A Conversation With Economist Arnold Kling (Part 1 of 2)

MIT-trained economist Arnold Kling is a cerebral polymath who brings hands-on experience in government, a calm demeanor, and clearly expressed, reasonable thought to the public discourse.

He has been an economist with both the Federal Reserve and Freddie Mac, and he’s done research for and offered commentary while at both the Mercatus Center and the Cato Institute.

His most-recent book is The Three Languages of Politics: Talking Across the Political Divides. His previous books include Specialization and Trade: A Re-introduction to Economics and Not What They Had in Mind: A History of the Policies That Produced the Financial Crisis of 2008.

Kling’s Substack page is regularly updated and reflects his wide-ranging intellect and interests, as well as his libertarian leanings. A piece on the page late last month, “The Nonprofit Brand,” caught our eye.

“Our legal system should not give any special privileges to organizations that declare themselves to be nonprofit,” he writes in the piece. Specifically, he continues, “Universities and hospitals should not be gobbling up all of the land in cities like Pittsburgh and St. Louis,” where he’s from. “For tax purposes, they should be treated as profit-seeking enterprises.”

Kling was kind enough to join me for a recorded conversation last week. The just less than 12-minute video below is the first part of our discussion; the second is here. In the first part, we talk about his government service, his Substack page, the role nonprofits should and actually do play in America, and generally outlines potential policy reforms related to nonprofits.

Overall, “I’m concerned with all sorts of aspects of human interdependence, as I call it—so sociology, psychology, politics, economics—and I try to tie them together” on the page, Kling tells me.

Discussing for-profits and nonprofits, “I think a very naive view of profit-seeking businesses versus nonprofits is that the profit-seeking businesses are takers and the nonprofits are givers,” according to Kling. “I think that’s not the correct way to look at it.

“I think the most-useful way to distinguish them,” he goes on, is to say “that a profit-seeking business has to survive by pleasing customers—otherwise, it won’t make a profit—and a nonprofit has to survive by pleasing donors.”

Kling say he wishes nonprofits “were playing a role more like a hundred years ago, when they provided relief to people, sort of a form of social insurance. I think that was really the best role for them.”

Among nonprofits, according to Kling, we should ask,

Who really supplies the money? You could have a grassroots organization—churches are kind of the classic example. When ordinary people supply the money, typically ordinary people end up being the recipients—ordinary people who have fallen on hard times. … I think that’s kind of the old-fashioned, the best model.

Then you have the wealthy-donor charity. There, you’re more likely to get some sort of elitist type of thing.

Wealthy donors often have other aims with their charity, whether it be for vanity projects or something else. “Some of these are good,” Kling says. “I mean, Andrew Carnegie’s libraries were probably a good thing, but they can just as easily be vanity projects” or “spend a lot of money on fancy dinners and things like that.”

A “third category is government-supported nonprofits, and that’s the most dangerous of all from both perspectives,” he continues. “Government ends up being expensive and not necessarily getting the results it wants, and then the nonprofits end up lobbying to stay in business as opposed to solving the problem.”

In terms of potential policy reform, “I would try to reduce the prejudice against profit-seeking firms,” Kling concludes, generally recommending a “more economically sensible tax system that creates less of a distinction between the profit-seeking and nonprofit sectors try to reduce that difference as much as possible,” without negatively affecting churches and other grassroots charities.

In the conversation’s second part, Kling discusses libertarian and progressive views of the roles of government, for-profit business, and nonprofit charity.

This article first appeared in the Giving Review on June 10, 2024.