Gates and Buffett Fail at Humanitarian Economics

It is curious that the media and the public in general look for clues on how to live or act from the actions of Bill Gates and Warren Buffett, when those actions are outside the specific fields of expertise of Gates and Buffett.

Although very successful businessmen, both Gates and Buffett have displayed a remarkable lack of understanding of basic economics and what generally advances a society.Yet, many look for guidance on this subject to Gates and Buffett. An equivalent of such a turn for knowledge would be to look to one of the greatest athletes of all time, Michael Jordan, for medical advice, simply because he is a great physical specimen. Do you really want Michael Jordan to perform heart surgery on you simply because he had stamina and a strong heart when he was on the basketball court?

Gates and Buffett recently launched an absurd campaign to get the wealthiest Americans to pledge to donate half their wealth to charity. Kudos to those, such as Carlos Slim, who ignored the Gates-Buffett two man show.

Kimberly Dennis,  CEO of the Searle Freedom Trust, in today's WSJ does a great job of explaining some of the fallacies behind the thinking that is fueling the Gates-Buffett tour. Here are key snippets:

Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion.


It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.

What are the chances, after all, that the two forces behind the Giving Pledge will contribute anywhere near as much to the betterment of society through their charity as they have through their business pursuits? In building Microsoft, Bill Gates changed the way the world creates and shares knowledge. Warren Buffett's investments have birthed and grown innumerable profitable enterprises, making capital markets work more efficiently and enriching many in the process...


Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.


Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools...

While businesses may do more for the public good than they're given credit for, philanthropies may do less. Think about it for a moment: Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? To the contrary, the literature on philanthropy is riddled with examples of failure, including examples where philanthropic efforts have actually left intended beneficiaries worse off. The Gates Foundation has itself acknowledged that one of its premier initiatives—a 10-year, $2 billion project to reorganize high schools around the country into schools with fewer than 400 students—was a complete bust. Good for them for admitting it. In that, they are unusual. In the failure, they are not...

My point is simply that there is nothing inherently better or nobler about using one's resources for charitable purposes than for any number of other ones. If anything, the marketplace does a better job of channeling resources toward where they are most valued, and of punishing failure. Companies shut down all the time. How many philanthropies close because of poor performance?