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One thing that I wish was considered more often when looking at effective philanthropy is the opportunity cost of the money in terms of amount donated over time

by ve55 6y ago

One thing that I wish was considered more often when looking at effective philanthropy is the opportunity cost of the money in terms of amount donated over time. For example, assume someone like Bill Gates or Jeff Bezos had donated all of their money (liquidating their shares however possible) the moment their companies went public. It's tough to say that this would have been a better result, since the amount donated would have been a small fraction in comparison to what could have been; their donations would have been a drop in the bucket. Given certain people (and/or corporations) have historically allocated capital very effectively (and, for example, that the annual returns of AMZN/MSFT/others have been very good for decades and obviously far surpass inflation+charity efficiency scaling), is it not more effective altruism for those like Bezos and Scott to keep their wealth compounding as effectively as possible, and then donate it much later on, perhaps in a few decades? I understand that the idea of this may sound unappealing for many reasons, but I rarely hear good counter-arguments for why it shouldn't be done. I apply this to myself personally, and rather than donate large amounts of my income now, I'd like to be able to donate 100x the amount (or whatever it may be) in 30-70 years. (edit: After reading some great responses, I do think the best counter-argument is perhaps that of "sure you can compound wealth and donate later, or you can donate to something so effective that it compounds (e.g. enables more people to live and accomplish things, which could compound at a higher growth rate). I think this is the best point to mention in response to what I wrote, but I don't know of any analysis that backs it up with hard numbers - do we have charities that we can demonstrate actually cause compounding to happen this well? It's difficult since we'd need to accurately model future compounding returns from them to get the types of answers that we'd want.)

throwaway1777 6y ago
In the case of Jeff Bezos and Bill Gates they already did what you said. They ran their company for a few decades and kept most of their wealth tied to the company. Jeff Bezos isn't 31 years old anymore, he's 56. Bill Gates is 65. This argument reduces to the richer you are the more you can donate to charity. It doesn't really matter if I'm a billionaire, everyone will have more money later in life if they let it compound. The main issue is that there are real problems that need to be solved today too, you can't put everything off into the future
ebg13 6y ago
> is it not more effective altruism for those like Bezos and Scott to keep their wealth compounding as effectively as possible, and then donate it much later on, perhaps in a few decades? You can donate stock. Or, if desired, the charity can convert your cash back into stock. Or you can transfer the stock into a trust that the charity controls.
- ve55 6y ago
  That's true, but a charity doesn't (usually) actually use the stock - they would sell it to spend it when they needed the money, and I think (perhaps I'm not correct here since I don't have data) they generally sell equities instantly post-donation, with the main purpose of donating stock instead of cash being for personal tax purposes.
  - ebg13 6y ago
    Many charities keep their resources in investment structures. These are often called endowments. > a charity doesn't (usually) actually use the stock - they would sell it to spend it when they needed the money It sounds like that means that withholding the money in order to make it grow better wouldn't actually help them then because then they wouldn't be able to spend it when needed.
scarmig 6y ago
But then it's actually best to invest and lose all your money in the stock market, because then capital gets reallocated to the people who are best at allocating capital. More seriously, you also need to take into account the compounding interest from e.g. malaria nets for people in Africa. Save some number of lives today, and you prevent human capital from being completely destroyed today, which also compounds in parallel with the capital allocated into AMZN etc.
- spearo77 6y ago
  Good point. Early stage support for an effective intervention could prevent the need for massive resources after the problem is more widespread.
- ve55 6y ago
  Haha, yes. I was trying to think of a way to phrase "Jeff Bezos is probably better at compounding his personal wealth than most people". I think what you've noted is perhaps the best counter-argument, but it's difficult to balance out and do the math. There is obviously some trade-off at which compounding is better than instantly donating, but it's quite possible that the compounding effects of certain classes of donations can be much stronger than what would reasonably be attained, so maybe that is where I'm wrong if I am. I think this is the usual EA argument, but it's just that I don't know of any way for it to really be backed with the type of quantitative analysis I'd prefer to see to change my mind on it.
  - scarmig 6y ago
    At least in Bezos' case: let's imagine his position after the Amazon IPO. It's absolutely true that his skills as a capital allocator are extremely socially valuable. But at the same time, him taking advantage of his newfound liquidity wouldn't prevent him from continuing in that role: he wasn't going to be dumped and replaced. He could have given away his money to high value charitable causes and still continued to run Amazon. Other people would be getting rich in his stead, sure, but some amount of that wealth accruing to other people would also end up reaching charity. The only big risk would be if his lack of ownership in the company caused him to not be able to execute on his vision. Going at the question from another direction: imagine you have two companies, each with the potential to provide equal economic and social value. However, the government promises to tax the profits of one at 0% and the other at 90%. Which one will be undercapitalized? I would argue this is analogous to at least some charitable situations: oftentimes it's impossible to capture the economic benefit of socially valuable investments, because of institutional, legal, or informational challenges. But the value from making that "investment" doesn't disappear: it simply dissipates into the amorphous category of positive externalities.
cryptoz 6y ago
The longer the time period you wait, the worse the problems get. It's not a one way street of improving your donations now. Why assume that none of the people you help today would do anything as impactful as you in the future? As long as governments do not take care of their citizens health and safety as in the USA today, delayed donations also delay any help to people suffering today. Global problems are getting worse. Waiting to donate means that each dollar you donate later has less impact than today.
- deleted 6y ago
  [deleted]
adventured 6y ago
> is it not more effective altruism for people like Bezos and Scott to keep their wealth compounding as effectively as possible, and then donate it much later on, perhaps in a few decades? The caveat to that is the Steve Jobs outcome - that that time isn't guaranteed to anyone. Jeff Bezos for example nearly died in a helicopter crash. Steve was fortunate he had Laurene to handle philanthropically disposing of the now $37b family fortune responsibly (presumably). Also, you may just run out of time if you wait too long, even if you live a very long time. Buffett was aiming to discharge most of his wealth before his death and they thought they had a solid timeline for doing it. He won't come remotely close to that as the wealth piled up even faster than expected ($84b remaining and he's 90, after giving away near $40b so far in 14 years). The Gates Foundation can't give it away fast enough. The Gates family was initially aiming to get rid of their wealth in their lifetime, then they shifted that to within N decades after their death. They have to give away at least $250 billion yet (with Buffett's wealth taking priority, which has slowed their ability to discharge their own pile of wealth) - it may require another lifetime.
- ve55 6y ago
  I would assume that they'd have wealth scheduled to be given away post-death, so that accidental/premature death wouldn't be too bad, yes. But that's an interesting point of how it can be difficult to give away fast enough, so perhaps you might as well start now, since e.g. if someone had to give away billions very quickly, it would probably not be allocated well compared to if they had a few decades to do it. I don't think I will end up wealthy enough to worry about this myself of course, but it's another factor to take note of.
rrrrrrrrrrrryan 6y ago
These billionaires often seed their charities with endowments that continue to grow over time, and the charities finance their operations with the interest. If you're getting utilitarian, Gates would probably argue that a life saved now might be worth more than a few lives saved decades later, but that's another matter.
- nefitty 6y ago
  This is such an interesting point. Is the value of a future life worth less than a life closer to our present moment? I can’t help but feel like there’s some sort of logical fallacy there, akin to speciesism, wherein we value lives that are closer to our own perspective. It’s ultimately arbitrary which perspective we choose to privilege. I hope that train of thought makes sense!
  - sellyme 6y ago
    > Is the value of a future life worth less than a life closer to our present moment? I can’t help but feel like there’s some sort of logical fallacy there, akin to speciesism I think taking the perspective of "the present" is a bit misleading here. Putting $100 in my bank account today isn't more valuable than putting $100 in my bank account in 5 years because it's closer to the present, it's more valuable because it'll start collecting interest sooner, and then that interest generates more interest. Putting $100 in there a century ago would be better than either. A live saved now can get to work on adding value to society, and that value could lead to saving more lives later. The sooner you start that process the better.
    - nefitty 6y ago
      Ah, that does clarify that idea further. I had some inkling of it but couldn’t quite place it. Thanks!
simonh 6y ago
I was in a conversation on Reddit recently where someone suggested Elon Musk could do so much good by donating his wealth. I said yes, he could do valuable things like invest in electric vehicles and solar power to reduce carbon emissions, and make long term investments in making human life multi planetary. The point is his wealth exists in the value of the things he is doing. It’s not a separate thing. You’re making the same point, most wealth isn’t tied up in piles of money that are depreciating away due to inflation, they’re invested in jobs, goods and services that benefit all of us. That’s what our economy is. All the other points about the long term good charities can do are also on point for sure, so it’s not either/or, both very much have their place.
an_opabinia 6y ago
> do we have charities that we can demonstrate actually cause compounding to happen this well? ... accurately model future compounding returns No one is incentivized to create that kind of accounting scheme - that is, one that deposits future gains into today's bank accounts, somehow. Charities least of all, who only receive donations if they operate in the red, not the black. Hacker News is people repeatedly discovering that economics and accounting are different things.
jedberg 6y ago
One really cool thing the founder of eBay did right before the company went public, he established a foundation and moved 10% of his personal stock holdings into the foundation. So as eBay stock grew, so did the foundation's endowment. They slowly sell off stock as they need to fund their initiatives.
spoonjim 6y ago
Back in the 90s when Gates was kicking off the Gates Foundation while also running Microsoft he talked a lot about this calculus -- when to give how much, knowing that his Microsoft fortune was likely to grow faster than the market, but that you couldn't postpone this work forever. The answer he seems to have settled on was to ramp down his Microsoft involvement and ramp up his foundation contributions roughly together, spending the first part of his life as a billionaire mainly focused on becoming a hundred-billionaire, and the second part of it focused on distributing those gazillions.

by ve55 6y ago

throwaway1777 6y ago

In the case of Jeff Bezos and Bill Gates they already did what you said. They ran their company for a few decades and kept most of their wealth tied to the company. Jeff Bezos isn't 31 years old anymore, he's 56. Bill Gates is 65. This argument reduces to the richer you are the more you can donate to charity. It doesn't really matter if I'm a billionaire, everyone will have more money later in life if they let it compound. The main issue is that there are real problems that need to be solved today too, you can't put everything off into the future

ebg13 6y ago

> is it not more effective altruism for those like Bezos and Scott to keep their wealth compounding as effectively as possible, and then donate it much later on, perhaps in a few decades? You can donate stock. Or, if desired, the charity can convert your cash back into stock. Or you can transfer the stock into a trust that the charity controls.

ve55 6y ago
That's true, but a charity doesn't (usually) actually use the stock - they would sell it to spend it when they needed the money, and I think (perhaps I'm not correct here since I don't have data) they generally sell equities instantly post-donation, with the main purpose of donating stock instead of cash being for personal tax purposes.
- ebg13 6y ago
  Many charities keep their resources in investment structures. These are often called endowments. > a charity doesn't (usually) actually use the stock - they would sell it to spend it when they needed the money It sounds like that means that withholding the money in order to make it grow better wouldn't actually help them then because then they wouldn't be able to spend it when needed.

scarmig 6y ago

But then it's actually best to invest and lose all your money in the stock market, because then capital gets reallocated to the people who are best at allocating capital. More seriously, you also need to take into account the compounding interest from e.g. malaria nets for people in Africa. Save some number of lives today, and you prevent human capital from being completely destroyed today, which also compounds in parallel with the capital allocated into AMZN etc.

spearo77 6y ago
Good point. Early stage support for an effective intervention could prevent the need for massive resources after the problem is more widespread.
ve55 6y ago
Haha, yes. I was trying to think of a way to phrase "Jeff Bezos is probably better at compounding his personal wealth than most people". I think what you've noted is perhaps the best counter-argument, but it's difficult to balance out and do the math. There is obviously some trade-off at which compounding is better than instantly donating, but it's quite possible that the compounding effects of certain classes of donations can be much stronger than what would reasonably be attained, so maybe that is where I'm wrong if I am. I think this is the usual EA argument, but it's just that I don't know of any way for it to really be backed with the type of quantitative analysis I'd prefer to see to change my mind on it.
- scarmig 6y ago
  At least in Bezos' case: let's imagine his position after the Amazon IPO. It's absolutely true that his skills as a capital allocator are extremely socially valuable. But at the same time, him taking advantage of his newfound liquidity wouldn't prevent him from continuing in that role: he wasn't going to be dumped and replaced. He could have given away his money to high value charitable causes and still continued to run Amazon. Other people would be getting rich in his stead, sure, but some amount of that wealth accruing to other people would also end up reaching charity. The only big risk would be if his lack of ownership in the company caused him to not be able to execute on his vision. Going at the question from another direction: imagine you have two companies, each with the potential to provide equal economic and social value. However, the government promises to tax the profits of one at 0% and the other at 90%. Which one will be undercapitalized? I would argue this is analogous to at least some charitable situations: oftentimes it's impossible to capture the economic benefit of socially valuable investments, because of institutional, legal, or informational challenges. But the value from making that "investment" doesn't disappear: it simply dissipates into the amorphous category of positive externalities.

cryptoz 6y ago

The longer the time period you wait, the worse the problems get. It's not a one way street of improving your donations now. Why assume that none of the people you help today would do anything as impactful as you in the future? As long as governments do not take care of their citizens health and safety as in the USA today, delayed donations also delay any help to people suffering today. Global problems are getting worse. Waiting to donate means that each dollar you donate later has less impact than today.

deleted 6y ago
[deleted]

adventured 6y ago

> is it not more effective altruism for people like Bezos and Scott to keep their wealth compounding as effectively as possible, and then donate it much later on, perhaps in a few decades? The caveat to that is the Steve Jobs outcome - that that time isn't guaranteed to anyone. Jeff Bezos for example nearly died in a helicopter crash. Steve was fortunate he had Laurene to handle philanthropically disposing of the now $37b family fortune responsibly (presumably). Also, you may just run out of time if you wait too long, even if you live a very long time. Buffett was aiming to discharge most of his wealth before his death and they thought they had a solid timeline for doing it. He won't come remotely close to that as the wealth piled up even faster than expected ($84b remaining and he's 90, after giving away near $40b so far in 14 years). The Gates Foundation can't give it away fast enough. The Gates family was initially aiming to get rid of their wealth in their lifetime, then they shifted that to within N decades after their death. They have to give away at least $250 billion yet (with Buffett's wealth taking priority, which has slowed their ability to discharge their own pile of wealth) - it may require another lifetime.

ve55 6y ago
I would assume that they'd have wealth scheduled to be given away post-death, so that accidental/premature death wouldn't be too bad, yes. But that's an interesting point of how it can be difficult to give away fast enough, so perhaps you might as well start now, since e.g. if someone had to give away billions very quickly, it would probably not be allocated well compared to if they had a few decades to do it. I don't think I will end up wealthy enough to worry about this myself of course, but it's another factor to take note of.

rrrrrrrrrrrryan 6y ago

These billionaires often seed their charities with endowments that continue to grow over time, and the charities finance their operations with the interest. If you're getting utilitarian, Gates would probably argue that a life saved now might be worth more than a few lives saved decades later, but that's another matter.

nefitty 6y ago
This is such an interesting point. Is the value of a future life worth less than a life closer to our present moment? I can’t help but feel like there’s some sort of logical fallacy there, akin to speciesism, wherein we value lives that are closer to our own perspective. It’s ultimately arbitrary which perspective we choose to privilege. I hope that train of thought makes sense!
- sellyme 6y ago
  > Is the value of a future life worth less than a life closer to our present moment? I can’t help but feel like there’s some sort of logical fallacy there, akin to speciesism I think taking the perspective of "the present" is a bit misleading here. Putting $100 in my bank account today isn't more valuable than putting $100 in my bank account in 5 years because it's closer to the present, it's more valuable because it'll start collecting interest sooner, and then that interest generates more interest. Putting $100 in there a century ago would be better than either. A live saved now can get to work on adding value to society, and that value could lead to saving more lives later. The sooner you start that process the better.
  - nefitty 6y ago
    Ah, that does clarify that idea further. I had some inkling of it but couldn’t quite place it. Thanks!

simonh 6y ago

I was in a conversation on Reddit recently where someone suggested Elon Musk could do so much good by donating his wealth. I said yes, he could do valuable things like invest in electric vehicles and solar power to reduce carbon emissions, and make long term investments in making human life multi planetary. The point is his wealth exists in the value of the things he is doing. It’s not a separate thing. You’re making the same point, most wealth isn’t tied up in piles of money that are depreciating away due to inflation, they’re invested in jobs, goods and services that benefit all of us. That’s what our economy is. All the other points about the long term good charities can do are also on point for sure, so it’s not either/or, both very much have their place.

an_opabinia 6y ago

> do we have charities that we can demonstrate actually cause compounding to happen this well? ... accurately model future compounding returns No one is incentivized to create that kind of accounting scheme - that is, one that deposits future gains into today's bank accounts, somehow. Charities least of all, who only receive donations if they operate in the red, not the black. Hacker News is people repeatedly discovering that economics and accounting are different things.

jedberg 6y ago

One really cool thing the founder of eBay did right before the company went public, he established a foundation and moved 10% of his personal stock holdings into the foundation. So as eBay stock grew, so did the foundation's endowment. They slowly sell off stock as they need to fund their initiatives.

spoonjim 6y ago

Back in the 90s when Gates was kicking off the Gates Foundation while also running Microsoft he talked a lot about this calculus -- when to give how much, knowing that his Microsoft fortune was likely to grow faster than the market, but that you couldn't postpone this work forever. The answer he seems to have settled on was to ramp down his Microsoft involvement and ramp up his foundation contributions roughly together, spending the first part of his life as a billionaire mainly focused on becoming a hundred-billionaire, and the second part of it focused on distributing those gazillions.