrich Hayek both recognized, the "free market" in fact depends upon institutions of private property and contract law, both institutions backed by state force.

Still, while various forms of state action might be necessary to make the free enterprise system function, this does not mean that successful entrepreneurs or the companies they create owe some special obligation to share their wealth with others. After all, when it creates and supports various market-supporting institutions, the State is merely satisfying its most basic obligation under the social contract. Under that contract, individuals leave the state of nature and grant a portion of their natural liberty to the larger community. In return, the State creates and enforces property rights and rights in personal security, sometimes interfering with the liberty and property of those who would invade such property or security in the process. Such interference can include taxation that is necessary to support legitimate government activities, such as police forces, courts and the like, activities that facilitate the creation and operation of free markets and the wealth they produce. As James Madison explained in Federalist 10, government exists to protect liberty and property:

"The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately result[.]."

In a free society premised on a Madisonian social contract, economic success does not oblige one to turn over a portion of one's wealth to the larger community. Wealthy individuals discharge their obligations to the State when they abide by general laws, including laws requiring the payment of taxes. Indeed, billionaires such as Mr. Jobs presumably paid far more to the State in taxes than the state expended to protect their property and personal security. Neither the State nor the larger community may invoke the satisfaction of its pre-existing obligation to protect liberty and property as justification for demanding even more.

5. Assertions that these billionaires have not done enough for society ignore the enormous contributions they have already made. Mr. Jobs did not find $8 billion in his backyard. Instead, he created and led a company that created numerous products that individuals chose to purchase voluntarily. No one was forced to purchase an I-Pad or I-Phone. Moreover, the $8 billion that Mr. Jobs amassed represents only a fraction of the value that Apple's products conferred on those who purchased them. (Because demand curves are downward sloping, we can assume that most individuals would have been willing to pay more than the market price for Apple's products.) Moreover, as already mentioned above, billionaires like Mr. Jobs and the companies they run pay far more in taxes than the State pays back to them; presumably the State redistributes what is left over to others. Admonishing individuals like Mr. Jobs to give even more to others almost seems like "piling on."

6. None of this is to say that NO billionaire owes a duty to "give back" a portion of his or her fortune to the rest of the community. Some may have obtained their fortunes unjustly, as when the State grants a firm a monopoly and thus the power to gouge consumers. Others may have religious beliefs that require them to share the wealth they have created with others. Finally, some may believe that a free society flourishes when institutions that are independent of government take on charitable responsibilities that government would otherwise assume. Indeed, as explained previously on this blog, some believe that a decentralized system of higher education, independent of the State, is essential for a free society to flourish. Such individuals may feel bound to create or support private charitable institutions. None of these considerations, however, establishes that billionaires have an obligation to "give back" simply because they have amassed a large fortune.

Earthquake Hits Virginia, 5.8 on Richter Scale

An Earthquake has struck, reportedly near Mineral, Virginia, registering 5.8 on the Richter Scale. Your humble blogger felt the quake here at the Law School in Williamsburg, where the building swayed a little. It felt as though a large truck was driving in the roof.

Update:

Friends report that the quake was also felt in Arlington, Virginia and Middleburg, Virginia.

Update number 2:

The Wall Street Journal reports that the quake was felt in Manhattan, New York.

Update number 3:

The U.S. Geological Survey reports that the quake registered 5.9, not 5.8 as initially reported. The quake was centered 4 miles SW of Mineral, Virginia, 4 miles SSE of Louisa, Virginia, and 41 miles NW of Richmond.

Update number 4:

CBS News reports that the White House and the Pentagon have been evacuated.

Update number 5:

The Chicago Tribune reports that the earthquake was felt in Toronto and Boston.

Amicus Brief of Antitrust Professors in Hosana Tabor v. Equal Opportunity Commission

This blogger has signed an Amicus Brief in a case pending before the Supreme Court of the United States. The case is Hosana Tabor v. Equal Opportunity Commission, (For a summary of the case, including a link to the various briefs, including amicus briefs, in the case, go here. The opinion in the 6th Circuit that the petitioner is asking the Supreme Court to reverse, can be found here.) Professors Barak Richman of Duke Law School and Harry First of NYU, both leading scholars of antitrust law, co-authored the brief.

The petitioner in the case is a Lutheran church and elementary school that dismissed an employee who taught music and other secular subjects but who also taught daily religion classes, was a commissioned minister and also regularly led her class in prayer. The dismissed teacher claimed that the dismissal violated the Americans with Disabilities Act, and the EEOC intervened in support of the teacher. The 6th Circuit Court of Appeals held that the so-called ministerial exception did not apply, with the result that the plaintiff's suit could go forward on the merits. In particular, the court found it noteworthy that the teacher spent most of her workday teaching secular subjects from secular materials and could not recall bringing religious themes into her secular classes more than twice during her tenure. The court remanded the case to the district court for a determination of whether, in fact, the school had violated the ADA., and the petitioner sought review in the Supreme Court.

The Supreme Court granted certiorari to answer following question:

"Whether the ministerial exception, which prohibits most employment-related lawsuits against religious organizations by employees performing religious functions, applies to a teacher at a religious elementary school who teaches the full secular curriculum, but also teaches daily religion classes, is a commissioned minister, and regularly leads student in prayer and worship."

The amicus brief advises the Court not to expand the scope of the ministerial exception in a way that would provide immunity to professional associations of clergy who engage in concerted action of the sort that produces monopoly or its consequences and is thus unreasonable and unlawful under Section 1 of the Sherman Act. Indeed, at least one professional association of clergy has claimed that horizontal concerted action by the association's members falls within the ministerial exception and is exempt from the Sherman Act. (Professor Richman summarizes the policies of this association, the Rabbinical Assembly, and why they are problematic under the Sherman Act here.) As the brief explains, such concerted action among rivals can reduce competition among clergy for particular positions and also limit the number of clergy whom individual congregations can interview and offer positions, thereby increasing the bargaining leverage of such clergy. Moreover, such conduct does not fall within the contours or rationale of the ministerial exception, which applies in the context of employer-employee relationships between, say, a church or synagogue and its minister or rabbi. Indeed, as the brief explains, limiting the exception to cases involving the employer/employee relationship would not prejudice the petitioner's case at all and would instead protect the ability of other congregations to search for and hire clergy of their choice without interference from unlawful concerted action.

William and Mary 2011 Football Schedule and Game Times

William and Mary has announced the game times for the upcoming football season here. The full schedule, including game times and locations, appears at the bottom of this post. Note that September 23-25 is "Family Weekend" at William and Mary. Moreover, the November 19 match-up with Richmond will be the 121st meeting between the two teams, the first having occured in 1896. The teams play for the Capital Cup. The game was once known as the "I-64 Bowl," after Interstate 64, which links Richmond and Williamsburg. (Williamsburg was the capital of Virginia before the capital moved to Richmond.) The William and Mary v. Richmond match-up is the oldest rivalry in the South, and only three other rivalries have resulted in more games. (Lehigh v. Lafayette, Yale v. Princeton, and Yale v. Harvard).

The Tribe, ranked 3rd in the "FCS Preseason Poll" is looking to build on last year's strong season. Returning starters include running back Jonathan Grimes, who is on the pre-season Payton award watch list, as well as Dante Cook (LB) and Alex Gottlieb (TE), who, with Grimes, made the The Sports Network's pre-season First Team FCS All America Team.

Finally, note that the first game will take place against the University of Virginia, in Charlottesville. Your humble blogger was in attendance at the last meeting of the two teams, which resulting in a convincing 26-14 victory for the Tribe. Go here for a post about that game. Tribe fans are hoping for another upset!

Here is the schedule:

September 4, 6:00 PM @ University of Virginia

Septmber 10, 1:30 PM @ VMI

September 17, 7:00 vs New Haven

September 24, 7:00 PM vs James Madison

October 1, 6:00 PM vs Delaware

October 15 12:00 PM vs New Hampshire

October 22 3:30 PM vs Towson

November 5 1:00 PM @ Rhode Island

November 12 12:00 PM vs Old Dominion

November 19 12:00 PM @ Richmond

Go Tribe!

Should Misleading Charts Accompany All Discussions of the Debt Ceiling?

Probably Not "Incoherent"

Useless Visual Aid

In a recent blog post, James Fallows, national correspondent for the Atlantic Monthly, asserts that one cannot both be concerned with structural budget deficits and simultaneously support the across the board tax cuts that President Bush convinced Congress to adopt early in his Administration. Fallows' main argument is a picture --- a chart, reproduced above, which originated in a recent opinion piece in the New York Times. The chart purports to quantify how various policy changes supported by Presidents Bush and Obama, respectively, have increased spending by the National Government and/or deprived the National Government of revenue it supposedly would have received. Among other things, Fallows claims that the chart "demonstrates the utter incoherence of being very concerned about the structural federal deficit but ruling out of consideration the policy that was the single largest contributor to that deficit, namely the Bush-era tax cuts." (emphasis in the original).

Fallows' assertion is unconvincing, to say the least. Here's why.

1. The chart inexplicably omits over $500 Billion --- the forgone revenue attributable to the two year extension of the Bush tax cuts to which President Obama agreed after the 2008 mid-term elections. (See this story.) Indeed, President Obama's own former director of the Office and Management and Budget, Peter Orzag, advocated such an extension shortly after he left the Administration. Fallows does not explain why we should ignore this forgone revenue.

2. The chart is also misleading in a more fundamental sense. In short, the chart is a gerrymandered portrayal of factors that drive spending, revenue and thus the deficit and resulting debt. In particular, the chart focuses exclusively on the fiscal impact of new programs adopted during the Bush and Obama administrations, respectively. Thus, the chart entirely ignores the cost of existing programs, adopted during previous administrations which, taken together, cost far more than the various programs and tax cuts portrayed in the chart. Indeed, according to one source, the National Government spent $28 Trillion in 2002-2010 alone. During 2002-2009, Fallows claims, the Bush tax cuts deprived the National Government of $1.8 Trillion in revenue, a figure that rises to about $2 Trillion if one includes the forgone revenue attributable to the cuts which Congress extended, with President Obama's agreement, after the 2010 mid-term elections. Thus, the Bush tax cuts equal a whopping 7.1 percent of the expenditures by the National Government during the period in question and are hardly the driving force in the current budget deficit, projected to reach $1.5 Trillion, or 10 percent of GDP, in 2011.

3. The chart ignores all sorts of tax deductions and loopholes, adopted before 2002, that, like the Bush-era tax cuts, deprive the National Government of revenue. Examples include the home mortgage interest deduction (including the deduction for second homes) and the tax exemption for employer-provided health insurance. (The former reduces annual tax revenue by $100 Billion per year.) Inclusion of these potential sources of revenue in the Fallows/New York Times Chart would reduce even further the apparent contribution of the Bush-era tax cuts to the deficit.

4. Finally, the chart and any arguments based upon it ignore entirely the long run link between structural deficits and economic growth (or lack thereof), a link emphasized by John F. Kennedy in his 1962 speech to the Economic Club of New York. As explained in an earlier post on this blog, JFK argued that across the board tax cuts during an economic downturn were the best way to encourage investment, work effort and economic growth and thereby, in the longer run, reduce the budget deficit. In JFK's own words:


"The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring about a budget surplus."

Of course, JFK did not believe that tax cuts alone would ultimately lead to a budget surplus. He also advocated spending restraint, arguing that reliance on government expenditures to stimulate the economy would "demoralize our government and the economy" and that government should not "spend more than can be justified on grounds of national need or spent with maximum efficiency."

In short, like Ronald Reagan two decades later, JFK believed that low tax rates were a precondition for economic growth and that tax cuts and spending increases had quite different impacts on the deficit over the longer run. Moreover, both Presidents advocated policies that helped innaugurate lengthy economic expansions and economic growth. Most Americans would gladly embrace the sort of "incoherence" that resulted in such strong and sustained economic growth and resulting job creation and economic opportunity.

Conflicting Views at CNN Money About The Impact of the Debt Ceiling Deadlock on Interest Rates

Yesterday this blog took issue with the claim, made by President Obama and others, that failure to raise the debt ceiling will raise interest rates that ordinary Americans pay for things like car loans, home loans, and credit cards. (See this post). Unfortunately, a story on CNN Money earlier today continues to repeat some of the unpersuasive arguments this blog rebutted yesterday. Among other things, this new story quotes market "experts" to support the claim that a downgrade in the credit rating of the United States will somehow cause lenders to raise the interest rates charged to Americans whose creditworthiness has not changed. To be more precise, the article repeats the claim that, despite a downgrade, lenders will still treat US debt as the safest investment in the credit markets and thus the rates on such debt as the "baseline" for other rates, even if there are other investments that present lower risks.

As I explained yesterday, this argument assumes that lenders are irrational and ignores the fact that less borrowing by the United States will reduce the demand for credit and thus lower the price of credit, namely, interest rates. Imagine, for instance, that the rating agencies downgraded US debt to a CCC+ rating, driving rates on Treasury Bonds to 25 percent. Would lenders really charge individuals and businesses with AAA credit ratings MORE than 25 percent? Of course not, and lenders who tried such an approach would quickly lose business to those who charged rates that reflected the creditworthiness of individual borrowers.

However, it appears that reason is starting to prevail at CNN Money. Earlier today Chris Isidore weighed in on the question, in this article. Among other things, Isidore explains that failure to raise the debt ceiling could actually lower the interest rates on US Debt because less borrowing by the United States would reduce the supply of bonds, raise their price, and thus lower rates. (This is simply the flip side of the argument that less borrowing by the United States means less demand for credit and thus lower interest rates.) Isidore also argues that uncertainty created by the deadlock over the debt will actually cause investors to flock to Treasury Bonds, particularly insofar as the government will continue to raise sufficient revenue to pay the interest and principal on the debt, because such bonds are perceived as a sure bet. Finally, Isidore offers some modest evidence to support his argument, pointing out that the most recent auction of 7 year treasury notes produced a yield of 2.25 percent, the lowest on such notes since November. Of course, there are various determinants of such rates; low rates may simply signal that investors believe the economy and thus the demand for credit is weak. Still, such low yields seem inconsistent with an assertion that failure to break the debt ceiling deadlock by August 2 will produce an economic cataclysm.

Perhaps those who claim that the rate on US Debt is the benchmark for rates on private credit will now argue that the debt ceiling deadlock will REDUCE rates for private borrowing!!!