The Nobel Peace Prize nominee and recently knighted “Bono,” lead singer of the band U2, took a hit to his reputation as an antipoverty crusader a few months ago. U2 Ltd—the band’s publishing company—moved its operations out of Ireland to reduce its tax burden. U2 now shares the same finance company as the famed band the “Rolling Stones,” which incorporated in Holland in 1972.
One of the band members defended the move by noting “Of course we are trying to be tax efficient. Who doesn’t want to be tax efficient?”
Critics from both the left and the right cried “foul.” Liberals complained that Bono—who has been an outspoken advocate of government aid to the underdeveloped world—set a poor example by choosing profit over morality. Conservatives snickered at Bono’s hypocrisy—asking others to contribute more to the world’s poor by paying higher taxes while refusing to do so himself.
It’s easy to smile at the hypocrisy of one of the world’s crusading left-leaning artists—but utterly unconstructive. Taking Bono down a peg might give small satisfaction to those of us who are tired of being lectured at by moralistic celebrities, but the feeling is fleeting.
What if we turn the equation around, and instead of focusing on Bono as a hypocrite, we exalt his case as an example of the working of economic incentives in the real world?
Personally, I don’t doubt Bono’s passion for alleviating the suffering of the world’s poor; in fact, I tend to think that Bono has done more good than harm by campaigning relentlessly to focus attention on the intractable poverty of people in third world countries. Unlike many celebrities, Bono has actually done some real work to put his principles into practice.
More importantly, the recent move of U2’s publishing operations to Holland help to point out the opportunities and limitations of government solutions to social and economic problems.
Instead of looking at the band's choice to reduce their tax burden as an example of human frailty, we should view it as an example of the inevitable limitations on government’s ability to tax and spend its way out of a problem.
Even as genuinely caring a guy as Bono—the recent bestowal of his knighthood was based largely on his dedication to doing good works for others—cannot be taxed without limits. All the best intentions in the world cannot change the fact that human beings and human institutions respond primarily to incentives, not just good intentions.
Looking at and thinking about the human universe in terms of people’s intentions is a fool’s errand. Intentions are essentially mysterious—they occur inside people’s heads and are only available to inspection through what people say and do. In the end, what matters most to the rest of us is not the “why” of how people act but the effect of their actions on the rest of us. And the best way to change outcomes in the real world is not to change people’s intentions—make them “less selfish,” for instance—but to change the conditions under which they make their choices to act. Incentives, not intentions, are the dominant determinant of human behavior.
In our day to day lives the intentions of others take on significance—we often judge the individual actions of our friends and neighbors based at least partly on what we believe they were thinking at the time. But when you are talking policy and politics—about the behavior of vast numbers of people whose intentions and expectations are necessarily opaque to the rest of us—it is far more reliable to think about the incentives we are creating to achieve or discourage a given outcome.
Bono and U2 chose to move their publishing business when Ireland changed its laws in a way that would substantially increase their tax burden. It’s no surprise they did so—and even if they hadn’t, it was entirely predictable that some substantial number of similar actors would do so. Ireland made it more expensive to be an Ireland-based artist, and artists responded by changing their behavior. Decrying the “selfishness” and “hypocrisy” of the artists who did so is about as useful as complaining about the effects of gravity on our ability to flap our arms and fly.
It may be satisfying for a moment to smile at Bono’s apparent hypocrisy in having his business moved to Holland for tax purposes, but conservatives should resist the urge. Bono is doing exactly what free-market economists would predict. We should embrace his example to demonstrate to the economically illiterate the importance of having the right tax structures and incentives to ensure economic growth.
Oh, and that Nobel Peace Prize Bono was nominated for in 2005? It went to Muhammad Yunus, founder of the Grameen Bank, which pioneered the idea of extending micro-loans to individuals in poorer countries to help them start their own business. Yunus has done more to alleviate real poverty in the third world than any foreign aid program ever could. How? Yunus and the Grameen Bank have harnessed the power of the market to help individuals lift themselves out of poverty and build their own wealth--an important lesson on the power of incentives in the real world.