Investment and Inefficient Charity

After rushing home from Utah I made it to a talk on efficient charity which St. Paul of Rational Altruist put together at the Berkeley Faculty Club.

(I should probably mention that from now on I will be preceding the names of leaders in the effective charity movement with the honorific “St”, because people’s social status and recognition ought to accurately track the level of effect they are having on the world. If through persistence and self-sacrifice someone manages to save the lives of a couple dozen people they never met, I don’t think even the harshest advocatus diaboli could object to an impromptu sainting or two.)

First, St. Elie of GiveWell talked about his organization’s efforts trying to research which charities did the most good and defended the idea of radical transparency – GiveWell’s procedure of meticulously recording everything they do and criticizing themselves ad infinitum in an attempt to become better and more evidence-based.

Then Robin Hanson of Overcoming Bias got up and just started Robin Hansonning at everybody. First he gave a long list of things that people could do to improve the effectiveness of their charitable donations. Then he declared that since almost no one does any of these, people don’t really care about charity, they’re just trying to look good. Then he told the room – this beautiful room in the Faculty Club, full of sophisticated-looking charity donors who probably thought they were there to get a nice pat on the back – that they probably thought that just because they were attending an efficient charity talk they weren’t like that, but that probabilistically there was excellent evidence that they were.

I have never seen a group of distinguished Berkeley faculty gain so sudden and intuitive an appreciation for the Athenians who decided to put Socrates to death. I spent the whole speech grinning like an idiot and probably scared Robin a little. And okay, some of that was because I woke up really early to get to the airport today and had become dangerously overtired and mentally imbalanced, but the rest of it was just that he sounds exactly like he does on his blog, he’s a great speaker, and it was just really funny in a train-wreck sort of way to watch a whole room of innocent and basically decent people get Hansonned. The man is one of a kind and his complete and obviously deliberate imperviousness to normal social niceties needs to be declared a national treasure.

But he made some genuinely unsettling points.

One of his claims that generated the most controversy was that instead of donating money to charity, you should invest the money at compound interest, then donate it to charity later after your investment has paid off – preferably just before you die, since donating money after death is legally complicated. His argument, nice and simple, was that the real rate of return on investment has been higher than the growth rate for 3000 years and this pattern shows no signs of changing. If you donate the money today, your donation grows with the growth rate, but if you invest it, it grows with the interest rate. He gave his classic example of Benjamin Franklin, who put his relatively meager earnings into a trust fund to be paid out two hundred years later; when they did, the money had grown to $7 million. He said that the reason people didn’t do this was that they wanted the social benefits of having given money away, which are unavailable if you wait until just before you die to do so.

And darn it, he was totally right. Not about the math – there are severe complications which I’ll bring up later – but about the psychology. On even the most cursory self-examination, my mind totally recoils at the thought of donating everything I’m going to donate to charity in a single lump sum just before I die. It just gibbers “But…but…you need to be a good person before then!” I’m not saying you can’t tear down Robin’s substantive argument in a bunch of good mathematical ways. I’m saying his ad hominem argument about my motivations seems to be true regardless.

Then he started talking about how you should only ever donate to one charity – the most effective. I’d heard this one before and even written essays speaking in favor of it, but it’s always been very hard for me and I’ve always chickened out. What Robin added was, once again, a psychological argument – that the reason this is so hard is that if charity is showing that you care, you want to show that you care about a lot of different things. Only donating to one charity robs you of opportunities to feel good when the many targets of your largesse come up and burdens you with scope insensitivity (my guess is that most people would feel more positive affect about someone who saved a thousand dogs and one cat than someone who saved two thousand dogs. The first person saved two things, the second person only saved one.) In retrospect this is absolutely true and my gibbering recoil at this problem isn’t just Yet Another Cognitive Bias but just good old self-interest.

Now that I have identified what this pattern feels like, I can look back in my memory and notice more examples. Probably the worst is that an efficient charity group was actually slightly interested in having me interview to work with them back in February-ish and I declined because I already had a career plan – and one from which I could make lots of money to then donate. This may end up being the correct decision and in fact probably is, but I already know that’s not why I did it. I did it because a cognitive paranoia I cultivated for pretty good reasons but can’t turn off at will tells me that doing anything not directly measurable is just my brain lollygagging about and inventing clever stories about why it’s so great, and I only get credit for direct obvious quantitative sacrifice. Working for an efficient charity organization, even if I was able to redirect other people’s money in valuable ways that ended up outweighing the utility of making lots of money myself, wouldn’t be enough to overcome my brain’s suspicion that I wasn’t actually doing any good after all.

Thankfully, Robin’s last point was that the most effective thing to do is to stop beating yourself up and be exactly as irrational as is necessary to convince your mind to go along with the whole “efficient charity thing” instead of freaking out and giving up in disgust. I have already measured about how irrational that is and I don’t see too much reason to change my decision now. Still, no sainthood for me just yet.

So let’s get to the fun part. How do we debunk Robin’s assertion that we should invest charitable givings and donate them only at the end of our lives?

St. Elie discussed this for a little while at the talk and gave what I thought was an unexpectedly good answer. He said that the world is getting better so quickly that we are running out of good to be done. After the initial burst of astonishment he explained: in the 1960s, the most cost-effective charity was childhood vaccinations, but now so many people have donated to this cause that 80% of children are vaccinated and the remainder are unreachable for really good reasons (like they’re in violent tribal areas of Afghanistan or something) and not just because no one wants to pay for them. In the 1960s, iodizing salt might have been the highest-utility intervention, but now most of the low-iodine areas have been identified and corrected. While there is still much to be done, we have run out of interventions quite as easy and cost-effective as those. And one day, God willing, we will end malaria and maybe we will never see a charity as effective as the Against Malaria Fund again.

St. Paul lists several other reasons on his blog. First of all, the US’ tax deduction laws favor spreading your donations out among as many years as possible. Second, you might become a worse person in fifty years and decide you don’t want to give your massive accumulated savings to the poor after all. He also lists a few other arguments, none of which in my opinion have quite the same power as those two.

Most of the people at the meeting today were not radical singularitarians – not all saints can be prophets. But if you believe, as I do, that we’re within about a century of a technological singularity of some sort or other, three new considerations come into play. First, affecting the singularity – either bringing it forward, pushing it backwards, or changing its nature – may be a unique and fantastically high-leverage charity target which will not be available (or may be less available) fifty years from now. Second, if a singularity goes wrong and kills us all, we lose our opportunity to donate to charity later. Third, if a singularity goes right, it’s a pretty good bet that people won’t need malaria nets anymore.

Suppose I will die at age 78 – ie fifty years from now. And suppose I want to donate $10,000 to charity. If I decide against Robin’s strategy, I donate $10,000 today, perhaps to Ethiopia. Ethiopia has a growth rate of about 7%, but let’s assume it can’t keep that up over the next 50 years and its average is 5% (this is still quite high). In 2063 Ethiopia ends up with $115,000 extra or so, which I round off to $150,000 because it can be enjoyed by a couple of generations rather than simply appearing at the end of the period.

Suppose I decide in favor of Robin’s strategy. A couple of investment sites say to expect 7% rate of return, so I can expect about $300,000 (all these numbers are adjusted for inflation, I think).

(if these numbers are right, then using the “efficacy of charity declines as things get better over time” argument means you have to believe in a 50%-in-fifty-years decline in charitable efficacy, which seems like a pretty high bar)

Okay. Now what if the world ends (or progresses beyond the need for charity) in 2062 – forty-nine years from now? In that case, giving now leaves Ethiopia with that $150,000, and waiting till later leaves them with nothing.

I don’t know enough math to do the integral properly, but I can do it at different points and then sum it up. If the world ends in ten years, saving loses $15,000. If the world ends in 20 years, saving loses $25,000. In 30, $45,000. In 40, $70,000. At 49.999, $150,000. If there’s an equal chance of the world ending at any one of those times, on average the world ending before you can donate loses you $60,000. But if the world doesn’t end, saving gains you an extra $150,000. So unless you think the world is more than 70% certain to end before you die, saving like Robin suggests is the best option.

And okay, there are so many problems with this analysis I don’t even know where to start (and I bet commenters will point out ones I missed). I hope someone can do some more rigorous math on this question. But the Fermi calculation gives me the opposite result from the one I was expecting and this is very awkward and I was totally intending to close up this essay with “and therefore, math tells us investing charitable donations is clearly a bad idea.” Instead I’m just going to keep recoiling and gibbering.