An argument I frequently hear (and generally buy into) against impact investing is that fungibility of investment money leads to unethical actors taking the extra wins created by impact investing. Hence, one should optimize for capital gains in ‘investment’ buckets and optimize for philanthropy in the ‘doing good’ bucket.
I’m concerned that this argument could then be applied to the money in my philanthropic bucket.
That is, does reducing my wealth by giving shift more capital gains onto non-altruistic actors? Put another way, in the long run under market economies, does philanthropy reduce the power of altruistic actors and increase the power of non-altruistic actors? If not, why?
I think it’s true that donating €10,000 may reduce my personal power/influence compared to keeping it in the bank. But I think it’s essential to keep in mind that my €10,000 wouldn’t be burned, it would “increase the power” of the beneficiaries/recipients. Given the diminishing returns on wealth, I expect the extra power the beneficiaries receive is more than the power I lose, so overall power transfer is positive-sum, and from someone relatively rich (like me) to someone relatively poor.
Another IMHO extremely important consideration is that money will be spent on something eventually. So if I buy something on Amazon instead of giving it to charity, I’m transferring wealth/power/influence from people in extreme poverty (partly) to Jeff Bezos, and conversely, if I donate to charity instead of buying something from Amazon I would do the opposite, which seems to me a better form of wealth redistribution.
(Also of course this ignores the many other positive effects of giving to effective charities, besides “power” transfer)
Ah, good point! One confounding factor for me is that my primary cause area is animal welfare. In this realm, I am curious if the idea of a power transfer to those less fortunate is relevant. Perhaps if nonhuman animals are given a stake in policy in the long run, this could be true.
Great point that the counterfactual to my question is not always investment! (i.e. I can reduce consumption to increase my donations, rather than decreasing my investments) For context, I am already very bought in to GWWC (signed the pledge!), the life you can save, etc… I am just trying to be truth seeking in what I should be using funds for. Perhaps there is some truth to needing fundamental systems change rather than just neartermist effective giving to revamp long-term power structures.
Side note: I’m simply using power transfer as a proxy for ‘voice in the world’. Unfortunately, given current systems wealth is our means of power. If philanthropy leaves more room for capital gains with non-altruistic actors, then this suggests I should completely revamp my theory of change! (perhaps towards something like international tax code reform?)
Investing to give more later can definitely be a reasonable strategy, depending on many things. There’s a whole forum topic with 10 years of posts on the timing of philanthropy.
Re: animals, I think by donating to animal charities the power transfer would be from you to the organizations you would be supporting, and by investing the power transfer would be to your future self.
But I think this model is too zero-sum. I think the overall influence of animal rights proponents can increase as a consequence of better allocation of capital between the different actors. Similarly, by investing the extra influence of your future self could be greater than the reduced influence of your present self, depending on your returns.
I think the transfer from the philanthropic actor to the charity preserves the “altruism” of the resource-utilizer so there shouldn’t be a net loss there unless you think gains due to charity don’t accrue as quickly as capital gains in the private market. So I think then the question kind of reduces to give now or give later. Unless there’s some belief in concentrating resources being inherently better than diffusing them.
Ah I see, I guess this is a difference in thinking or perhaps a misunderstanding on my part! My mental model for charitable contributions is kind of:
Giving money to philanthropy is a non-compounding effect. Kind of a one and done contribution.
But, what I’m hearing you say is that charitable contributions continue to compound value (perhaps through flow-through effects?). Do you have any data/research to back up the compounding effect of charity? I’m curious to learn more.
Also, charitable organizations need continuous influx of capital to keep operating. If I give, how is this not a ‘one and done’ contribution given that the organization would need more capital to continue operating. I guess I’m still having difficulty understanding, where is the compounding nature of charity?
Different charities will have different effects but broadly speaking if you save someone’s life, that person continues to live and generate economic value (they do work, other people benefit by associating with them, etc.) Some things (like animal welfare) may be more like consumption (though accomplishing animal welfare advocacy goals may change policy that continues on further in time).
But also there may be a category error because even if the nonprofit just pays people to do nothing. The money you gave doesn’t cease to exist—it just becomes income for the employees and is spent on some combination of consumption and savings by them and the government that taxes them. So i think it may lead to a question of: in the broader economy, is savings or consumption preferred? And I guess that would probably vary over time based on the macroeconomic sittuation.
Thanks for elaborating! That’s very helpful to understand and certainly strengthens the case for giving now (in the sense of power/capital transfer to other altruists).
You are correct. Through the safety net funded by altruists, egoists can afford lower taxes and receive greater benefits. As a result, egoists get stronger and altruists get weaker. That is, those who benefit themselves through charitable giving or don’t give at all will become richer and stronger, while those who give to benefit society will become poorer and weaker.
Even if you think that the effects caused by your charity will grow exponentially, this not only still holds true but even more so. For these effects clearly manifest as a transfer from the altruistic to the selfish. Therefore, if this transfer grows exponentially, then the selfish will become more profitable and the altruistic will become more impaired.
This, in short, is part of the evidence for the argument of socialists in the broad sense that improving society requires collective action, not individual charity. Even social democrats advocate improving the social safety net through taxes and state benefits, not through tax-deductible subsidized charitable giving.
Tell me more! Why do you think this is true? Do you have anything to read further on the topic?