Efficient Giving

It's always been a difficult question for me and I'm sure it is for many others but I'm finally getting some traction on it, thanks to some good old economic principles.

If you live anywhere with a certain level of urban density (even Ann Arbor counts) you're sure to run into the situation. Someone, often looking extremely desperate, asks you for money in the street. What are you supposed to do? You know that you have money in your pocket, probably some coins that would be relatively easy to give. Should you give?

There are several approaches available to answer this question:

1. The deontological approach.
If you happen to ascribe to a certain moral or religious code that is 1) deontological in nature, (i.e. it's the action and not the consequences that count) and 2) gives direction for this situation, then you probably have nothing to worry about. Just give as you're told to give and don't look back, consequences be damned.

2. The consequentialist approach.
If you are a consequentialist by accident or choice, then you have to think a little bit harder about what to do in this situation. This is where economics comes in handy as I'll show below.

3. The "other" approach.
Maybe you don't care or you can't be bothered to care and you pass by indifferently. Presumably this is even easier than the first approach though I wouldn't recommend floating through your life without giving consideration to what's happening around you.

Analysis
I used to ascribe to the first position. I thought that inequality was a terrible thing (I still do) and that I would do well to empty my wallet whenever asked by someone who appeared to be poorer than me. I gave away a bunch of money like this and, as you will read, I'm now quite certain that I accomplished very little, except, perhaps, encouraging the very situation that I was trying to eliminate. Whereas I used to believe that right actions made me a good person regardless of their consequences, I can no longer support that position. For a number of reasons, I'm now a confirmed consequentialist.

Back to the issue at hand, what is a person concerned with the consequences of his/her actions supposed to do when someone in the street asks for money?

Simple: Never, ever, ever give money to someone who makes their "living" from begging.


Begging in Brussels

Explanation
Like I said above, inequality really bothers me and I think that you should give your money to poor people, just not those who are putting all of their effort into begging. Rather, give it to the poorest person who expects it the least. This idea comes courtesy of Tyler Cowen of Marginal Revolution fame. Here is his original post on the topic.

Basically, the idea is that giving to beggars only encourages more beggars which guarantees only that begging will continue. In fact, it also guarantees that an economy will grow around this industry, with "producers" providing the beggars and collecting the majority of the profits. Here is a shocking story from the BBC about doctors in India cutting off the limbs of beggars so that they are more valuable to the gangs that "own" them.

I strongly suspect that there are criminal gangs exploiting the disabled in Paris as well. When you see a woman who is so crippled that she cannot walk on her own begging four floors below ground in the metro, it stands to reason that someone brought here there, set her down, and will collect her when the day is over. Presumably they give her food and shelter but they money that goes into her cup does not stay with her. It is imperative to not support this form of exploitation.

Even in less extreme cases, where there is not the criminal exploitation of the disenfranchised, it is not wise to encourage begging. If a beggar knows that a particular begging spot is worth $5,000 per year, he will devote $5,000 worth of effort to get that spot, effort which could have been spent on far more healthy and productive pursuits (paraphrased from Cowen's comments here). If you don't like the situation of beggars, don't give to them!

Finally, getting to the point that finally motivated me to write this today, the beggar might not be as poor as you think. This Freakonomics post suggests that, in some cases, beggars might be making more than police officers. It's something that I've thought about often. Imagine the Paris metro, it's really busy. If a beggar sits in one place he might see 150 people go past him/her in one minute during a busy period, perhaps as few as 20 in a less busy period. There are easily three busy periods per day, each lasting at least an hour each. Let's assume that the beggar is there for seven hours each day (it is France after all, can't work more than 35 hours per week), that would put the beggar there for three busy hours and four not so busy hours. Given the sixty minutes in an hour, that translates to 31,800 people passing by the beggar each day (some, perhaps most of these people are passing twice, meaning that there are maybe 16,000 unique metro-users). This is really easy to imagine given that RER Line A (there are four others, plus the 16 metro lines) regularly handles more than one million passengers per day. So, if 1% these 16,000 unique metro-users gives a euro, the beggar makes 160 euros for seven hours of "work" for an hourly rate of about 23 euros per hour. Not bad at all. Even if only half as many people give money, it's still 80 euros per day, or about 12.50 euros per hour.


Gypsy women begging with their children in Lyon

To wrap it all up, giving to beggars encourages only more begging, which is bad for the individuals and for the society. It can, and often does, encourage criminal enterprises to exploit the most vulnerable members of society, to the point of for-profit mutilation. And finally, beggars may not be as bad off as you think and, when the global financial markets as well constructed as they are, you could easily give to someone in much more need who will use the money for more productive endeavors. Case in point, Tyler Cowen's newest project, giving his personal money directly to individuals in India.

Just to be certain that my point is not lost: poverty and income inequality are bad things, I don't like them at all. I think that I, and everybody else who can afford it, should give a lot of their money to people who need it more than they do. Just do it in a responsible way. It may not be the most convenient way of doing it, but if you're going to do the right thing, it's your duty to do it the right way.