Private Charity and the Safety Net: Why Philanthropy Can’t Replace Government.
We’ve all been there. You’re debating someone about the need for a social safety net or other government provided service and they’ll trot out the old “Private charities are answer”. Well, thanks to a new article published by the Roosevelt Institute, you can prove them wrong.
… key difference between government and charity: Where private giving might dry up in a particularly nasty recession, federal safety net programs like unemployment insurance and food stamps act as what economists call “automatic stabilizers,” meaning the worse the economy gets, the more money they pump out. Konczal writes:
During 2009, while private charity collapsed, automatic stabilizers expanded rapidly, from 0.1 percent of GDP to 2.2 percent of GDP—or a number roughly akin to all charitable giving in the United States. This was directly targeted at areas that suffered from the most unemployment, and helped those most in need—efforts that, as we’ve seen, private charity does only partially. As Goldman Sachs economists concluded, this shift made a crucial difference, and, alongside the government’s efforts to prevent the collapse of the banking sector and the Federal Reserve’s expansion of monetary policy, was a core reason the Great Recession didn’t become a second Great Depression.
Would Americans have given more if they knew the safety net wasn’t there to catch the jobless? Perhaps. But, as Konczal writes, the Great Depression already demonstrated that private charity isn’t a reliable backstop in a true crisis. Before the New Deal and the modern welfare state, Americans relied much more heavily upon volunteer groups, fraternal societies, and other sorts of private aid (government played some role too). The help these organizations provided could be spotty, but it was better than nothing. Then came the crash. Again, per Konczal:
Informal networks of local support, from churches to ethnic affiliations, were all overrun in the Great Depression. Ethnic benefit societies, building and loan associations, fraternal insurance policies, bank accounts, and credit arrangements all had major failure rates. All of the fraternal insurance societies that had served as anchors of their communities in the 1920s either collapsed or had to pull back on their services due to high demand and dwindling resources. Beyond the fact that insurance wasn’t available, this had major implications for spending, as moneylending as well as benefits for sickness and injuries were reduced.