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. Continued...