The idea that charities should focus on spending money during recessions because of the extra benefit that provides seems wrong to me.
Using standard estimates of the fiscal multiplier during recessions — and ignoring any offsetting effects your actions have on fiscal or monetary policy — if a US charity spends an extra $1 during a recession it might raise US GDP by between $0 and $3.
If you’re a charity spending $1, and just generally raising US GDP by $3 is a significant fraction of your total social impact, you must be a very ineffective organisation. I could not recommend giving to such a project.
I’d think such a gain would be swamped like other issues like investment returns, us learning about better charities in future, or the worst problems getting solved leaving us worse giving opportunities, and so on.
An exception might be if you independently thought something like GiveDirectly was the best option and wasn’t going to be beaten by another option in future. Then giving money for dispersal during a recession in the recipient country might be, say, twice as good as giving it outside of recession.
There’s a bunch of discussion of these issues in my interview with Phil Trammell.
Thanks for your comment.
I’m not advocating it because of the fiscal multiplier. That would be the cherry on the cake.
The first simple step is simply to say don’t cut back expenditure because shrinking and regrowing an organisation is costly. Most charities (though EA ones are somewhat atypical) see their income reduced during bad times. And since most charities think in bland terms of x months of reserves, this means their expenditure fluctuates as well. This is an not efficient way to manage an organisation. In good times, build a buffer, so you can keep going during bad times. Just keeping expenditure flat would be a major step in the right direction.
Of course you can take it a step further. There is another cost argument, which is that it is cheaper to do stuff during bad times. When unemployment is high, you can get talented people more easily. So even if the benefits are the same, the benefit/cost is higher. The fact the benefits may be higher, not just that the fiscal multiplier may be higher, but that fulfillment of basic human needs may be worse, is a bonus, though it probably only applies to Global Health and Development causes. I wouldn’t use a Keynesian altruism strategy simply for this.
Yep that sounds good, non-profits should aim to have fairly stable expenditure over the business cycle.
I think I was thrown off your true motivation by the name ‘Keynesian altruism’. It might be wise to rename it ‘countercyclical’ so it doesn’t carry the implication that you’re looking for an economic multiplier.
I wonder if exchange rates volatility during global recessions (usually, the US$ dollar and the Euro rise in relation to national currencies in developing countries) would add another point, at least for charities located in the developing world.(Personally, since my job is very stable and opportunities for investments scarce, I have been increasing my own donations to account for my declining consumption)
That’s a very interesting point I hadn’t considered. Yes, if the expenditure is in emerging markets, your money likely goes even further during global recessions