If I'd Invested Money Today Rather Than Spending It On Mango Lassi My Great Great Grandson Could Eat a Whole Indian Feast
On reading Jim Manzi’s wonderful essay, the push back offered by his thoughtful critics, and his responses, I began to think about a question peripheral to the whole conversation, but worth raising anyway: what does one generation owe to the next? It’s often asked with regard to environmental policy, but I think it is as fully implicated in questions about economic policy, social justice, and how much inequality a society should bear.
As I do research for a non-fiction book project I’m working on, I’ve taken up Kevin Starr’s superb series of books on California history. One can’t help but marvel that prior generations brought about a golden age of infrastructure growth in this state when their immediate material comfort was far inferior to what almost every Californian enjoys today. This is true even of many wealthy Californians, and certainly the state could have spent a lot more of their wealth tending to the needs of the least advantaged among them. Migrant laborers and Chinese railroad workers toiled for decades under conditions little better than what Southern slave workers endured. Bakers in San Francisco worked 14 hour days, 6 or 7 days per week. How dramatically their lives could have been improved by what amounted to a pittance.
Nevertheless, they invested heavily in the future, partly out of necessity — since the gold rush this state has seen its population explode several times in very short intervals — but also as a considered choice that these projects whose full benefits still haven’t been realized were better uses of wealth than consuming it. Without expressing any opinion on whether they balanced present versus future correctly or not, it is clear that all these decades later, even the poorest Californians should be glad, if they are thinking about their own well being, that former state leaders didn’t spend on social welfare the money that built our system of aqueducts, or the Hoover Dam, or the Golden Gate Bridge.
When I ponder how government should spend tax revenue, or even how much I should save for my future children and grandchildren, I am not only undecided about the correct answers, I am stymied trying to decide upon a basic framework for weighing such goods against one another. It seems to me that these trade-offs matter as much as the tension between economic growth and social equality when we try to formulate policy choices.
Connor, this is a great question. I hope other commenters respond charitably and in good faith because viewing infrastructure vs. social welfare spending as a tradeoff between spending on the welfare of future generations vs. spending on the welfare of the current generation has the potential for generating some great discussion.
As for me, I have no idea what the answer is, nor do I know how to arrive at it. Maybe we could assign a discount rate to the value of future welfare when comparing it to current welfare. Businesses do this when they compare the value of assets they will receive in the future with assets they can obtain today. But of course, it gets trickier when we the comparison involves generations that aren’t even alive yet.
There may be other ways of looking at it. I have been thinking about infrastructure investment a little more than I did previously (which was not at all — maybe its a function of aging). On an intuitive level, I tend to think that we don’t invest in infrastructure enough. the examples you provided seem to represent investments that have provided incredible “bang for the buck” because they have served so well and for so long. But on the other hand, at least in times and situations of significant suffering — which is relative, but that doesn’t mean we shouldn’t consider it — maybe we still have a moral obligation to spend on social welfare now, even if the long term value to society as a whole is less than spending the same on infrastructure would provide.
Then there’s the question of obsolescence and the difficulty in predicting the future. The facets of this discussion are endless.
— Jay Daniel · Jan 7, 08:33 PM · #
I think this argument probably applies most to developing new territory or countries trying to industrialize or the like. In those cases, it’s easiest to see what’s needed because there’s model everywhere, this in turn makes it easier to address the obsolescence and difficulty in predicting the future points that Jay Daniel raises. On the individual level, I think the same point applies to immigrants similarly are well known for saving to achieve obvious benefits for the next generation.
In the developed world, one interesting point about the trade-offs you raise is that at the start of the 21st century both Europe and Japan are known for having both social welfare spending and a high amount of infrastructure spending. This is perhaps because social cohesion can be supportive of both.
— Greg Sanders · Jan 8, 12:12 AM · #
Social cohesion/democracy and infrastructure go hand in hand. Your theory about California assumes that investment in better conditions for these workers would have led to them just being happier. I say they would have organized in a way that produced even better things for society, as all people do once they stop being treated like mules.
— Dwight · Jan 8, 11:05 AM · #
Very thoughtful post with a great title. My only objection is the use of the phrase “social justice”.
Like Hayek, I find the phrase particularly vacuous and even dangerous, as it can be used by those on the Left to make the case that if you don’t agree with them about this or that policy related to redistribution you aren’t just wrong but committing a sin.
See his “Law, Legislation and Liberty, Vol. 2” for more.
P.S. I hold out the possibility that Hayek is wrong — my beloved church uses the phrase, although unlike your typical Leftist, I think the church means something very specific related to Christ and His life and gospel rather than a specific marginal tax rate on the rich.
— Arminius · Jan 8, 11:18 AM · #
Your headline makes a point that it is a little different from your real question. Your obligation (if any) to your own descendants is not the same thing as your obligation (if any) to the generations to which your descendants belong.
Part of what drove Warren Buffett’s obsession with saving and investing an pinching pennies since he was a small boy was his view that any expenditure he ever makes is enormously expensive because of the lost opportunity cost of investing and compounding it. That also is why for many years he chose not to give away his money – he’d have so much more to give away later.
It’s interesting that he also believes that he has very little financial obligation to his children. He says, “There’s no reason why future generations of little Buffetts should command society just because they came from the right womb. Where’s the justice in that?”
But he does believe that everyone who has accumulated any significant amount of wealth is eventually obligated to return that money to the society that enabled him to accumulate it: “huge fortunes that flow in large part from society should in large part be returned to society,”
Buffett would therefore say that you don’t owe your great great grandson a feast, because your great great grandson hasn’t earned it. But you do owe something to his generation. How many mango lassis Buffett would permit you, we don’t know.
The question you raise is one that is or should be of particular interest to the vast number of charitable foundations and endowments in the world, and to those wealthy folks contemplating forming new ones. They ought to consider whether their real reason for existence is for ego and institutional self-preservation, or to provide something of benefit to the world.
Buffett insists – correctly, in my view – that whatever he donates has got to be spent right away. There will be no perpetual Warrent Buffett foundation.
But why doesn’t he donate it all right away? He does a sort of mental present value calculation of the good his money can do, eg he can save 100 kids from dying from malaria this year, or, because he is compounding the money so quickly while it is in his possession, he can save maybe 400 kids in 10 years. Once he has put the money in someone else’s care, that rate of compounding is unlikely to continue, so he wants the money distributed. If we knew how he decided what rate of compounding is sufficient to defer charitable giving (which I doubt he knows for himself), we’d start to have some insight into how many lassis he’d allow you.
Now look at an institution like Harvard, with a $30 billion endowment, still voraciously raising money. It is hard to see a good justification for their holding such a sum, and even harder to see why anyone seriously interested in doing something charitable with his or her money ought to direct it there.
And for all the small foundations out there? Just go ahead and give the money away. The longer you hold it the more likely you are to drift from your founders mission, see it eaten away by administrative expenses, invest it poorly, or lose it to someone like Madoff.
— andrew · Jan 8, 03:32 PM · #