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.
The rational preference argument only applies for giving to the current generation of recipients at some later point in their lives.
Not necessarily. Let’s say a patient philanthropy foundation wants to expropriate, say, half of the wealth that would be inherited from this generation by the next (in order to invest it for a future generation). The current generation would rationally prefer this not to happen. The next generation would also rationally prefer for this not happen. Conversely, the current generation would rationally prefer to receive from the foundation an amount of wealth equivalent to half the wealth the next generation would otherwise inherit. The next generation would also rationally prefer that.
The fundamental point is that investing wealth to accumulate wealth might make your impact numbers go up, because of an arbitrary impact 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.
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.
At what point in the future would you say it’s no longer likely? If not 100 years, what about 200 years, 300 years, and so on? At what point does patient philanthropy become clearly less cost-effective than giving today?
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.
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.
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.
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? What advantage could possibly accrue to the recipient from that arrangement?
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 follow the logic, but I think the logic of the contrived example actually exposes general weaknesses in patient philanthropy (i.e. for example B to be clearly better we have to assume that for some arbitrary reason we do not care about the first three generations of poor people at all, only about the poor people in 100 years’ time, who are sufficiently far removed for us not to even know how poor they will be)
Once we relax that assumption and assume that poor people today are at least equally deserving as hypothetical poor people in the future, Option B starts looking rather good. [1]The first generation get helped to the extent they need, their descendants may benefit directly to some extent but also may be better able to help themselves, and for big enough donations there is some sort of compounding return in the wider poor country. In some plausible circumstances even the return to the grandchildren is greater than the sum of money you donated (ceteris paribus being born poor but obtaining a scholarship paid for by a foreign foundation isn’t a better situation than being born into the middle class and having education paid for by the grandparent who received the foreign-funded scholarship and was able to earn much better for fifty years as a result)
It then becomes a debate on whether poor people can achieve better returns than index investments in Western stocks, and whilst poor people aren’t sophisticated investors and are often subject to all sorts of negative economic shocks, they are often in a position to dramatically improve their livelihood (RCTs on cash transfers suggested the annual return on a long lived tin roof that didn’t need replacing every two years was at least 19%, for example) and then there’s whether to take into account the nonlinearity of money returns to the poorest people living on $2 per day (2025 USD PPP) now and the poorest people [most likely, based on current trends] earning >$2 per day (2025 USD PPP) 50 years in the future.
The exception might be in cases where your target population has very little capacity to improve their own situation right now, relative to those in future and so most of your money just gets wasted or stolen. I’m unconvinced this applies to people in poverty in general, but it might if you wanted to maximise the positive impact on a population of Palestinians in Gaza specifically, for example.
my example was merely trying to show that if patient philanthropy is preferred, then a wait and donate strategy is better than relying on inter-generational transfers.
we have to assume that for some arbitrary reason we do not care about the first three generations of poor people at all, only about the poor people in 100 years’ time
No, we don’t. We merely have to believe (in expectation) that our marginal money is better spent a few generations in the future than on the current generation. This is of course contested but there are plenty of non-arbitrary reasons to believe it. For example, if you doubt catch-up growth, and you think there will still be some very poor (in absolute terms) countries around a few generations in the future, then a few generations the future you will expect to have
more money, due to compound returns of your savings
a population of people that are about as easy to help as they are now
So you can help people more then than you can now. (this is obviously glossing over a ton of details like those covered in Trammel’s report but I think it helps get at the intuition).
Most individual-level income gains like we see from tin roofs do not compound across generations at anything like market rates (we can see inter-generational income elasticity is far less than 1 in low-income countries which implies income gains to one generation get diluted over time).
Sure, your example showed that if one irrationally disregards earlier generations and focuses purely on the needs of cohort P, Option B is a clear winner. If one doesn’t, we agree that it’s actually pretty darn complicated to estimate the total welfare impact of donating now versus donating a larger nominal sum on equivalent problems (assuming they still exist) in future, which requires a lot of contestable counterfactual assumptions,[1] as well as choice of discount rates, PPP and money nonlinearity assumptions and decisions about whether any value is attached to economic stimulus to non-recipients in developing countries and keeping marginal NGOs alive. (Donations to things other than poverty relief have their own idiosyncracies: hopefully the number of ITNs needed to prevent malaria deaths by ~2050 will be zero.)
The intergenerational elasticity point is an interesting one, but intergenerational income elasticities are higher in less developed countries (and the higher incomes are partially inherited by more people in later generations, assuming they continue to reproduce above replacement rate). And under normal assumptions we care about the earlier generations helped at least as much as the later ones, so you’ve already helped many more people than the direct recipients by the time the patient philanthropy fund is investigating how many more people accrued compound interest will let them help. Plus in the specific example of the roof we’re talking about wealth, and you’d have to invest very well in stocks and shares to beat the imputed 20% annual returns on a tin roof, even over time spans that extend beyond its serviceability.
Catchup growth definitely exists, the only question is whether more marginal economies will be excluded from it.[2] There are many reasons for economic stagnation in poorer regions (most obviously terrible governance), but it’s certainly not independent from whether philanthropic funds for economic growth and poverty alleviation decide that in the near term they should shift towards promoting the economic development of the stock market in their own country instead.[3] Too much patience is probably worse for developing countries than the opposite extreme of too much philanthropic cash chasing too few viable opportunities.
You also have to make assumptions about the philanthropists of the future as well: I’m not as rosy on near future technology-enabled post scarcity societies as some people on here, but if we trend in that direction maybe your nominally larger funds are a lot less relevant in future than that now
Never mind the Asian Tiger economies, even some conflict-ridden impoverished backwaters like Burkina Faso have seen average growth rates comparable to US stocks over extended periods of time, and even without wild technological optimism it’ll probably be fairly hard to find people living under the new $3 per day (2025 PPP) poverty threshold in 2075
Makes wayyy more sense for funds to keep most of the funds invested in domestic stocks when they’re endowments ring fenced for specific things like selective scholarships or maintenance of a facility than funds for promoting economic growth and poverty alleviation
If by Option B you meant that the recipients would invest most or all of the cash transfers in index funds, why is Option A preferable?
If the answer is they’re too desperately poor to not spend a large portion of the money on consumption, then rather than respecting the global poor’s rational preferences, this is a paternalistic argument.
So lets say we are targeting population P—these are the recipients. P is the population of people most in need that will be around in 100 years. Most of them do not currently exist. We want to spend money to help P either in the form of direct cash transfers or health interventions.
We can do that by investing our money and then handing it out to the individuals in P once they come into existence. This is option A, aka the patient philanthropy strategy.
We could also give to the parents or grandparents of P, some of which are alive today, which we can call P_p and P_g. I am assuming this is what you mean by “Give it to their ancestors.”. I call this Option B. Option B is worse because:
some of the money is consumed by P_p and P_g instead of passed thru to P. In this example we are assuming P is where our money is the most cost-effective so this is bad.
since we don’t know what areas will be most in need for the next few generations we don’t know quite who P_p and P_g are.
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 wealth that would be inherited from this generation by the next (in order to invest it for a future generation). The current generation would rationally prefer this not to happen. The next generation would also rationally prefer for this not happen. Conversely, the current generation would rationally prefer to receive from the foundation an amount of wealth equivalent to half the wealth the next generation would otherwise inherit. The next generation would also rationally prefer that.
The fundamental point is that investing wealth to accumulate wealth might make your impact numbers go up, because of an arbitrary impact 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.
At what point in the future would you say it’s no longer likely? If not 100 years, what about 200 years, 300 years, and so on? At what point does patient philanthropy become clearly less cost-effective than giving today?
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? What advantage could possibly accrue to the recipient from that arrangement?
Well in this case the recipients do not currently exist so I cannot yet give them any money.
Give it to their ancestors.
see my previous comment:
Giving it to their ancestors is choosing option B
I follow the logic, but I think the logic of the contrived example actually exposes general weaknesses in patient philanthropy (i.e. for example B to be clearly better we have to assume that for some arbitrary reason we do not care about the first three generations of poor people at all, only about the poor people in 100 years’ time, who are sufficiently far removed for us not to even know how poor they will be)
Once we relax that assumption and assume that poor people today are at least equally deserving as hypothetical poor people in the future, Option B starts looking rather good. [1]The first generation get helped to the extent they need, their descendants may benefit directly to some extent but also may be better able to help themselves, and for big enough donations there is some sort of compounding return in the wider poor country. In some plausible circumstances even the return to the grandchildren is greater than the sum of money you donated (ceteris paribus being born poor but obtaining a scholarship paid for by a foreign foundation isn’t a better situation than being born into the middle class and having education paid for by the grandparent who received the foreign-funded scholarship and was able to earn much better for fifty years as a result)
It then becomes a debate on whether poor people can achieve better returns than index investments in Western stocks, and whilst poor people aren’t sophisticated investors and are often subject to all sorts of negative economic shocks, they are often in a position to dramatically improve their livelihood (RCTs on cash transfers suggested the annual return on a long lived tin roof that didn’t need replacing every two years was at least 19%, for example) and then there’s whether to take into account the nonlinearity of money returns to the poorest people living on $2 per day (2025 USD PPP) now and the poorest people [most likely, based on current trends] earning >$2 per day (2025 USD PPP) 50 years in the future.
The exception might be in cases where your target population has very little capacity to improve their own situation right now, relative to those in future and so most of your money just gets wasted or stolen. I’m unconvinced this applies to people in poverty in general, but it might if you wanted to maximise the positive impact on a population of Palestinians in Gaza specifically, for example.
my example was merely trying to show that if patient philanthropy is preferred, then a wait and donate strategy is better than relying on inter-generational transfers.
No, we don’t. We merely have to believe (in expectation) that our marginal money is better spent a few generations in the future than on the current generation. This is of course contested but there are plenty of non-arbitrary reasons to believe it. For example, if you doubt catch-up growth, and you think there will still be some very poor (in absolute terms) countries around a few generations in the future, then a few generations the future you will expect to have
more money, due to compound returns of your savings
a population of people that are about as easy to help as they are now
So you can help people more then than you can now. (this is obviously glossing over a ton of details like those covered in Trammel’s report but I think it helps get at the intuition).
Most individual-level income gains like we see from tin roofs do not compound across generations at anything like market rates (we can see inter-generational income elasticity is far less than 1 in low-income countries which implies income gains to one generation get diluted over time).
Sure, your example showed that if one irrationally disregards earlier generations and focuses purely on the needs of cohort P, Option B is a clear winner. If one doesn’t, we agree that it’s actually pretty darn complicated to estimate the total welfare impact of donating now versus donating a larger nominal sum on equivalent problems (assuming they still exist) in future, which requires a lot of contestable counterfactual assumptions,[1] as well as choice of discount rates, PPP and money nonlinearity assumptions and decisions about whether any value is attached to economic stimulus to non-recipients in developing countries and keeping marginal NGOs alive. (Donations to things other than poverty relief have their own idiosyncracies: hopefully the number of ITNs needed to prevent malaria deaths by ~2050 will be zero.)
The intergenerational elasticity point is an interesting one, but intergenerational income elasticities are higher in less developed countries (and the higher incomes are partially inherited by more people in later generations, assuming they continue to reproduce above replacement rate). And under normal assumptions we care about the earlier generations helped at least as much as the later ones, so you’ve already helped many more people than the direct recipients by the time the patient philanthropy fund is investigating how many more people accrued compound interest will let them help. Plus in the specific example of the roof we’re talking about wealth, and you’d have to invest very well in stocks and shares to beat the imputed 20% annual returns on a tin roof, even over time spans that extend beyond its serviceability.
Catchup growth definitely exists, the only question is whether more marginal economies will be excluded from it.[2] There are many reasons for economic stagnation in poorer regions (most obviously terrible governance), but it’s certainly not independent from whether philanthropic funds for economic growth and poverty alleviation decide that in the near term they should shift towards promoting the economic development of the stock market in their own country instead.[3] Too much patience is probably worse for developing countries than the opposite extreme of too much philanthropic cash chasing too few viable opportunities.
You also have to make assumptions about the philanthropists of the future as well: I’m not as rosy on near future technology-enabled post scarcity societies as some people on here, but if we trend in that direction maybe your nominally larger funds are a lot less relevant in future than that now
Never mind the Asian Tiger economies, even some conflict-ridden impoverished backwaters like Burkina Faso have seen average growth rates comparable to US stocks over extended periods of time, and even without wild technological optimism it’ll probably be fairly hard to find people living under the new $3 per day (2025 PPP) poverty threshold in 2075
Makes wayyy more sense for funds to keep most of the funds invested in domestic stocks when they’re endowments ring fenced for specific things like selective scholarships or maintenance of a facility than funds for promoting economic growth and poverty alleviation
If by Option B you meant that the recipients would invest most or all of the cash transfers in index funds, why is Option A preferable?
If the answer is they’re too desperately poor to not spend a large portion of the money on consumption, then rather than respecting the global poor’s rational preferences, this is a paternalistic argument.
So lets say we are targeting population P—these are the recipients. P is the population of people most in need that will be around in 100 years. Most of them do not currently exist. We want to spend money to help P either in the form of direct cash transfers or health interventions.
We can do that by investing our money and then handing it out to the individuals in P once they come into existence. This is option A, aka the patient philanthropy strategy.
We could also give to the parents or grandparents of P, some of which are alive today, which we can call P_p and P_g. I am assuming this is what you mean by “Give it to their ancestors.”. I call this Option B. Option B is worse because:
some of the money is consumed by P_p and P_g instead of passed thru to P. In this example we are assuming P is where our money is the most cost-effective so this is bad.
since we don’t know what areas will be most in need for the next few generations we don’t know quite who P_p and P_g are.