Say you were a billionaire who was interested in increasing economic growth and living standards of the community you came from (e.g. Cleveland, Chicago, Detroit, LA, etc.) as a form of charity. In other words, you’d be willing to part ways with a significant chunk of your money in order to increase the living standards of your community. How would you do this?
In other words, would it makes sense for such a charitable individual to insure every business loan made in the community, even when it was uneconomic for them to do so? Or would you simply try your best to invest money profitably in community businesses?
Be a venture capitalist to provide capital to small startup businesses, either in the form of a loan or I would be a majority share holder of these new companies.
I would not provide any charity. If the business plan did not appear sound then I would not endorse it. I don’t believe in squandering wealth for “the benefit of society”.
But wouldn’t subsidizing a non-profitable business model be better for the community than investing in some firm on the other side of the planet or buying a new lexus or BMW?
“would it makes sense for such a charitable individual to insure every business loan made in the community”
Imagine what would happen when word got out about that! Outlandish schemes, guarenteed money losers, like locusts in a plague.
“But wouldn’t subsidizing a non-profitable business model be better for the community than investing in some firm on the other side of the planet or buying a new lexus or BMW?”
Why are we restricting ourselves to those two options? There are plenty of profitable business models that would provide long term [as opposed to one off] jobs and money to the community.
Of course, with a place like Cleveland, there may be no cure. The same problems [unions, high taxes, regulations, zoning, red tape and corruption], that ruined that once thriving city will probably eat away at whatever he tries. But I suppose someone is still making an honest buck there somehow, and he should find out how todo that, too.
“But wouldn’t subsidizing a non-profitable business model be better for the community than investing in some firm on the other side of the planet or buying a new lexus or BMW?”
Giving away your money so others can consume in your place does not economically better the community. Don’t give a man a fish, teach him to fish. Consuming seed corn does not bring prosperity next season. We’re talking about trying to grow an economy here. That requires capital (savings) and investment. I’d only buy a BMW if it was the best capital good for the job.
As for a non-profitable business, are you kidding? What are you trying to be - a Marxist? The business must turn a profit to signal that its function is utilizing its input resources efficiently, and that it is adding value to those resources in turning it into a product. If there is a profit margin then that means those investment/business decisions were good and people are willing to pay for your product and the value you add to the input resources. If the company turns a loss then those lines that are not profitable must be either made more efficient or must be discontinued. Of course, keep in mind, any new business is not profitable for the first year or two. Building a business from scratch takes time and a lot of investment (savings) to get it going. It won’t be profitable at first. But as customers come on line there will come a point where if profits are not what you expect, and they don’t cover costs no matter what you do, there comes a time to realize the sunk costs and cut your losses. Redirect the rest of your dry powder toward better opportunities.
But I’m not talking about consuming. I’m talking about doing something like giving top students from a given city large scholarships (developing human capital) or guaranteeing all of the business loans in a given town (developing physical capital). Both of these would accentuate investment and thus would increase economic growth.
Education is an investment. Funding it for someone else means you’re investing it in them. Now, giving someone $50k to get a type-writer repair degree certainly is a waste. But if you’re an industrialist and you pay to train a few smart young adults become engineers and marketing specialists - that’s money well invested. You would also hire these students as interns in your company to help educate them during their studies.
After I graduated, my company paid for Graduate studies. I had to agree to continue working for the company a certain number of years after - not to run off to work elsewhere after they had paid. A similar contract could be made for anyone to get their education paid for. I wouldn’t just donate and give any education away for free - for students to learn their basket weaving courses on my dime.
So you believe that charities that provide scholarships and grants for the purpose of increasing overall welfare and living standards should cease doing so?
The problem I have with government forced savings programs (see: Singapore) is because of demonstrated preference and because of the impossibility of making interpersonal utility comparisons. I’m wondering if something similar to savings program could increase total utility if the money was voluntarily given. I’m not quite sure that you can make the case that charitably funding college education does not actually increase total utility.
So you believe that charities that provide scholarships and grants for the purpose of increasing overall welfare and living standards should cease doing so?
No. As long as charities obtain their funds by non-coercive means (people freely donating their savings) then that’s fine. People are free to share as much of their wealth with whom they choose - as much as they want. But sharing the wealth is not necessarily the best way to increase overall prosperity long term. Take places like Africa for example. Countries pour a great amount of charity into that country - to feed starving people. But, could you imagine being a farmer trying to produce and sell food at a price competing against all the free food that flows in from abroad? Charity can also damage / destroy an economy. What is an economy? It is the production and exchange of property & goods between individuals. When you pour charity into a country (give a man a fish) that can hinder others from producing themselves to actually build an economy.
As for gov’t forcing you to save, well, can you ever spend that money? If not then working and not getting to reap the fruit of your labor is slavery. The US gov’t forces us to save through the social security retirement program. Will we ever see a dime of it? Not likely. If gov’t told people that there would be no socialized benefits for them in their retirement then people would at least not be expecting something they’re not going to get. They would know the truth and would be able to make their own decision to save an amount of their choosing for their retirement.