This article seems to be making two distinct claims:
The standard arguments for giving later don’t hold up.
“Keynesian Altruism”: It’s better to give when the economy is weaker.
I believe these can be true or false independently. I want to expand a bit on the first claim.
You identify a lot of relevant concerns that I agree need to be addressed, and that often get ignored. I think that even after addressing them, giving later may still look better than giving now.
Are you familiar with the Ramsey equation (e.g., see this SEP entry)? The Ramsey equation states that, in an efficient market, r=δ+ηg where r is the risk-free rate, δ is the rate of time preference, η is the rate of risk aversion, and g is the consumption (GDP) growth rate. The claim in RPTP Is a Strong Reason to Consider Giving Later is that most market actors use a value of δ that’s too high, which pushes up interest rates, and therefore “patient” actors should prefer to invest. (Right now, it looks like r < g. I don’t know how to explain this. I did a little bit of reading on the matter and my impression is economists believe it shouldn’t be true and it’s a bit of a puzzle as to why it’s true currently, but there are some potential explanations.)
You point out that donors need to worry about taxes and expropriation. That basically means δ>0. This is true for both altruists and non-altruists. But as long as most people have a pure time preference and altruists don’t, altruists will have a lower δ than most people, and therefore will relatively favor investing. (I made an attempt to estimate the philanthropic discount rate here.)
Another thing you brought up is that most people don’t invest exclusively in risk-free assets. The Ramsey equation does use the risk-free rate, but there’s an extended version of the equation that allows for risk. The extended Ramsey equation (taken from here) is r=δ+ηg−η(η+1)σ2 where g follows a normal distribution with standard deviation σ, and r and g are perfectly correlated. When accounting for risk, the same basic theoretical argument holds: impatient actors will push up interest rates, making investing look more promising to patient actors.
Of course, there’s a case to be made that this theoretical model doesn’t hold up (e.g., current risk-free rates seem incompatible with a positive pure time preference). I haven’t seriously studied economics but my impression is economists generally believe this is a good model.
From a personal point of view, iff my utility curve is linear (i.e. losing 50% of my wealth would have a similar magnitude of utility change as gaining 50% additional wealth) and I know my date of death, then it would make sense to invest for as long as return on capital remains below GDP growth. I would be careful about saying “most market actors use a value of δ that’s too high” because I think you can argue what they are doing is perfectly rational; if you’re not sure if you’ll reach retirement, you’ll be less inclined to contribute to a pension (from a purely selfish point of view). Now we as altruists don’t have to worry about the date of death because we are helping a pool of people into the future, who don’t have to be alive today. However, we do have to worry about utility. To achieve the return on capital, we do need to take on risk. In general, wealthier people are able to take more risks than poorer people (utility functions are more linear at higher wealth). Altruists represent these poorer people (this point is more relevant to global health and development than animal welfare and long-term future), so should be sensitive to undiversifiable risks. In other words, I don’t think it’s obvious that we should be more patient (I’m talking in general terms, not about the specifics of economic conditions right now).
You can divide δ into (1) r or real risk-free rate and (2) - ηg or (beta * MRP). My subjective view is that the risk-free rate is too low and the MRP is too high. I think very few people think about their investments in the right way: “What level of return am I willing to accept to compensate me for volatility with standard deviation of x% (typically around 20% for the stock market)?”. Most people subscribe to: “I’ll do x% equities, y% corporate bonds and z% government bonds because that’s what everybody else is doing”. I personally invest 100% in equities for this reason. Furthermore, people are not flexible in how they behave (if you are familiar with the IS-LM model, I’m basically saying IS is steeply negative). In today’s investment environment, everyone should be spending a lot more (including on charity) and saving a lot less, but that’s not how people behave in practice. This is the reason why the real risk-free rate is so negative at the moment. Either way, the consequence is that you have to ‘pay’ a lot for a risk-free rate. Typically your money will grow not too different from inflation (and currently less) if you are not prepared to take any risk.
Finally, I do think value drift and diminishing marginal returns are very important points. Value drift is major simply because the world changes so fast. And in terms of diminishing marginal returns, I think the most important thing is that what we do today impacts the future. When you deworm a child, that’s not just an “expense” for benefits in that year, it potentially improves their school performance and stimulates economic growth. I prefer to think of it as “investment”. I think it’s much more important to build out a safe framework for AI now than try doing it in 100 years’ time (even with more resources).
“In general, wealthier people are able to take more risks than poorer people (utility functions are more linear at higher wealth). Altruists represent these poorer people (this point is more relevant to global health and development than animal welfare and long-term future), so should be sensitive to undiversifiable risks. In other words, I don’t think it’s obvious that we should be more patient (I’m talking in general terms, not about the specifics of economic conditions right now).”
I think there is a mistake in here. I suppose that the utility function of altruist is even more linear than the utility function of wealthy people. This is because the return in utility units for every poor individual we (as altruists) are donating to declines really strong but there are so many poor individuals (at least yet) that the good we can do is an almost linear function of the amount of money we can spend, so altruists should be nearly risk neutral.
Despite this, I agree that it is not obvious that we should more patient.
This article seems to be making two distinct claims:
The standard arguments for giving later don’t hold up.
“Keynesian Altruism”: It’s better to give when the economy is weaker.
I believe these can be true or false independently. I want to expand a bit on the first claim.
You identify a lot of relevant concerns that I agree need to be addressed, and that often get ignored. I think that even after addressing them, giving later may still look better than giving now.
Are you familiar with the Ramsey equation (e.g., see this SEP entry)? The Ramsey equation states that, in an efficient market, r=δ+ηg where r is the risk-free rate, δ is the rate of time preference, η is the rate of risk aversion, and g is the consumption (GDP) growth rate. The claim in RPTP Is a Strong Reason to Consider Giving Later is that most market actors use a value of δ that’s too high, which pushes up interest rates, and therefore “patient” actors should prefer to invest. (Right now, it looks like r < g. I don’t know how to explain this. I did a little bit of reading on the matter and my impression is economists believe it shouldn’t be true and it’s a bit of a puzzle as to why it’s true currently, but there are some potential explanations.)
You point out that donors need to worry about taxes and expropriation. That basically means δ>0. This is true for both altruists and non-altruists. But as long as most people have a pure time preference and altruists don’t, altruists will have a lower δ than most people, and therefore will relatively favor investing. (I made an attempt to estimate the philanthropic discount rate here.)
Another thing you brought up is that most people don’t invest exclusively in risk-free assets. The Ramsey equation does use the risk-free rate, but there’s an extended version of the equation that allows for risk. The extended Ramsey equation (taken from here) is r=δ+ηg−η(η+1)σ2 where g follows a normal distribution with standard deviation σ, and r and g are perfectly correlated. When accounting for risk, the same basic theoretical argument holds: impatient actors will push up interest rates, making investing look more promising to patient actors.
Of course, there’s a case to be made that this theoretical model doesn’t hold up (e.g., current risk-free rates seem incompatible with a positive pure time preference). I haven’t seriously studied economics but my impression is economists generally believe this is a good model.
From a personal point of view, iff my utility curve is linear (i.e. losing 50% of my wealth would have a similar magnitude of utility change as gaining 50% additional wealth) and I know my date of death, then it would make sense to invest for as long as return on capital remains below GDP growth. I would be careful about saying “most market actors use a value of δ that’s too high” because I think you can argue what they are doing is perfectly rational; if you’re not sure if you’ll reach retirement, you’ll be less inclined to contribute to a pension (from a purely selfish point of view). Now we as altruists don’t have to worry about the date of death because we are helping a pool of people into the future, who don’t have to be alive today. However, we do have to worry about utility. To achieve the return on capital, we do need to take on risk. In general, wealthier people are able to take more risks than poorer people (utility functions are more linear at higher wealth). Altruists represent these poorer people (this point is more relevant to global health and development than animal welfare and long-term future), so should be sensitive to undiversifiable risks. In other words, I don’t think it’s obvious that we should be more patient (I’m talking in general terms, not about the specifics of economic conditions right now).
You can divide δ into (1) r or real risk-free rate and (2) - ηg or (beta * MRP). My subjective view is that the risk-free rate is too low and the MRP is too high. I think very few people think about their investments in the right way: “What level of return am I willing to accept to compensate me for volatility with standard deviation of x% (typically around 20% for the stock market)?”. Most people subscribe to: “I’ll do x% equities, y% corporate bonds and z% government bonds because that’s what everybody else is doing”. I personally invest 100% in equities for this reason. Furthermore, people are not flexible in how they behave (if you are familiar with the IS-LM model, I’m basically saying IS is steeply negative). In today’s investment environment, everyone should be spending a lot more (including on charity) and saving a lot less, but that’s not how people behave in practice. This is the reason why the real risk-free rate is so negative at the moment. Either way, the consequence is that you have to ‘pay’ a lot for a risk-free rate. Typically your money will grow not too different from inflation (and currently less) if you are not prepared to take any risk.
Finally, I do think value drift and diminishing marginal returns are very important points. Value drift is major simply because the world changes so fast. And in terms of diminishing marginal returns, I think the most important thing is that what we do today impacts the future. When you deworm a child, that’s not just an “expense” for benefits in that year, it potentially improves their school performance and stimulates economic growth. I prefer to think of it as “investment”. I think it’s much more important to build out a safe framework for AI now than try doing it in 100 years’ time (even with more resources).
“In general, wealthier people are able to take more risks than poorer people (utility functions are more linear at higher wealth). Altruists represent these poorer people (this point is more relevant to global health and development than animal welfare and long-term future), so should be sensitive to undiversifiable risks. In other words, I don’t think it’s obvious that we should be more patient (I’m talking in general terms, not about the specifics of economic conditions right now).”
I think there is a mistake in here. I suppose that the utility function of altruist is even more linear than the utility function of wealthy people. This is because the return in utility units for every poor individual we (as altruists) are donating to declines really strong but there are so many poor individuals (at least yet) that the good we can do is an almost linear function of the amount of money we can spend, so altruists should be nearly risk neutral.
Despite this, I agree that it is not obvious that we should more patient.