ABC’s “Extreme Makeover: Home Edition” is one of those shows that you see ads for and think, “Who watches this shit?” - but apparently enough people do to keep it on the air for five asinine seasons. What makes the show such a little basket of joy is the grandiose display of irrational
- misplaced, ill-optimized - giving.
The Harper family in Atlanta was given a 5,500 square foot home, valued at over $450,000. The family of five was also given a quarter of a million dollars for their three kids and home maintenance. And now they’re probably looking for a new pad (Access Atlanta). The house is in foreclosure after they mortgaged it to raise money for a failed construction business.
First, consider the size of the gift itself. 5,500 square feet? Only in a status obsessed, super-size culture would this make any sense as a charitable gift for a family of five. But why not? Why not grant a family a 10,000 square foot house? Waste aside, people don’t adjust well to sudden endowments (see: lottery winners). When people see large income or wealth shifts (up or down, but especially up) we don’t have time to adjust our preferences. Instead of thinking of the gift as a gift, something to be cherished, we just adjust our status quo.
Next there’s a huge income effect, and this limits the recipient’s ability to properly allocate resources. Think of an athletic team that opens up a huge lead at half time and then gets destroyed in the second half. Your strategy shouldn’t materially change just because you have a lead, and you shouldn’t materially change your priorities just because you fell into some money. But that’s what we do. We’re people; we’re irrational.
Fini: charitable giving, whether at the individual level or the state level, should be limited to the just-enough level. People are much better at dealing with resource deficits than we are with dealing with resource surpluses.