Last year people were saying there’s a funding overhang – an excess of funding relative to opportunities – and now it seems to have gone away. What’s going on?
It’s natural to talk in terms of funding overhangs, but I don’t think it’s the best way to think about the situation. I used to use the term myself (which contributed to it being used more widely), but stopped a few months after that post. I’ve tried to write a quick post to explain why.
Tldr: I think it’s better to talk in terms of the funding bar going up or down, and in being more or less funding constrained (relative to other constraints).
Funding ‘overhang’ makes it sound like there’s a ‘correct’ amount of funding, and we can have too little or too much. There are similar issues with terms like ‘funding gaps’, or ‘funding constrained’ if spoken about in a black or white way. It’s very natural to think in terms of absolutes, but in reality, everything is on a continuum.
More funding is always more useful – it’s just that its value diminishes as you have more and more. There’s no single optimal amount.
I think a better concept is the bar – the level of cost-effectiveness at which it’s worth funding or working on an opportunity.
Effective altruism will hopefully exist for many decades, and so the challenge we face is figuring out how many resources to give each year in order to maximise our impact over those decades.
To do that, ideally we could put all the opportunities we’ll face over those decades in order of cost-effectiveness, fund or work on the most effective ones first, and then keep going till the entire pot of resources is allocated.
The bar is then given by the cost-effectiveness of the final grant (the ‘last dollar’) or final job. Any opportunity that’s more effective than the bar should be supported, and all others shouldn’t.
Entrepreneurs should aim to create organisations that are more cost-effective than the current bar – the higher they are above the bar, the easier they will find it to fundraise
If the bar for funding goes down, but the bar for direct work stays the same, then earning to give becomes relatively less attractive. You could then say we’ve become less funding constrained.
Where the bar ends up depends on (i) how many resources we have (ii) how many opportunities we discover.
This means the bar will change from year-to-year depending on changes in expectations about (i) how many new donors entering the community (ii) stockmarket returns (iii) the discovery of new donation opportunities (iv) the world changing to create or remove opportunities.
All this is hard to estimate, but we have to do our best.
For instance, what’s happened recently is that lots more resources entered the community (as tech stocks and crypto went up), so the bar was dropped, and then the market crash decreased the amount of resources available, so the bar was raised a bit. Overall I think the bar is still lower than it was before 2019, but it’s not as low as it seemed 6 months ago.
This is easiest to quantify with GiveWell recommended charities. Around 2015, the cost-effectiveness of the marginal charity was roughly 10x cash transfers. Last year it dropped to 7x, and this year it increased to 8x – the latter was partly due to the market decline and party due to GiveWell discovering more highly effective opportunities than expected.
I think a similar thing has happened within longtermist issues (as opposed to global health), but my sense is the ups and downs are somewhat greater (e.g. maybe it was 10 units in 2015, then dropped to 2 units, and is now back up to 3).
Either way, these ups and downs are part of the normal course of events.
At all points, additional funding has been useful, it’s just that its value has changed somewhat.
And it has never been ‘easy’ to get funding – rather, how difficult it is goes up and down over time.
Most of the time, these differences are not super decision-relevant. The uncertainties involved in effective altruism are so huge, that a change in the bar by a factor of 2 isn’t going to make the difference in many decisions – and so I don’t think much is going to change due to the recent change in the bar.
A change in the bar by a factor of 5 or 10 is much more likely to be decision-relevant, so I think it was important to flag the change from 2015 to 2021.
Given all this, is there a sensible interpretation of the term ‘funding overhang’? You could use it to label situations where a sudden increase in funding has driven the bar down; or perhaps for situations where skill-sets that are complementary with spending money have become a lot more valuable. But overall I think it’s better to avoid the term altogether – it’s so easy to start thinking in black and whites and get confused. Instead, talk about the bar going up or down, and becoming more or less funding constrained relative to other constraints.
For more:
See my post and talk about how the increase in funding has changed the community’s priorities. I avoided using the term funding overhang in it, and instead talked about how the bar had changed and what that means. Given the bar has raised a little bit since then, the conclusions hold more weakly now, but only by a little bit.
Let’s stop saying ‘funding overhang’
Last year people were saying there’s a funding overhang – an excess of funding relative to opportunities – and now it seems to have gone away. What’s going on?
It’s natural to talk in terms of funding overhangs, but I don’t think it’s the best way to think about the situation. I used to use the term myself (which contributed to it being used more widely), but stopped a few months after that post. I’ve tried to write a quick post to explain why.
Tldr: I think it’s better to talk in terms of the funding bar going up or down, and in being more or less funding constrained (relative to other constraints).
Funding ‘overhang’ makes it sound like there’s a ‘correct’ amount of funding, and we can have too little or too much. There are similar issues with terms like ‘funding gaps’, or ‘funding constrained’ if spoken about in a black or white way. It’s very natural to think in terms of absolutes, but in reality, everything is on a continuum.
More funding is always more useful – it’s just that its value diminishes as you have more and more. There’s no single optimal amount.
I think a better concept is the bar – the level of cost-effectiveness at which it’s worth funding or working on an opportunity.
Effective altruism will hopefully exist for many decades, and so the challenge we face is figuring out how many resources to give each year in order to maximise our impact over those decades.
To do that, ideally we could put all the opportunities we’ll face over those decades in order of cost-effectiveness, fund or work on the most effective ones first, and then keep going till the entire pot of resources is allocated.
The bar is then given by the cost-effectiveness of the final grant (the ‘last dollar’) or final job. Any opportunity that’s more effective than the bar should be supported, and all others shouldn’t.
Entrepreneurs should aim to create organisations that are more cost-effective than the current bar – the higher they are above the bar, the easier they will find it to fundraise
If the bar for funding goes down, but the bar for direct work stays the same, then earning to give becomes relatively less attractive. You could then say we’ve become less funding constrained.
Where the bar ends up depends on (i) how many resources we have (ii) how many opportunities we discover.
This means the bar will change from year-to-year depending on changes in expectations about (i) how many new donors entering the community (ii) stockmarket returns (iii) the discovery of new donation opportunities (iv) the world changing to create or remove opportunities.
All this is hard to estimate, but we have to do our best.
For instance, what’s happened recently is that lots more resources entered the community (as tech stocks and crypto went up), so the bar was dropped, and then the market crash decreased the amount of resources available, so the bar was raised a bit. Overall I think the bar is still lower than it was before 2019, but it’s not as low as it seemed 6 months ago.
This is easiest to quantify with GiveWell recommended charities. Around 2015, the cost-effectiveness of the marginal charity was roughly 10x cash transfers. Last year it dropped to 7x, and this year it increased to 8x – the latter was partly due to the market decline and party due to GiveWell discovering more highly effective opportunities than expected.
I think a similar thing has happened within longtermist issues (as opposed to global health), but my sense is the ups and downs are somewhat greater (e.g. maybe it was 10 units in 2015, then dropped to 2 units, and is now back up to 3).
Either way, these ups and downs are part of the normal course of events.
At all points, additional funding has been useful, it’s just that its value has changed somewhat.
And it has never been ‘easy’ to get funding – rather, how difficult it is goes up and down over time.
Most of the time, these differences are not super decision-relevant. The uncertainties involved in effective altruism are so huge, that a change in the bar by a factor of 2 isn’t going to make the difference in many decisions – and so I don’t think much is going to change due to the recent change in the bar.
A change in the bar by a factor of 5 or 10 is much more likely to be decision-relevant, so I think it was important to flag the change from 2015 to 2021.
Given all this, is there a sensible interpretation of the term ‘funding overhang’? You could use it to label situations where a sudden increase in funding has driven the bar down; or perhaps for situations where skill-sets that are complementary with spending money have become a lot more valuable. But overall I think it’s better to avoid the term altogether – it’s so easy to start thinking in black and whites and get confused. Instead, talk about the bar going up or down, and becoming more or less funding constrained relative to other constraints.
For more:
See my post and talk about how the increase in funding has changed the community’s priorities. I avoided using the term funding overhang in it, and instead talked about how the bar had changed and what that means. Given the bar has raised a little bit since then, the conclusions hold more weakly now, but only by a little bit.