Turning Down Charities and Signaling

From the advise column at Slate:

How should I decline requests for charity without going straight to hell? I'm a good person, but sometimes I don't have it to spare. Sometimes I do have it to spare but don't want to spare it for that cause. Sometimes I just want a coffee or new shoes. What's the most respectful, yet firm, way to say no?

The authors respond by explaining how they can stay in the signaling game by using a "hug and release" approach. I love the framing of this question ("Sometimes I just want a coffee or new shoes."), because it fits my mental model of why people give charity, as opposed to a signaling model that I think is the more popular and accepted model among economists. If you are the easily offended type, you should probably stop reading now.

I think of giving to charity as just being another argument in the utility function. Mr. Max U's happiness depends on a consumption bundle and leisure. One of the goods in his consumption bundle is charitable giving. The maximization process suggests that you make recognizable trade-offs between things like coffee, shoes, and charity. Furthermore, I think the desire to give to charity is drawn from some evolutionary programming to help others, and the desire to appear charitable in the eyes of others tends to be a weaker effect. You see charities make statements like "you can feed and school a child here for $1/day" because demand for this good is downward sloping.

Now for the recipient side of the coin, and the area where I think many practicing objectivists get the logic wrong. (I say "practicing" objectivists because I'm not sure this view is even consistent with objectivist philosophy, but I'm not entirely sure one way or the other.) A common concern is that charity will induce dependence, or at the least encourage more resources to be devoted by the individual to the seeking of a transfer, rather than doing something "productive." If I am always going to hand out $20 in to the homeless outside SPEA on Fridays, then surely over time the number of homeless looking for me at that time and place will increase.

The problem with this view is that it is not objective. Look at another member of society who we generally consider productive, the jeweler. The jeweler is productive because they take this shiny rock out of the ground, polish it up, and sell it to consumers for an amount that covers their time and resources. They are productive because they satisfy a consumer demand, and as any economist will tell you, we do not pass judgment on consumer preferences. When you think of it this way, someone devoting resources to increase their appearance of desperation in order to be given a handout, is no less "productive" than the jeweler. They are simply trying to satisfy the consumer's demand to reduce neediness. You can think, if you must, of beggars as suppliers of satiable neediness, and charity-givers as consumers of satiating neediness. In which case, every dollar you choose to hand out is not wasteful or even unproductive outcome of some signaling game with unintended consequences, but another example of gains from trade that maximizes the well being of society.