by John Tamny
Brooks finds that Americans are steady givers: “Charitable contributions in the United States over the past fifty years have always been between 1.5 and 2 percent of GDP.”12 And only 20 percent of American donors give with a tax deduction in mind.13 There is much generosity in this country. Americans plainly enjoy creating wealth, but they also enjoy helping others and advancing the arts, education, and policy with their money.
As you would assume, given the extraordinary charitable contributions of people like Buffett, Gates, and Zuckerberg, the rich account for a big portion of total donations. Brooks found that the U.S. households in the top 10 percent of income accounted for at least a quarter of all the money donated, while households with a net worth of more than one million dollars (about 7 percent of the U.S. population) were the source of half of all charitable gifts.14 It helps to have a booming stock market. Brooks tracked giving from 1995 to 2000, when stocks were soaring, and found that “household giving exploded by 54 percent.”15
The pattern is fairly clear. Economic growth begets wealth creation, which begets lots of charitable giving. The countless nonprofit organizations in the United States are the fruit of our wealth. And while the average American gives away five and a half times what the average German donates,16 it’s not unreasonable to suppose that as the rest of the world starts to catch up with American wealth creation, the global nonprofit sector will boom, and with it, work opportunities for those who choose this path.
To see up close how this works, let’s turn to the memoirs of Blair Tindall, the author of Mozart in the Jungle, an account of her life as an oboe player in New York. You may know that title from the Emmy-winning Amazon television show loosely based on Tindall’s book.
Mozart in the Jungle is a reminder that without wealth creation, there would be no high culture. That makes wealth creation important for people like Tindall, who writes, “I would trade almost anything to play the oboe.”17 Because this is a rich country, she’s able to do that.
To see how classical music developed in the United States, it’s best to begin in 1908, when the tycoons Andrew Carnegie (steel), J. P. Morgan (finance), and Joseph Pulitzer (newspapers) donated ninety thousand dollars to the New York Philharmonic. Pulitzer also bequeathed ten times that amount to the orchestra at his death.18
Relying heavily on the generosity of the rich, the arts suffer when wealth creation stumbles. U.S. donations to the arts fell from $1.4 million in 1930 to $740,000 in 1933, during the Great Depression.19 Likewise, the arts do well when the rich do well (and get to hold onto their money). It cost $185 million to build New York’s Lincoln Center in the 1950s and 60s, and $144 million of that came from private sources with names like Ford, Rockefeller, and Carnegie. When Lincoln Center nearly went bankrupt in its seventh year, John D. Rockefeller III and Lawrence Wien donated $1.25 million each to keep it afloat.20
While symphonies across the country raised $30 million in 1970, by 1990 that figure had increased to $290 million.21 The U.S. economy recessed a bit in the early 1990s, and the situation for orchestras and symphonies looked dire. But then a technology boom bailed out these persistently unprofitable institutions. As Tindall reports, “In 1995 alone, the average endowment increased among the nation’s fifty largest orchestras by 76 percent.” As the stock market rose, so did endowments.
The effect of rising endowments is probably pretty easy for readers to predict at this point. Flush with private wealth, orchestras could pay more. By 2003, Tindall writes that “at least seven orchestras paid their music directors more than $1 million, with two earning over $2 million. Ten paid their executives over $300,000, with three paying more than $700,000. Player pay, which steadily averages around 43 percent of an orchestra’s budget, saw raises of 3.2 to 5 percent between 1994 and 1999.”22 This is where it gets interesting.
In the early 1960s, Tindall writes, “Symphony players worked day jobs to survive, since their orchestras played only partial seasons.”23 But the fortunes of classical musicians soon began to change. In 1964, the New York Philharmonic began paying its musicians full-time salaries of ten thousand dollars per year. In 1966, the Ford Foundation gave $80 million in matching grants to establish endowments for sixty-one orchestras. “Seemingly overnight, classical musicians could view an orchestra job as full-time employment, complete with health and pension benefits and paid time off for illness and vacation.”24
Tindall herself embarked on her musical career in the 1970s, and the trend of full-time work continued. Rich people, who seem to derive great satisfaction from contributing to the arts, fueled a building boom in arts centers, which had to be filled with musicians—musicians who now could expect full-time pay for pursuing their passion.
By the 1980s, the Cincinnati Symphony Orchestra had a budget of $31 million that made it possible for its one hundred musicians to earn a minimum of $85,000 per year with nine weeks of paid vacation.25 In 2003, the base pay at the New York Philharmonic was $103,000, and many musicians earned quite a bit more. And while musicians outside of New York didn’t earn as much, living expenses were lower. Minimum pay at the Baltimore Symphony Orchestra was $73,000, $56,000 in Milwaukee, and $27,000 in Charlotte.26 Musicians weren’t necessarily getting rich, but they were earning a living doing what it would pain them not to do.
This story is all the more remarkable because it involves a business—classical music—that “is clearly failing,” as Tindall admits.27 A symphony orchestra is the epitome of a nonprofit business. If not for their donors, they would disappear in most cities, perhaps even New York. Great wealth benefits us all. Just ask your local oboist.
Or university president. Some people think that big-time college sports is a disgrace to American academia. But let’s look at it more closely. The University of Alabama’s head football coach, Nick Saban, earns more than $11 million annually. Only $200,000 of that is paid by the university; the rest is a “talent fee” paid to Saban by the booster-funded Crimson Tide Foundation.28 That’s a lot of money in a state with a median income of $43,000, but there’s a case to be made that Saban is vastly underpaid, and not just because he’s arguably the greatest college football coach ever to walk the field.
Consider Saban’s impact on the University of Alabama. When he arrived in Tuscaloosa in 2007, the university was completing a $50 million capital campaign for its athletic department. With Saban aboard, the campaign concluded with more than twice that amount. The athletic department budget was $68 million per year in 2007. By 2014, it was $153 million, $95 million of that directly related to the football program.29
The former University of Alabama president Robert Witt told 60 Minutes that Saban was the “best financial investment this university has ever made.” And Witt wasn’t talking only about the athletic department. The Crimson Tide’s gridiron success contributed to the success of a university-wide $500 million capital campaign. Enrollment? It’s increased by fourteen thousand students since 2007. Before Saban, Alabama accepted 77 percent of its applicants. Nowadays, its admittance rate is a little more than 50 percent.30
Ohio State’s head football coach, Urban Meyer, earns $6.5 million annually. But as of the opening of the 2015 football season, the athletic department’s revenues had increased 14 percent to $69 million, while merchandise sales had risen $3 million. Michigan’s Jim Harbaugh has a salary of $9 million. But after his arrival, the school had to put a halt on season ticket sales, so high was the demand, and the Wolverine athletic department signed a $169 million deal with Nike.31 Pre-Harbaugh, Michigan’s football fortunes were very much in decline. But if he proves as good at Michigan as he was at Stanford and for the 49ers of the NFL, it’s only a matter of time before donations to the University of Michigan increase enormously.
Each of these universities fields a variety of teams that don’t earn a profit. Football pays the bills for many sports, enabling countless student-athletes to pursue their passion. And as the numbers from Alabama show, a successful football team stimulates contributions to the univ
ersity as a whole and improves the quality of students matriculating. Profits truly make it possible for many more of us to do what we enjoy. Nowhere is that more evident than in the city in which I live, Washington, D.C.
I moved here in 2003 to work as a fundraiser for the libertarian Cato Institute. It was a way to pay the bills so that I could write about economic policy in my free time. I still work part-time in fundraising, now for FreedomWorks. Both of these organizations are funded entirely by private donations, mostly from well-to-do individuals. Each year they hold retreats for their donors, at which their scholars invariably begin their presentations by thanking the donors. With good reason. Because of their extraordinary generosity, there are no dreary Sundays and bluesy Mondays for Cato or FreedomWorks scholars, who get to pursue the kind of work that they love.
Cato and FreedomWorks and the hundreds of other policy institutions, covering every issue under the sun, are the fruit of abundant prosperity outside of Washington. To appreciate them, visit a country like Peru, Haiti, or Bangladesh, where the nonprofits are funded by outsiders, including generous Americans. In 2002 alone, private sources in the United States gave $50 billion to international causes.32
Inside the United States, nonprofit policy organizations full of talented and passionate people are ubiquitous because Americans are both rich and generous. Profits make nonprofit work possible.
Profits and wealth are compassionate. We know this from anecdotes about Buffett, Gates, and Zuckerberg, but we also know this empirically. Charitable contributions in the United States grow as the economy grows. There’s a clear relationship. We can see it with our own eyes. In 2015, HBO released a short but uplifting documentary, Open Your Eyes, that powerfully demonstrated this correlation.
Cataracts have blinded countless people around the world. Happily, technological advances enable doctors to remove cataracts and implant intraocular lenses, restoring sight to those who had lost it. That technology, however, hasn’t reached the poorest parts of the world, where many are needlessly blind.
Intraocular lens implants used to cost five hundred dollars per eye, but now they cost as little as two dollars. Open Your Eyes shows the impoverished elderly of Nepal getting a chance to see again from doctors who devote one day a week to treating them at no charge. In a world without profits, the blind would never get to see again. As Arthur Brooks explains, “Without prosperity, large-scale charity is impossible.”33 And without prosperity, those who wanted to do that compassionate work wouldn’t have a chance.
The 2016 Paralympics, held in financially distressed Brazil, suffered serious cutbacks because the host country couldn’t afford the necessary workers and facilities.34 This is what slow growth gets us. But when the profit motive is encouraged, what used to be costly and obscure becomes cheap and common.
Profits and prosperity allow us to be compassionate.
CHAPTER SIX
The Millennial Generation Will Be the Richest Yet—Until the Next One
“Do you ever get tired of making love?”1
—Tony Bennett, when asked if he ever gets tired of singing “I Left My Heart in San Francisco”
The 1994 cult hit Reality Bites follows Lelaina (Winona Ryder), Troy (Ethan Hawke), and Vickie (Janeane Garofalo) as they navigate post-collegiate life in Houston. It’s not a great movie, but it reflects the struggles of twenty-somethings in the early 1990s, when economic growth was weak. Lelaina is an underemployed office worker with designs on a career as a documentary filmmaker, the musically passionate Troy is perpetually unemployed, and Vickie is folding shirts at the Gap.
Reality Bites wasn’t the first film of its kind. Slacker (1991), a mock documentary, follows overeducated but underemployed misfits in Austin, Texas, and Singles (1992) chronicles the doings of six single characters in their twenties in grunge-era Seattle—a far cry from the booming Seattle of today.
This seemingly aimless generation inspired a book too. Douglas Coupland’s Generation X: Tales for an Accelerated Culture (1991) profiles Andy, Claire, and Dag, who have recently quit “pointless jobs done grudgingly to little applause.” Like their overeducated counterparts in Reality Bites, Slacker, and Singles, they’ve graduated into “low-pay, low-prestige, low-benefit, no-future jobs in the service industry.”
Many college graduates of the early nineties grimly believed they were entering a world of limited opportunity. Unlike their fortunate upper-middle-class parents, the members of Generation X faced a future of unfulfilling work and declining standards of living. Does any of this sound familiar?
Then the downcast mood of Generation X was suddenly dissipated. On August 9, 1995, Netscape, with its famous web browser, was taken public in a monster IPO, changing everything. A generation that was supposedly doomed to poorly paid service work and living in crowded and grungy share houses found its way.
While most Americans in 1995 knew little about computers and the Internet, recent college graduates had a fairly advanced understanding. They were familiar with personal computers and the technology that animated their primitive (by today’s standards) features. If computers and the Internet were the future of commerce, Generation X would write the story. And so it did.
Yahoo went public in 1996, Amazon in 1997, and eBay in 1998. Capital frantically poured into California’s Silicon Valley in pursuit of the next great Internet start-up, and Generation X, outfitted with the requisite technological know-how, benefited handsomely from the economic transformation.
So powerful was technology’s lure that even the blue-chip investment bank Goldman Sachs suffered a talent drain, its “Gen X” employees giving up generous pay and perks in favor of stock options potentially worth millions. The generation that was going to have to get used to lower living standards than Mom and Dad enjoyed was soon the richest generation yet. This is a story that today’s downcast Millennials need to keep in mind as all the pundits the media can serve up tell them, “Learn to do without.”
Robert Samuelson wrote in the Washington Post back in 2011, “A specter haunts America: downward mobility. Every generation, we believe, should live better than its predecessors,” but “[f]or young Americans, the future could be dimmer.”2 And in 2014 National Review’s Kevin Williamson issued a warning for “Generation Vexed”: “They may communicate with smiley faces and 140-character bursts of text, but Millennials still have sufficient command of the English language to comprehend the fact that they’re getting, in the words of an earlier and happier and more fortunate generation, hosed.”3
The economic future of today’s young people might look bleak at first glance, especially after the weakness of the recovery following the financial crisis of 2008. But laments that life will never be as good as it was in the past are nothing new. Steven Hayward showed in The Age of Reagan that fears about the economic fortunes of American youth tend to correlate with periods of weak economic growth. When, amid the stagflation of the late 1970s, President Jimmy Carter’s pollster found that “a majority of Americans thought that their children’s lives would be worse than their own,”4 the president himself joined the mourners: “I think it’s inevitable that there will be a lower standard of living than what everybody had always anticipated. . . .” He concluded that the “only trend is downward. But it’s been almost impossible to get people to face up to this.”5
The philosopher Eric Hoffer had observed a few years earlier that America’s young “are not willing to do the hard work by which alone the world can be improved. Hearing what they say, and seeing what they do, one suspects that one of the main functions of the young’s idealism is finding good reasons for doing bad things. One has the impression that [the] young do not want to, or perhaps cannot, grow up.”6
But then the 1980s happened. The generation that was supposed to accept a lower standard of living than their parents enjoyed produced what some called the “Decade of Greed.” To this day, the enduring symbol of the 1980s is the “young, upwardly mobile professional”—the “yuppie.” The children who we
re supposed to do without became the generation that had everything.
The economic gloom hanging over the Millennial generation is evidence that there is no new thing under the sun. Mark my words: the Millennials will wind up the richest generation in the history of the richest nation in the history of the world.
This will be true because of economic fundamentals that the pundits too often ignore. We produce so that we can consume. More to the point, to produce is to transact. In any economy, wealth is created through the exchange of the goods or services that one person has produced for the goods or services produced by someone else. Each generation eclipses the previous one because technology is continuously lowering the barriers to transactions.
Two centuries ago, markets expanded with steamships and trains. Then came the automobile, which dramatically expanded the markets that entrepreneurs could serve. Then came the airplane, then the personal computer. Most recently, the Internet has annihilated distance in transactions (think Amazon.com), massively increasing the number of people who can produce and transact with others.
The expansion of markets through technology is making the rapid accumulation of enormous wealth easier. WhatsApp had a mere fifty-five employees when Facebook acquired it for $19 billion. Uber, whose physical product is nothing more than an “app” that connects drivers and passengers, is now valued in the neighborhood of $60 billion. YouTube, with a workforce that numbered in the teens, commanded more than a billion dollars from Google in 2006.
Millennials—the generation that communicates “with smiley faces and 140-character bursts of text”—are the generation most attuned to the capabilities of this new technology. Having grown up with it, they understand how it’s evolving and appreciate the staggering commercial possibilities it is opening up. While Generation X made millions on the Internet back in the 1990s, exponentially greater global connectivity allows today’s twenty-somethings to pursue billions.
