A “luxury” good is something you consume more of as you have more money (economists call them “superior” goods, a subset of “normal” goods). For example, as people get wealthier, they spend proportionally more on Tiffany rings, Hermes scarves and nights at the Ritz Carlton, and less on Kay Jewelers, Wal-Mart, and Best Western.
I’ve been fascinated by the role that optimism and pessimism play in today’s financial markets, specifically because I’d prefer to think that, for the most part, the price of stocks and bonds and condos in Florida is determined by something objective (like cash flows of the underlying business). Of course it’s really about supply and demand, and demand for assets is at historically low levels.
This means that financial markets are like the old joke: two guys hear a bear outside their tent in the woods. The first guy starts lacing up his Nikes, and the second guy says, “What are you doing? There’s no way you can outrun a bear.” The first guy says, “I don’t have to run faster than the bear; I just have to run faster than you.”
That’s how financial markets work: when sentiments change, the rational thing to do (if you can) is to get out first. This is how we got: Lehman Brothers’ bankruptcy → defaults in a money market fund ( “breaking the buck”) → the end of liquidity → global economic meltdown.
So what about generosity, and specifically about philanthropy? Is it the first thing to fall off the list when people’s portfolios are hit? Where does it fall in the hierarchy of luxury vs. “inferior” goods (things you buy MORE of when you have less money?).
Wouldn’t it be amazing if, in tough times, people were MORE philanthropic (on a relative if not on an absolute basis?). Wouldn’t that say something extremely powerful about our society?
My worry is that this is not the case.
What scares me is the idea that philanthropy might be a luxury good. Without a doubt, giving will decrease in the next 12 months. Foundation assets (whether the Harvard Endowment, the Gates Foundation, or family foundations) are down, and out of that smaller pool of assets, people will give less. But if generosity is a luxury good, that means it could be near the top of the list of things that people cut. So the $260 billion worth philanthropic giving in the U.S. (2005 data) is itself at risk.
From what I’ve seen so far, donors and foundations are taking their philanthropic commitments very seriously and doing what they can to step up and support the nonprofits they believe in.
And that’s a good thing. It’s tantamount to running TOWARDS the bear and scaring him away.