In the spirit of the season, I offer you one of the most popular of my old Slate columns. Merry Christmas.
Here’s what I like about Ebenezer Scrooge: His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him.
Scrooge has been called ungenerous. I say that’s a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?
Oh, it might be slightly more complicated than that. Maybe when Scrooge demands less coal for his fire, less coal ends up being mined. But that’s fine, too. Instead of digging coal for Scrooge, some would-be miner is now free to perform some other service for himself or someone else.
Dickens tells us that the Lord Mayor, in the stronghold of the mighty Mansion House, gave orders to his 50 cooks and butlers to keep Christmas as a Lord Mayor’s household should—presumably for a houseful of guests who lavishly praised his generosity. The bricks, mortar, and labor that built the Mansion House might otherwise have built housing for hundreds; Scrooge, by living in three sparse rooms, deprived no man of a home. By employing no cooks or butlers, he ensured that cooks and butlers were available to some other household where guests reveled in ignorance of their debt to Ebenezer Scrooge.
In this whole world, there is nobody more generous than the miser—the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.
If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer—because you produced a dollar’s worth of goods and didn’t consume them.
Who exactly gets those goods? That depends on how you save. Put a dollar in the bank and you’ll bid down the interest rate by just enough so someone somewhere can afford an extra dollar’s worth of vacation or home improvement. Put a dollar in your mattress and (by effectively reducing the money supply) you’ll drive down prices by just enough so someone somewhere can have an extra dollar’s worth of coffee with his dinner. Scrooge, no doubt a canny investor, lent his money at interest. His less conventional namesake Scrooge McDuck filled a vault with dollar bills to roll around in. No matter. Ebenezer Scrooge lowered interest rates. Scrooge McDuck lowered prices. Each Scrooge enriched his neighbors as much as any Lord Mayor who invited the town in for a Christmas meal.
Saving is philanthropy, and—because this is both the Christmas season and the season of tax reform—it’s worth mentioning that the tax system should recognize as much. If there’s a tax deduction for charitable giving, there should be a tax deduction for saving. What you earn and don’t spend is your contribution to the world, and it’s equally a contribution whether you give it away or squirrel it away.
Of course, there’s always the threat that some meddling ghosts will come along and convince you to deplete your savings, at which point it makes sense (insofar as the taxation of income ever makes sense) to start taxing you. Which is exactly what individual retirement accounts are all about: They shield your earnings from taxation for as long as you save (that is, for as long as you let others enjoy the fruits of your labor), but no longer.
Great artists are sometimes unaware of the deepest meanings in their own creations. Though Dickens might not have recognized it, the primary moral of A Christmas Carol is that there should be no limit on IRA contributions. This is quite independent of all the other reasons why the tax system should encourage saving (e.g., the salutary effects on economic growth).
If Christmas is the season of selflessness, then surely one of the great symbols of Christmas should be Ebenezer Scrooge—the old Scrooge, not the reformed one. It’s taxes, not misers, that need reforming.
You wrote: ”If there’s a tax deduction for charitable giving, there should be a tax deduction for saving. ”
Well there is here in Canada, its called tax free savings account (TFSA) : http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html
HAPPY HOLIDAYS !
Ho, ho, ho.
But, seriously, aren’t we all supposed to be maximizing our own [utility/pursuit of happiness/whatever]? How can you argue for letting Scrooge get away with violating the laws of economics?
Matt: Scrooge apparently enjoys accumulating wealth for its own sake. He is maximizing his own utility. But surely we can be grateful that he has one set of preferences rather than another. I am thankful, for example, that my neighbor does not have a taste for firing rifles through his dining room window. And I can be similarly grateful for a neighbor who does not have a taste for consuming resources.
But arguably Scrooge was satisfied with the situation until the ghosts came along and stressed him out. He didn’t want finery: he was satisfied simply with having earned the money, while the rest of the world enjoyed his forgone share of the world’s goods.
Scrooge, for instance, bought a prize turkey for Cratchits, and that surely was a joyus thing for them. But there were only so many turkeys to be had that season. And if Scrooge had instead simply eaten gruel that Christmas, alone in his house, that means that he would have also left a turkey on the market, cheap enough for someone else to buy and enjoy. His purchase helped the Cratchits in particular, but it probably priced some other poor family, in particular, out of the market for Christmas turkeys that year. Who records their sad story?
What do we define as consumption? If he pays your other neighbor 10 to chop down his tree for firewood to stay warmer, and then your neighbor buys some cookies from you with that 10 dollars, are you still grateful? Are we saying we would be happy if 99% of people had Scrooge like preferences or is there an optimal number? I keep hearing in my head something to the effect of “greed tends to get things done…” but maybe I should add that greed for consumption gets things done…I guess we could still be doing too much though.
Steve,
I have an off topic question about your blog. I like to have hard copies of some blog posts (like this one), but don’t want to print up all the comments and the links on the side. If it’s not too difficult, will you provide a ‘print’ option for your blog entries that will make it so when I print only the individual blog post I want printed (and only the post) will be printed?
Regards,
Ken
Ken: I think I’ve managed to do this. Let me know if it works the way you want it to.
Steve,
Works great!
Thank you,
Ken
If you think it’s great for you imagine how amazing the world is for Scrooge, all you idiots going about grossly undervaluing cash and the joy of saving it. Imagine trading places. What if everyone in the world became a Scrooge. You with your ‘traditional’ priorities might quickly end up with no money but everything except coal, ink, and modest homes would be pretty much free anyway.
On the other hand you’d have nobody to ride jetskis with which would probably make you pretty grumpy all the time. Just like Scrooge.
I think it’s probably true that we should be thankful for Scrooge, considering everyone else in the world and the way they act. But Scrooge isn’t inherently good it’s just that his priorities are screwed up in a way that’s advantageous. Saving isn’t philanthropy if everyone else would rather be saving than eating turkey.
Great post, I’ve bookmarked it so I can refer to it later and I’ve subscribed to your blog feed.
Are the gains from Scrooge’s unwillingness to spend lost if, after his death, his money is inherited or taxed by people with a desire to spend it?
Suppose Scrooge lives his whole life accumulating money, then dies and leaves it all to the Cratchits. If the Cratchits then spend all of Scrooge’s money, does the impact of their spending (by raising prices) cancel out the benefits to society as a whole that Scrooge allowed? In other words, if Scrooge’s money is suddenly inherited, is the benefits of Scrooge’s miserly behavior transferred from all of society to the beneficiaries (the Cratchits), or are there remaining benefits from Scrooge’s years of hoarding?
Sprobert: This partly depends on how Scrooge does his saving. If he holds interest-bearing bonds, then when the Cratchits get around to spending their inheritance, they can transfer all the benefits to themselves. If he keeps cash under his mattress, then the Cratchits inherit less and can claim only part of the benefits.
At least that’s so regarding the benefits I was thinking about when I wrote this column. But there might be another kind of benefit: If Scrooge finances the building of a factory, then the Cratchits eventually claim all of the direct social benefit from that factory—but there can also be indirect social benefits, e.g. the factory adopts new technologies that others can emulate, making everyone more productive. Those indirect benefits continue to be dispersed through society.
I generally agree with the article, but with one caveat. In Fair Play, I think you mentioned that you prefer giving charity to foreigners rather than Americans, as the foreign recipients are poorer. It seems to me that Scrooge’s (and Scrooge McDuck’s) philanthropy will mainly go to the wealthier, who would benefit more from lowered interest rates, etc. Or am I missing something?
Steven Reilly: I don’t offhand see any reason to expect that lower interest rates benefit the rich more than the poor. My guess would be the opposite, though I haven’t thought hard about it.
When Scrooge forgoes a turkey an extra turkey goes to someone at the margin. When Scrooge gives turkeys to the poorest of the poor who can’t afford turkeys, are nowhere near the margin, and therefore value them more highly, the world is getting more happiness for his turkey. Why give the turkey to the kind-of-but-not-really poor person?
I had an immediate reaction to think that lower interest rates would benefit the poor more than the rich because the rich don’t have to borrow, while the poor do.
Then I thought that the rich typically have all the options available to them that the poor do, so they can’t be worse off than. Maybe if a business opportunity arose that warranted borrowing, the rich would generally have easier access to credit (perhaps because more favorable terms could be obtained if you could show that bank that you would lose something if they did — like the benefit you get with a larger down payment on a house)
Then I thought that the poor don’t have money to invest, while the rich do, so lower interest rates hurt the rich (who would be able to save) and can’t hurt the poor (who don’t have anything to save), so the poor can’t be any worse off either.
So being poor is the same as being rich.
Then I realized that I’m no economist, and shouldn’t comment on blogs after 3 glasses of wine at dinner. (Local time is 10:20pm)
Happy Holidays! Consider the opportunity to make fun of me my solstice gift to all of you!
Point taken about interest rates. But I still think the benefits Scrooge bestows on society would be spread among all people, including the wealthy. If he devoted himself to philanthropy, the benefits would presumably all go to the poor.
Steve Reilly: Yes, I think you are right about this.
I remember reading in one of the chapters of Amrchair Economist that if you give every family 2 boxes of corn flakes, they won’t buy them, so wouldn’t giving the turkey to Cratchitt actually hurt him, as that would make him not work as hard, or buy non-food items (like coal), so that if the charity dries up, he’s left starving?
Or have I missapplied the logic?
Patrick: Surely if you give every family 2 boxes of corn flakes, they will buy fewer corn flakes and probably not work as hard, but it’s difficult for me to see how this makes them worse off.
@Steve: If the parents do not work as hard, then if the program is pulled, they will be unable to afford cornflakes, and will have to suffer during the readjustment.
Is there not also an (overall) opportunity cost to the taxes which have been paid for the cornflakes, which otherise could have been used to build a tractor (increasing the amoutn of corn flakes available, reducing the price).
On a tangent (I know this is unrelated), but when you spoke of ‘The Club’ in More Sex is Safe Sex, and how it doesn’t reduce, but only redirects crime. Using your analogy where my Club means a thief doesn’t want to steal my car, surely he only would have chosen my car if your car was easier to steal anyway, so The Club simply reduces the profit of crime by reducing the car pool for the thief.
Patrick: You can’t hurt someone by giving him cornflakes. You *can* hurt someone by misleading him into believing you’re going to give him corn flakes in the future. You seem to be sayin that it’s hard to do the first without doing the second. That might or might not be true, but it’s still worth keeping separate track of the two effects.
Re your second paragraph: In the example you’re refererring to, the consumer was going to buy cornflakes anyway, so the government spending substitutes for the consumption one for one. Given this, there’s no other way to spend the tax revenue (at least if we confine ourselves to private goods) that could do you more good.
On your tangent, the Club might convert your car from being the easiest to steal to being the second easiest to steal, while simultaneously converting my car from second easiest to easiest. You are right that the average easiness goes down, so some theft is deterred.