Categories:
Behavioral Economics
In the comments, chipotle quotes my adage that “Non-profits are crazy,” then fires back:
Remind me, Dr. Caplan, precisely who your principal employer is and what their relation is to the profit motive?
Surely, you could find a nice position at a good, for-profit institution like the University of Phoenix if you wanted…
Throughout my life, non-profits have done the world for me. They pay a lot more for the services I like to sell than for-profits ever would. But that doesn’t change the fact that non-profits are crazy.
READER COMMENTS
dullgeek
Apr 9 2010 at 2:41pm
Fact A: Non-profits are crazy
Fact B: They pay you a lot more for your services than for-profits ever would
Does Fact B act as evidence for Fact A?
Arthur_500
Apr 9 2010 at 3:19pm
Non-profits are bankrupt organizations. Not-for-Profits are organizations designed to re-invest their earnings into the organization. They still have to make a profit or they will have nothing to reinvest and the organization will be unable to meets its goals.
I admit I am increasingly suspicous of not-for-profit organizations. Many seem designed to get government to pay for their operations and their employee wages and benefits. It appears that they are unable to get anyone to pay them so they get “government” to foot the bill.
If you won’t purchase my products or services why is it that I should be able to get some authority (the IRS) to take the money out of your wallet and force you to buy my products?
What sort of efficiency is built in to the system? If I need to turn a profit I can’t pay too much for my bathrooms, my employees or my benefits. However, if I am relying on government funds I can “justify” benefits, wages and salaries and the quality of my facilities.
It used to be that people sacrificed for their not-for-profits as they believed in the cause. today many people work for those organizations because of the great wages and benefits. those organizations also rely more today on public funds rather than getting the donations they used to rely on.
I am less a fan of public funding of not-for-profits than I once was. The market is an arbiter of funding and you vote for that funding with your wallet. Once government gets into the picture there is no longer a reason to get me to vote with my wallet and once you are in the revenue stream it never goes away.
jc
Apr 9 2010 at 3:22pm
Fwiw, “… professors in private accredited programs have a $23,800 premium over their counterparts in public accredited schools (AACSB International, 2008).”
2009 study of business school HR practices
And here are a few tables:
2004/2005 Public Salaries (accredited/non-accredited)
2004/2005 Private Salaries (accredited/non-accredited)
2009 New PhD Salaries (combined)
Jeremy
Apr 9 2010 at 3:51pm
The fact that most of us are not working at the margin does not make the people that pay us crazy. They can be crazy for completely unrelated reasons!
Corporate Finance Guy
Apr 9 2010 at 4:04pm
Why the big hang up over ‘non-profit’ corporations? They are just like any other type of corporation but for the fact that they can’t distribute profits to outside investors. They exist for very good reasons, other than preferential tax treatment.
Are you all of a sudden abandoning your Hayekian impulses? Shouldn’t you celebrate the diversity of corporate forms, and study their persistence, rather than be suggesting that anything other than a for-profit (as if that was just one thing) is ‘crazy’ or irrational?
Firms choose their capital structure and their corporate governance forms to compete in the marketplace. Other firms and individuals will want to do business with your firm if an only if they can trust you to maintain your promises to deliver, and in some markets choosing a ownership/governance structure may be, paradoxically, the best way to beat out the competition and earn revenues in excess of costs (aka profits, only that we can’t call it that once you choose a non-profit form).
Read Henry Hannsman and understand why in the developmetn of capitalism in the United States ‘mutuals’ and other non-profit forms totally dominated important several industries markets including now huge industries such as insurance and lending, in open competition against for-profit corporate forms. Ever wonder why so many insurance companies were ‘Mutuals’? The argument has nothing at all to do with favorable tax treatment and everything to do with choosing the most effective corporate form to compete in markets where their can be doubts about firms’ commitments to delivering quality services (which remains the best explanation I know of for why non-profits dominate education and health care).
Ironically, from this perspective one could argue that it was probably only after the rise of more elaborate government regulation and consumer protection laws and enforcement that for-profits were able to begin to compete with mutuals and other non-profit forms in certain key financial markets.
jc
Apr 9 2010 at 4:29pm
In a pending post* I mistakenly compared professor salaries at public vs. private schools, rather than at non-profit vs. for profit schools. Oops…
So while the info may (or may not) be interesting to some, it may also not be terribly relevant Bryan’s post and chipotle’s critique.
* Spam filters are delaying it due to links to a few tables
chipotle
Apr 9 2010 at 4:41pm
Bryan Caplan,
I appreciate your willingness to answer rather than ignore pointed questions.
However, I find your answer unsatisfying.
You have always advocated “non-bleeding heart libertarianism,” even anarchism.
Presumably, this means that you think (at a minimum) that taxation for any goods that are not truly public (non-rival, non-excludable) is morally on par with theft.
Yet, you are willing to draw a salary from a state university.
An analogy:
If you were walking home one night and you saw a cat burglar emerge from the home of a stranger with a bag of loot and, upon his seeing you, he offered you some of the cash he had pilfered, would you take it?
In other words, why are you willing to participate and profit from injustice? Is mere advantage all that matters?
I wouldn’t ask this sort of pointed question of a normal citizen or even a normal libertarian.
But your approach to libertarianism seems dogmatic, unrealistic, and cruel. I read Caplanism to believe something like this about the labor market:
This is quite a strong prescription. It does not go down easily. So I ask you: are you willing to sacrifice something for your thorough-going belief in willing employers setting their employees’ wages? Or is this only sauce for the gander?
If actions speak louder than words, I think we can infer the answer.
jstaples
Apr 9 2010 at 9:17pm
I don’t think the not-for-profits are crazy at all. It has developed into a form of rent-seeking. The organization gets many government granted advantages over the competition. In turn, the government officials get increased power to involve themselves in the organization. They also get voter approval as the feeling among the masses right now is that profit is bad and not-for-profit is noble.
For example, I own a private dental practice whose focus is treating Medicaid children. The state Medicaid program pays me ~$30/filling. One of my main competitors for patients is a not-for-profit who, because of their status, get a sweetened deal from Medicaid where they receive $250/patient visit regardless of what is done.
Obviously, they treat one tooth at a time bringing a child back 7 or 8 times for treatment that reasonably should be completed in 1 or 2 visits. My practice treats far more children and provides (in my mind) the greater good to the community.
I am one dentist with 4 employees. I take care of all management needs myself. The not-for profit (which sees fewer patients) employs 2 dentists with incredible numbers of dental assistants and layers of bureacracy and management. They have an employee whose sole function is to write grants asking the government for more money. The “not-for-profit” dentists make as much money as me with better benefits. I have no idea what management makes, but I’m sure it is considerable.
Not-for-profits are not crazy. In fact, I may be the crazy one for trying to run a for profit practice.
Doc Merlin
Apr 9 2010 at 10:43pm
In defense of Bryan, just because someone believes that the state shouldn’t exist, doesn’t mean that someone shouldn’t take advantage of what the state does.
Let us assume for a moment that Bryan is an anarchist, then logically:
Bryan taking state money to try to defund the state has a sort of odd irony to it. If he thinks the state is evil, then logically he /should/ be trying to use its money for anarchistic purposes, so long as he can ensure that taking the state’s money won’t make him compromise his message. This is similar to how anti-corporate groups (like ACORN) shake down corporations for money.
Bryan, if you don’t accept my rationalization, then may I ask what your rationalization is? I am curious.
Loof
Apr 10 2010 at 3:51am
Believing truthfully and behaving oppositely is absolutely hypocritical, no matter how one rationalizes using the evil. Perhaps Bryan was playing Devil’s Advocate: taking an absolute position (i.e. “non-profits are crazy”) – not really his own position – to provoke and test the strength of opposing arguments. Then, again, maybe he’ll own up as a True Believer – or, stay silent.
Drscroogemcduck
Apr 10 2010 at 4:02pm
I don’t think there is necessarily any hipocracy. What’s the marginal benefit to society from Caplan choosing not to work at a non-profit. It’s probably very small. I don’t think you can expect people to voluntarily make large personal sacrifices for a small benefit to society.
Jesse
Apr 10 2010 at 9:20pm
I would go further than chipotle. Not only is Bryan’s employer a non-profit, Bryan is a college professor who applies his expertise by arguing that professors are useless and that we should defer to the “natural order” of free markets.
libert
Apr 12 2010 at 12:46pm
Drscroogemcduck said, “I don’t think you can expect people to voluntarily make large personal sacrifices for a small benefit to society.”
By that logic, we’re always stuck in the status quo. For example, “we can’t expect people to give up unemployment benefits (a large personal sacrifice) just to reduce taxes marginally (a small social benefit, given the relatively small amount of money spent on such payments).”
But regardless, if non-profits are crazy, and for-profits are so much better, then isn’t the implication that the benefit of Bryan leaving GMU quite large?
rpl
Apr 12 2010 at 4:30pm
Count me among those who see nothing hypocritical in Bryan’s stance. Is Bryan excused from laws on taxation, or drug use, or jaywalking if he happens to disagree with them? In fact, he is not. Why, then, should he be expected to refuse benefits when the state chooses to grant them? I don’t see anything inconsistent in simultaneously advocating against a policy and accepting the benefits of that policy should you happen to be outvoted. To declare otherwise is to create a social order in which being principled means being a sucker.
Doc Merlin
Apr 14 2010 at 1:16pm
Good point, rpl.
John Fast
Apr 18 2010 at 5:02am
Bryan is not hypocritical; instead he is demonstrating the very highest order of virtue. Even though the policies he advocates would devastate him personally, he still supports them. That proves his sincerity, since he is working against his own class interest!
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