Politics & Policy

Decade of Greed?

EDITOR’S NOTE: The August 31, 1992, issue of National Review, set out to set the record straight about the Reagan administration’s economic record. We reprint the content of the issue here.

Worrying that the 1990s would be the decade in which the bills of the 1980s would come due, a Time magazine reporter declared, “The past decade brought growth, avarice, and an anything-goes attitude,” and then glibly summarized the 1980s with five words: “Get rich, borrow, spend, enjoy.” A month later another Time reporter picked up on the same theme of a decade of decadence when reviewing five recently released books: “Doesn’t anyone have a kind word for Wall Street’s glided ’80s? The new decade is barely six weeks old and already stores are piled high with books that portray the past ten years as a sink of avarice and excess. The melodramatic titles depict the American free-enterprise system as overrun by barbarians and liars, ambition and greed.”

Dubbed the “Decade of Greed,” the 1980s were seen by many as one long consumption binge, fostered by the Reagan Administration and characterized by what political pundit Kevin Phillips called “conspicuous opulence.” The evidence offered in support of this contention includes casual references to the jump in the sales of luxury automobiles, the number of MBAs (most of whom, presumably, set their sights on making money on Wall Street), the number of get-rich and self-help books, and the number of Wall Street brokers who went to prison.

John Kenneth Galbraith, of course, won’t let the decade die. It lives on, he says. How? In the recession. In a recent article titled “The Economic Hangover from a Binge of Greed,” the venerable professor says it’s time to cut through the excuses: “The present recession is not an autonomous, self-correction economic drama. It is the wholly predictable response to the speculative extravagances and insanities–and specific government policies–of the 1980s.” The country’s continuing problems could be blamed on a simple five-letter word: Greed.

That’s the widely believed bad news. The good news is that the bad news never amounted to anything more than bad reporting.

More Blessed to Give

While many critics suggest Americans were more selfish and less charitable during the last decade, none have actually looked at the most direct means of assessing greed–the pattern of charitable giving. If they had, they would have quickly discovered that they had told only half the story, leaving out the most positive and striking parts. Measured by giving, the 1980s were not the “Decade of Greed” at all. On the contrary, charitable giving by individuals and corporations jumped dramatically. This finding holds for giving measured not just in absolute terms, but also in total real dollars contributed, real charitable contributions per capita, and charitable contributions relative to national income.

Indeed, giving in the 1980s was above the level that would have been predicted from the upward trend established in the 25 years prior to 1980. This conclusion holds even after adjusting for several economic and policy changes that might reasonably be expected to have boosted charitable contributions. In view of total, aggregate giving from 1955 to 1989, the 1980s in America were actually a decade of unusual generosity.

Total giving is composed of gifts from individuals (including bequests), corporations, and foundations. The first graph on p. 53(?) shows the pattern of giving from 1955 through 1989. In the 25-year period prior to the “Decade of Greed,” total charitable giving, in real terms, more than doubled, increasing from $34.5 billion in 1955 to $77.5 billion in 1980–or at a compounded annual growth rate of 3.3 per cent. Between 1980 and 1989, total giving in real dollars expanded by 56 per cent to $121 billion, or by a compound growth rate of 5.1 per cent. The annual rate of growth in total giving in the 1980s was nearly 55 per cent higher than in the previous 25 years.

Because giving by living individuals accounts for more than 80 per cent of all giving, it is not surprising that this category also more than doubled, from $30.2 billion to $64.7 billion between 1955 and 1980 (a compounded growth rate of 3.1 per cent a year). Individual giving reached $102 billion in 1989, after expanding at a compounded rate of 5.2 per cent since 1980.

Moreover, the growth in private giving over the decade (58 per cent) approximated or exceeded the growth of expenditures on a variety of goods and services that might be considered extravagances–for example, new automobiles (60 per cent), jewelry and watches (41 per cent), alcoholic beverages (1 per cent), meals eaten outside the home (22 per cent), tobacco products (-12 per cent), and personal services such as health clubs and beauty salons (38 per cent). The increase in total giving by individuals even exceeded the increase in total consumer credit outstanding.

Corporate-giving levels are much more erratic, in large part because of fluctuations in the business cycle. Before-tax corporate profits represented nearly 15 per cent of national income in 1955 and only a little more than 7 per cent in 1989. After-tax corporate profits represented 8 per cent of national income in 1955, falling to half of that share in 1989. Nevertheless, corporate giving in real terms rose during the period from just under $1.9 billion in 1955 to nearly $5.3 billion in 1989, increasing in the 1980s at a compound rate of 4.1 per cent. The growth rate in corporate giving was 52 per cent higher in the 1980s than in the earlier decades covered by this study. In spite of a drop-off in corporate giving after 1986 (due in large part to changes in corporate tax laws), charitable contributions by corporations as a percentage of profits before and after taxes remained higher in the late 1980s than in the decades preceding.

When measured per capita, individual giving and corporate giving both followed the same pattern that we have already observed. Total per-capita giving in real dollars expanded relatively rapidly in the late 1950s and 1960s, rising from $208 per person in 1955 to $324 per person in 1970. Per-capita giving dropped as a result of the economic slump brought on by the OPEC oil-supply shocks in the first half of the 1970s, but remained within the range of $308 to $343 for the rest of the decade. Total per-capita giving then began rising markedly in the 1980s, from $340 in 1980 to $486 in 1989. The annual compound growth rate over those years–4 per cent a year–is robust when compared with the 2 per cent average annual increase in the 25 years prior to 1980.

The same trends are observed in charitable giving as a percentage of national income. Charitable giving has never absorbed more than a very small fraction of national income in the United States, remaining below 3 per cent of national income between 1955 and 1989. However, total giving as a percentage of national income began a marked decline in the 1970s, and made a marked turnaround in the late 1970s and continued generally upward throughout the 1980s. Specifically, total giving as a percentage of national income rose irregularly form 2.3 per cent in 1955 to 2.5 per cent in 1970, only to fall to a low of 2.1 per cent in 1979. By 1986, total giving as a percentage of national income had surpassed its former high; it reached 2.7 per cent in 1989.

The unusual surge in giving in the 1980s could be explained in part by favorable changes in economic conditions during the decade. It might be said that Americans were giving more not because they were more charitable, but because they had higher incomes and varying tax rates. Some also point to a long-term upward trend in giving that could be attributable to a host of difficult-to-quantify factors, such as changes in religious convictions. Thus it might be argued that the growth in giving in the Eighties was merely an extension of economic changes and historical trends.

The Real Reason

But if that were the case, a statistical analysis of the economic determinants of total, individual, and corporate giving for the 1955-80 period should have predicted actual levels of giving in the 1980s. That was not the case.

Giving in real dollars is directly related (to a statistically significant degree) to real GNP per capita; to the tax rates; and to the population. The levels of total real dollar giving by year were computed for the Eighties, using the regression formulas developed from 1955-80 data, and the predicted total giving is shown by the dashed line in the second graph on p. 53(?).

But the actual real level of total giving during the 1980s was higher in every year than would have been predicted from the statistical relationships established in the 1955-80 period. Indeed, actual total giving exceeded predicted total giving by an annual average of $14 billion, or by 16 per cent. Real individual giving exceeded predicted real individual giving by an annual average of $13 billion, or 18 per cent.

Perhaps in some measures not considered here, the 1980s were a “Decade of Greed.” There were, no doubt, individual incidents of conspicuous consumption and selfish disregard for the welfare of others. As the editors of the Wall Street Journal noted, “The greedy are undoubtedly always with us.” But they prophetically ask, “Were the 1980s really the Greed Decade?” In terms of charitable contributions, the answer is a resounding “No.” American individuals and corporations in the 1980s outpaced by a wide margin their giving patterns established in earlier decades. This occurred at a time when real tax payments, part of which were intended to serve charitable goals, were on the rise, and at a time when, because tax rates fell, the after-tax cost of giving rose. No matter how the records of giving is measured, the 1980s were in fact a decade of renewed charity and generosity.

“Fully 80 per cent of [American] families are on a treadmill–they saw their net family income decline over the past decade or grow by a smaller percentage than did their hours of work. To merely maintain their standard of living, or to avoid falling further behind, they have had to increase their hours of work at the expense of their time with their family and community. Only the very top fifth of these families enjoyed clear gains in their standard of living.”

–Senator Paul Sarbanes (D., Md.), January 17, 1992

(reporting on a Democratic Party sponsored JFC Study)

–Mr. McKenzie is Walter B. Gerken Professor of Enterprise and Society in the Graduate School of Management at the University of California, Irvine. This article is a condensed version of Was the Decade of the 1980s a “Decade of Greed”? (St. Louis: Center for the Study of American Business).

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