Two arguments against patient philanthropy
Patient philanthropy is the idea (originated by the economics researcher Philip Trammell) that rather than donating now, you should invest money and donate it much later. Maybe you should even set up a foundation so that the money can be invested for a century or more before it’s donated. I can think of two strong arguments against patient philanthropy: the rational preference argument and the cost-effectiveness argument.
The rational preference argument
Let’s say I have $10 billion to donate.
Option A. I donate all $10 billion now through GiveDirectly. It is disbursed to poor people who invest it in the Vanguard FTSE Global All Cap Index Fund and earn a 7% compound annual growth rate or CAGR. In 2126, the poor people’s portfolios will have collectively grown to $8.68 trillion.
Option B. I invest all $10 billion in the Vanguard FTSE Global All Cap Index Fund for 100 years. In 2126, I have $8.68 trillion. I then disburse all the money to poor people through GiveDirectly.
Option B clearly provides no advantage to the poor people over Option A. On the other hand, it sure seems like Option A provides an advantage to the poor people over Option B.
If a philanthropist has $10 billion, I think they should prefer to arrange for Option A to happen rather than opt for Option B. But there may be other options that offer even more advantages to the poor people than Option A. So, they should seek out those options and choose an even better one, if they can.
To the extent Option B looks like it has higher impact, that’s just an artefact of how we might decide to do the accounting, rather than a true reflection of the causality involved or what’s morally best — or what the recipients of the aid would rationally prefer.
A potential reply is that, in Option A, the world’s poorest people can’t realistically invest the money rather than spend it on consumption (e.g., food, shelter, medicine, transportation, household goods). However, this reply does not overcome the argument. Spending the money on consumption probably benefits poor people more than investing it and it is probably what they rationally prefer. If this is in doubt, imagine the reverse: would the world’s poorest people rationally prefer for a foundation to expropriate, say, half of their wealth or income and to invest it on their behalf for, say, twenty years? Would that be a net benefit to them?
The cost-effectiveness argument
Let’s again imagine I have $10 billion to donate.
Option C. I donate all $10 billion now to GiveWell’s top charities. Per GiveWell’s estimate of $3,000 to $5,500 per life saved, I save at least 1,818,000 lives.
Option D. I wait 100 years to donate and, by the time I do, the world’s poorest countries have the per capita GDP that the United States does today. (For this to be true, the per capita GDP of these countries would need to end up at around 50% of what per capita GWP will be if it continues to grow by 2% a year for the next 100 years.) Although in 2126 I have $8.68 trillion, the cost to save a life in the world’s poorest countries is now $7,500,000, the same as what it costs to save a life in the United States today. So, with $8.68 trillion, I can only save 1,157,000 lives, which is 661,000 fewer (or 36% fewer) than if I had donated the money right away.
This comparison is highly sensitive to highly uncertain assumptions about the long-term future economic growth of the world’s poorest countries. It depends on those countries — mainly in sub-Saharan Africa — achieving some amount of catch-up growth, similar to what has occurred in several East Asian countries.
We should consider how and when to donate to promote catch-up growth in the poorest countries in light of the rational preference argument. Since Option A is preferable to Option B, donating now to promote economic growth in poor countries is preferable to delaying donations by 100 years.
Other arguments
Several other arguments may be equally important or more important. Some discount rate needs to be applied to the foundation’s money to account for the risk the foundation will cease to exist before it can execute its roadmap. (This could happen for operational, legal, political, or force majeure reasons.) Also, major advancements in science and technology over the intervening century may make the foundation’s plans obsolete, and may also make the remaining opportunities for philanthropic giving much less cost-effective than what was available earlier.
The philosopher David Thorstad notes that patient philanthropy is illegal in most Western democracies, which seems logical, since the laws against it put limits on the otherwise unlimited accumulation of wealth and power by foundations. The economist Thomas Piketty has not discussed patient philanthropy directly, but has described the long-term problems — namely, increasing wealth and income inequality — when the rate of return on capital persistently exceeds the rate of economic growth. Patient philanthropy relies on the rate of return on capital exceeding economic growth. Otherwise, there would be no advantage to investing funds long-term rather than disbursing them as soon as possible.
If the rate of return on capital didn’t exceed economic growth, patient philanthropy would imply a pessimistic outlook, since for opportunities for philanthropic giving to become more cost-effective in the future, it seems like the world would have to get worse over time. One alternative cited rationale for patient philanthropy is to save money that can be deployed in an emergency or when a highly cost-effective opportunity arises, but this isn’t sufficient justification for a patient philanthropic foundation to exist. Donors can invest their own money and deploy it when it is most appropriate. Other foundations that do active work and continually disburse funds can redirect their spending to respond to emergencies and new opportunities. (Other actors like governments may be able to fill that role as well.) There is no reason why putting money into a patient philanthropic foundation would be the only or best way to deploy funds in case of an emergency or a new opportunity.
There are also intuition-based arguments against patient philanthropy. For example, should the Against Malaria Foundation stop distributing bednets and put all of its funds into the Vanguard FTSE Global All Cap Index Fund for 100 years? Does that seem like it would be a net positive for the global poor?
A potential reply is that the current level of funding for the Against Malaria Foundation and other charities helping the global poor is at or above the optimal level. That is, no additional funding, beyond the current level, should go to the Against Malaria Foundation or similar charities. (All additional incremental funding earmarked to help the global poor should instead be invested by the prospective donors in index funds for many decades, or be donated to a patient philanthropic foundation that will invest the funds long-term.)
However, it is not clear how to empirically justify this reply. How is the optimal level empirically determined? How do we know the optimal level of funding for the Against Malaria Foundation and similar organizations is not zero, or 1% of their current funding, or 10%, or 50%? How do we know the optimal level is not 2x, or 10x, or 100x more? (If the optimal level of funding just happened to be the current level, that would be a strange coincidence.)
Conclusion
Investing in the stock market for 100 years before disbursing any funds seems to be almost certainly a worse way to help the global poor than donating to cost-effective charities in the short term. It’s not what the global poor would rationally prefer, it fails a plausible back-of-the-envelope cost-effectiveness calculation, and there are more arguments against it besides, such as illegality in most Western democracies (for good reason), the risk of a foundation failing to survive 100 years, and the possibility of transformative technologies accelerating the end of global poverty within the next century.
Epilogue
My meta-level takeaway is I continue to be skeptical of highly theoretical, abstract ideas that violate common sense and intuition. Inevitably, some such ideas will turn out to be right. However, most are wrong. This isn’t a reason to dismiss such ideas. It’s a reason to apply a high level of scrutiny and withhold judgment until things become clearer.
If you have an intuition that a logical-sounding yet strange idea is wrong but can’t immediately articulate an argument against it, your intuition is probably right. It may take a matter of minutes, hours, days, weeks, months, or years to come up with the argument. That middle period between hearing the idea and forming the argument is the most uncomfortable part. You may be tempted to chastise yourself for resisting an idea for no logical reason. You may feel frustrated you can’t yet turn your intuition into an argument.
The ability to stay in that state of discomfort, confusion, and uncertainty for as long as it takes is an important part of thinking. The natural temptation is to try to prematurely resolve the discomfort by either accepting the counterintuitive idea or resorting to implausible arguments for rejecting it — whatever happens to be on hand at the time. The patience to wait out that middle part has served me well again and again throughout my life.
The rational preference argument only applies for giving to the current generation of recipients at some later point in their lives. If the most cost effective generation to help is really, say, 3 generations in the future we should save and then give to them instead.
The cost-effectiveness argument is more convincing but the case for patient philanthropy only requires there to be some large-enough region that stagnates growth-wise which unfortunately seems likely given the perennial nature of bad governance. I believe that if you make some simplifying assumptions about utility functions and population size, patience looks good iff the projected rate of return on your assets is greater than the projected income growth rate for your target population.
I agree donating now to promote economic growth in poor countries is likely preferable to delaying donations by 100 years, though I am unsure about the tractability of any particular growth intervention.
Not necessarily. Let’s say a patient philanthropy foundation wants to expropriate, say, half of the inherited wealth between this generation and the next (in order to invest it for a future generation). The current generation would rationally prefer this not to happen. Conversely, the current generation would prefer to receive from the foundation an amount of wealth equivalent to half the wealth the next generation will be able to inherit.
The fundamental point is that investing wealth to accumulate wealth might make your impact numbers go up, because of an arbitrarily accounting decision, but it doesn’t make the well-being of the people you’re trying to help go up, as measured by their rational preferences or revealed preferences.
Even if you wanted to make an argument that investing in index funds is just always inherently going to be so much more cost-effective than consumption — I think this is highly dubious — you could have fewer recipients and disburse enough to each of them that they’d be able to invest a large enough portion of the cash transfer to satisfy you. Instead of 10 million people getting $1,000, maybe 100,000 people get $100,000, or 10,000 people get $1 million.
I can’t see any moral justification for why this wouldn’t be a preferable option to keeping all the money in a British foundation.
I think the tractability of stimulating economic growth in poor countries — while I acknowledge it is hard and uncertain, and will probably require funding research — is far better than the tractability of creating patient philanthropy foundations and that successfully execute their 100-year missions. Patient philanthropy foundations are rightly illegal in most Western democracies. It’s hard for any organization to last for 100 years, and especially to both last and remain in good condition. Executing a 100-year old plan to do philanthropic giving seems ridiculous. The plan will have been based on 100-year-old cost-effectiveness estimates that in all likelihood will no longer be considered close to accurate by then.
If the idea of the foundation is not to do any specific plan, then it doesn’t need to exist in the first place. The general pool of capital in wealthy countries, some of which is allocated to philanthropy annually, will be sufficient.
I’m not sure I understand this line of argument. Let’s say the world is such that spending in 100 years (i.e on people who do not currently exist and cannot actualize their preferences) is especially cost-effective or otherwise useful. There are two ways of “putting money 100 years into the future”.
Option A: Put money in an index fund, let it grow, spend it in 100 years
Option B: give it to people who will spend some of it now, invest some, pass on some to their children, who will in turn spend some of it, invest some of it, and pass it onto their children, leaving some for their grandchildren to spend in 100 years.
Option A leads to a bigger counterfactual increase in spending-100-years-from-now which is what we care about in this (admittedly contrived) example.
I agree setting up 100-year foundations is hard; but there are more practical steps one can take if they are convinced of the general arguments for patient philanthropy, most simply giving later in their lives or in their wills (I’m not necessarily endorsing this, but I think it is worth considering).
If you think that investing in index funds is sure to lead to the best outcome, why not give each recipient enough money so that they can invest in index funds? Or otherwise arrange it so that the recipients own and control the capital? Is it plausible to think that the donor owning the capital for 100 years is preferable to the recipient owning the capital for 100 years?
Well in this case the recipient does not currently exist and I cannot give them any money.