Most people here would expect the comments to a blog post to have at least read the article and hopefully demonstrate understanding of it before commenting.
"Do something like donating to charity, but the donation should go to charities that promote capitalism somehow, or be an investment in companies doing charitable things (impact investing)"
One interpretation of this is that donating to the Grameen Bank is better than donating to the Heifer International.
Yea ... this is the understanding I was raised with ... Grameen or Opportunity Intl , or Kiva, or various other microfinance operations are better than direct donations: https://en.wikipedia.org/wiki/Microfinance
My latest opinion on this is more uncertain, I just don't know. But it fits what this post is asking/talking about
While scale has many benefits, I've found it a useful heuristic that (virtually) nothing is net "very helpful" at scale, for a number of related reasons: (1) scale requires disregarding complexity and flattening problems, (2) scale disrupts the balance of adjacent systems, (3) pretty much everything that has to do with people has diminishing returns, (4) costs of managing systems tends to grow geometrically in relation to effect, (5) scale tends toward single points of failure.
Case in point: Capitalism. It is by far the best system for optimizing growth of money, which is a good proxy for productivity. Unfortunately, money is not the great proxy for value that is was meant to be. So capitalism is more efficient than effective in solving problems we care about.
Capitalism at scale looks like it works really well, because even when it fails at creating the outcomes we want, it produces money. But we have values (compassion, empathy, caution, fairness, etc.) that aren't measured well by money or captured by capitalism, any more than they are captured by evolution by natural selection. (This is why there is room for goverment, regulation, and policing. But most people, particularly here, understand how government fails when it scales.)
Obvious costs of capitalism failing at scale are climate change and other environmental disasters, global poverty and starvation in the midst of an obesity epidemic, wars over resources, exploitative business practices, algorithms that cause people to self harm, halucinating AIs being released on an unprepared public, countries being dependent on China for PPE during a pandemic, or on Russia for energy during a winter war, etc. etc.
Which is why we need charity to plug the gaps. But if we rely too heavily on charity, especially if we rely on a few large organizations or a few, sexy solutions (microcredit), that will also scale and fail along all too predictable fault lines. (Some organizations will have too much bureaucracy, some will promote learned helplessness, some will go all in on malaria nets while kids are starving, some will undermine otherwise viable businesses, some will simply be inneffective, etc. etc.)
All this is to make three points:
• Microcredit is probably amazing to help certain entreprenerial types get out of poverty; less effective at helping everyone else.
• It can't be capitalism vs charity (or governmantal aid). They have to work together, and what that looks like depends on the problem you're trying to solve.
• Our obsession with scaling up (at the cost of balance and diversity) is probably our most poorly recognized and underrated problem
Thank you for this comment, which I found exceptionally thought-provoking. I hadn't quite seen through this lens before, which strikes me as related to but distinct from the points that _Seeing Like a State_ makes.
*Blush…* (Unmodified "thought-provoking" is already high praise. Adding the "exceptionally" may have done irreparable damage to my modesty.)
I haven't read Seeing Like a State, but have put it at the top of my virtual stack of books to read. Thanks for the nudge. I'm thinking a lot about issues like this these days, and am actively looking for fresh and/or challenging perspectives on the shape of society, so please share if you have other recommendations.
(I'm currently reading The Dawn of Everything, which is eye-opening in that regard. I recommend checking it out, if you like thought-provoking.)
Good observation about scale. The Industrial Revolution taught the West that scaling was the most important thing, but you're right that it causes us to lose precision and details that matter. I understand that the Middle East relies on personal connections for funding, rather than mass scale through things like credit scores, and that it works much better for poorer and less formal economies. The US also uses such systems, but we consistently underrate their importance and try to scale. Babysitting being a prime example, where for generations family helped take care of children but we're attempting to replace that network with paid businesses. Rather than recognizing the value of interpersonal relations in childcare, we ignore that value and therefore overvalue the paid institutionalized versions. This creates significant inefficiencies and also a society where strangers raise our kids in large creches with other strangers instead of by family with similar values where we're also building family relationships.
That’s interesting. Yes, I think we have lost many valuable things in our culture because we’re trying to run everything through our single, imperfect society-making machine.
As anotyer example of what we’ve lost: The book I referenced in another reply (The Dawn of Everything) contains interesting examples of how the meaning “private property” has been different from society to society. In some cultures, the owner has a responsibility to care for the property and pass it on to the next generation or just to others; in others, ownership means you’re free to destroy your property if you feel like it. In some cultures individuals can own tools, but must share the land; in others they can own land but must share the harvest; in others, certain rights to use a resource naturally follows with the ownership of a sacred artifact or heirloom, etc. I’m not saying either is better or worse, but it’s interesting that these different ways of seeing or understanding something so foundational are so far removed from our culture, that even the perspectives seem foreign to us, and they aren’t even real options, except to people who more or less drop out of society. Something is definitely lost there.
The model is, essentially, that there's varying amounts of different types of need, and that when resources are applied en masse, they fulfill certain types of need first. So even though we initially see a linearly-rising result from applying resources, that line goes horizontal after all that type of need is fulfilled, and any additional resources go toward fulfilling different types of needs, which might not have any (good) effect on the line of the results you care about. They might even have deadly side-effects.
Edit: I forgot to mention, you can see this in action when it comes to charities that shelter the homeless. There's a lot of programs that have requirements about being sober, employed, and not engaging in criminal or anti-social behavior. And these programs tend to have a lot of success at small levels, and then appear to fail at large levels. The reason is that about half of homeless people (40-60%?) are only, literally, homeless, but are otherwise completely functional members of society, and if provided with shelter or cash and a bit of support, can get back on their feet and go on with their lives. But it's the other half who have the problems with drug use, mental illness, and chronic anti-social behavior, and they can't or won't fit in to those programs, and they're the ones who cause the visible problems that get everyone worked up about the "homeless problem". So it's not that the interventions I mentioned are bad, or misguided: they're very very useful for the people they target, and can in fact help prevent the first type of homeless from becoming the second type of homeless. But they can't solve the whole problem, while at the same time being incredibly politically appealing to the point of making interventions aimed at the second type politically unfeasible.
Yes, I have noticed this too. I found your medication and homeless examples interesting, but agree that it’s a mental model that generalizes to lots of areas. And it makes me regret that I left a lot of nuance, tangential concepts and rabbit holes unexplored in my original reply, but it was already long enough.
Understanding minimum effective dose is one of those things that make both the champagne fountain model and solving for scale & balance interesting.
Steve Greenhut has an essay, which cites a study in Ottawa, where researchers provided full services to one group of homeless, and nothing to a control group of homeless.
Take a guess on which group had a better outcome, lower mortality, less substance abuse, etc.
What is the objective; better outcome for the homeless, or feel-better about yourself for doing something.
Though I’ll admit: just the idea that someone thinks there’s such a thing as “full services” that can be defined, packed and delivered to a group in an experiment (whether those are your words or theirs) makes me immediately suspicious.
I can believe that, depending on the exact nature of the interventions and the selection criteria used. Sometimes shelters can impose restrictions that make it almost impossible to hold down a job, or try to lock their residents into restrictive models of life ("full services" is a bit suspicious there). And even cash infusions can backfire, if you give them to someone with a drug problem.
Well, I'd be very interested in reading those nuances and tangential concepts and rabbit holes, if you ever get around to writing them up in a better place than the middle of a comment thread. And mostly I was just trying to toss you my own disorganized thoughts along those lines, to see what you'd make of them. :-)
There's some indication that Scott might open this year's book review contest into a general essay contest, and I really think that this could make a good contender. There's a lot of naive thinking around scaling and effectiveness, and it would be great to have a solid exploration of the concepts.
Hopefully I’ll get around to writing them down sooner rather than later, and when I do, I’ll post a link here. It might help to know I’m writing for at least one reader. That’s not always the case. 😉
Isn't it just that it is much easier to help the first type and we basically don't know how to help the second? What are those interventions that would help the second kind of homeless that are made politically infeasible by interventions that help the first type? How does that happen?
It's true that we don't know how to help the 2nd type. Part of the problem is that not many people realize that there are 2 types (well, 3 in the categorization I adopted, but the 3rd type is small). And part of that is because there are political incentives to think of all of them as one type or another. And of course, it's not like the types are completely discrete and uniform. It's a slow slide into despair, from what I can tell.
For the interventions, this is all my personal opinion, but I think when politicians are faced with a choice between helping "deserving poor" and "undeserving poor", they pretty much always pick the first type. And it doesn't help that the first type are a lot easier to help, so the programs can be cheaper. And therefore what politicians see is that if you gate your aid behind a lot of common-sense requirements which all civilized people can follow, you get good results and it's cheap, but if you don't, you don't and it isn't. And this feeds into a view that the only difference between the first and second type is that the first type "wants to get better" and the second type "are unwilling to change". (Which has a tiny bit of truth to it, but IMO not enough to be useful at scale.)
From what I understand, the type of program that "works best" for the second type is a one-way bus ticket to somewhere else. Presto, no more problem! And frankly, the climate in San Francisco (and to a lesser degree Seattle, Portland, and even L.A.) is much nicer than in pretty much anywhere else in the country, if you're going to live outside year-round without any gear. Try doing that in Minnesota or Arizona, or the humid mosquito-filled summers of the east coast.
I personally think there's a higher-level-view than this, where Capitalism is ALL that matters, *because* it's the only thing that actually scales.
As you point out, Capitalism is what actually creates new productivity and economic growth. In the long run, this is the biggest factor that matters, in a way that dominates everything else, and the one that has the ability to raise *everyone* out of poverty. 600M Chinese people were raised from $5 a day poverty to a per-capita GDP of ~$13k over the last few decades based solely on capitalism and economic growth.
In Hans Rosling's Factfulness, he points out that very recently, Sweden itself had a developing world standard of living, with high mortality, stunted statures, and everything else - the thing that brought Sweden to it's current prosperity was economic growth.
Yes, capitalism as an engine of economic growth comes with some problems. You list a few, most of which are commons problems or Molochian coordination problems, but I think these types of problems would happen under Communism or other economic schemas too, and aren't unique to capitalism. You need regulation under whatever economic schema you're in to mitigate problems like this.
But the ONLY thing that we've empirically seen that is capable of moving the needle on a macro scale, for the hundreds of millions to billions of people whose lot we need to improve, is capitalism in a non-high-corruption framework.
Given any choice on intervention at scale, capitalism is what you should reach for basically every time, no matter how much you like fairness, empathy, whatever, because it's the only thing that WORKS at scale.
What would a scale-level intervention that moved the needle on "empathy" or "compassion" even look like? Mass involuntary genetic change? Brainwashing?
But capitalism at scale can definitely move GDP-per-capita, giving people higher incomes, better living standards, and more choices in life. And nothing else will come even close, not charity, not "empathy" or "compassion" interventions, or anything else.
I mean, if you asked developing world people whether they'd want a 3x higher income or more "compassion," which do you honestly think they would choose??
The alternative isn’t another all-encompassing system, but a diversity of systems playing off each other, checking each other, creating balances – pretty much what nature does in every area.
Oh, and don’t get me wrong: I’m not suggesting that humanity is somehow operating outside of this system. Every species and every moving part of nature will cause an imbalance of given half a chance, and we’re morally no worse than any other creature in that regard. Humanity, with its technology and capitalism, just has a much bigger impact, and is more robust to checks that would have worked on other species (pandemics, famines and such) – and so we’re more like a meteoric impact than an anomalous algae bloom.
But if you think capitalism is all that matters, you’re not thinking anywhere near big enough. It barely registers in the big picture; even if we limit ourselves to looking at how humans organize themselves, it’s just a blip at the tail end of the human era, and a function of the scale of humanity.
Oh… And Sweden was hardly a capitalist society when it had its economic growth. It balanced capitalism with a very good helping of socialism (and some other stuff).
"But if you think capitalism is all that matters, you’re not thinking anywhere near big enough. It barely registers in the big picture; even if we limit ourselves to looking at how humans organize themselves, it’s just a blip at the tail end of the human era, and a function of the scale of humanity."
Curious what you mean here - if we look at any sort of population per unit of time measure, the vast majority of population density happened under capitalism (with or without socialist or social safety nets as an adjunct).
The only reason we're only 8% of all of humanity that's ever lived is an artifact that humanity goes back ~250k years. We had ~500M people alive in 1700, ~1B in 1800, and ~8B today, this graph showing population from 10k bc to today shows the absolutely massive population density-per-unit-time spike pretty well:
We literally couldn't have our world today without capitalism - there's neither the space nor the resources for us to live in scattered groups of Dunbar's number like the humans in deep time.
I imagine that's a big part of your point, re our meteoric impact now and lack of checks and feedback systems that would mitigate our unintended damages.
But what do you perceive as any realistic alternative in the big future picture? If we survive as a technological, high-standard-of-living species, capitalism is going to be pretty much it until we become post-scarcity and spacefaring or have ASI-mediated economics.
I think there’s more than one thing going on here:
First, I’m not sure we’re working with the same meaning of the word capitalism. That may be my fault, since my meaning has a double bottom, so to speak.
I once heard a distinction that has stayed with me as important, even if it’s not the whole story. I’m going to mangle it, but it went something like this: “A important difference between a market economy and capitalism, is that the free market abhors a monopoly, whereas the capitalist loves one.” (If you or anyone recognizes it, I’d love to know where it’s from.)
For a while, I tried to only use the word capitalism in a way that got at this distinction, but that made conversations unnecessarily hard, so I reverted to often using it more like most Americans do. (I think it’s more common for that word to carry negative connotations in Europe.)
Free markets are a really powerful tool, and one of humanity’s best inventions. This is what most people like (some almost worship) about capitalism, so I’m happy to use the word that way in casual conversation. The free market creates a man-made version of evolution by natural selection. It’s as though we have tamed one of the most powerful mechanisms in nature.
However, we don’t want social Darwinism, either, which seems to be what happens if we let go of the reins at any significant scale.
Unchecked capitalism tends toward monoculture and totalitarianism, much like Marxist-Leninist communism or Islamism (but for different reasons suggested in previous posts). Even if you wanted to set up an alternative today – whether an alternative to Apple or Amazon or and alternative society where capitalism isn’t a significant algorithm in the operating system – existing capitalism constrains you in innumerable little ways, by everything from how to source your resources, to policies and laws, and what our culture tells us “freedom” or “private property” even means.
Just to avoid having to make this point over and over, I sometimes, lazily, use the word “capitalism” both to signify the failure mode of market economy, and in the broader, colloquial sense of “the system that brought us free markets in the first place.” That’s on me.
Note, however, that markets exist inside lots of other systems: feudal, tribal, communist, etc. You can call that local examples of capitalism, but it doesn’t quite qualify, IMO, when it is so thoroughly checked by other forces. It’s a bit like referring to families as communist, or calling a company a dictatorship. Yes, sure, but no.
And so, you ask about what alternatives I imagine. Well, I certainly don’t want to get rid of markets entirely, but expect they will be part of any good alternative. However, they will not necessarily be ”all that matters”, since I can think of so many other things that matter, and that should be in the mix.
The second point where I think we misunderstand each other (sorry to be so long-winded): I don’t think we agree on what success looks like. I’m not quite sure I understand what your measure of success is. Are you suggesting that our current state of the world (some combination of technological advancement and high population numbers) is a sign that we have succeeded? I don’t necessarily agree with that.
To be fair, I don’t exactly know what my own measure of success is either. Or rather, I think it has to be a moving target to avoid falling into the utopian trap. Part pendulum swinging back and forth, part cloud that is ephemeral and impossible to grasp, part long march continually progressing toward something “better” (= “the journey is the destination”). It’s more of a constellation of values than just growth and movement for growth and movement’s own sake.
There’s a lot of controversy over how good life was in pre-history, (i.e. to the other 92% to go with your numbers), but I’m not convinced we are better off in every way. And I can imagine scenarios, even versions of “capitalism” (in the sense of the current US paradigm), where we had brought more of the good stuff with us into today, or bring more good stuff into the future.
Just to take one alternative scenario: You brought up Sweden earlier. Back in the 60s, 70s, 80s, the Scandinavian countries were far more socialist than they are today: State monopolies on most infrastructure (phone, rail, tv, radio), energy production owned by local government, large and powerful labor unions, huge farmer-owned cooperatives controlling agricultural output, heavily regulated markets, even an extremely watered-down version of Lutheranism as state religion (that anyone was free to leave if they just filed the right forms). Economic growth was lagging that of the U.S., but as a kid who travelled back and forth between the two, I’d say that middle-class Americans (like some of my recent ancestors) would recognize and enjoy the standard of living even if they might miss some conveniences. They were largely free (if sometimes cumbersome) societies, and they were much more like the US than the places behind the iron curtain (some of
which I also got to visit shortly before the wall came down).
I think many would agree that any success The Nordic Model is known for today is firmly rooted in that past. (Though there are other factors, too.)
A wave of globalization, economic liberalization, and privatization (+ the infamous end of history) in the 80s and 90s led to more alignment with the U.S. economy, rapid economic growth, and created more material wealth faster, but also contributed to increased disparity between rich and poor, more aggressive profit-seeking by newly privatized companies, cuts in subsidies forced by GATT/WTO/EU, etc. etc. While it may have been inevitable considering the geopolitical situation we were in, it is not obvious to me that the gains in growth and productivity were necessarily and definitely worth the trade-offs.
As a counter-factual, it’s not all that hard to picture a US that took a direction more like Scandinavia in the recent past (and so would have beat a different path for the rest of the world): Labor unions without Hoffa and the mob; allowing the Kennedys, MLK, Malcolm X, and other civil rights leaders to live and thrive; a political system with fewer winner-take-all dynamics and somewhat decreased importance of money in politics …
Something like that might have put the U.S. on a path to fewer billionaires, but a larger middle class and more robust working class. Sure, maybe some negative outcomes, like slower growth and lower GDP, but also positive outcomes, (some nth order, some 1st order because our priorities are different) like e.g. lower suicide rates, less extreme poverty, and less opioid use.
So, I definitely agree that we couldn’t have had our world today without our current manifestation of capitalism, but if the goal was to create the world as it is today, we couldn’t have done anything differently. We have to imagine a different world that is better on the metrics we collectively care about. And while some of those metrics can be reached through capitalism (in the sense of free market economy), not all of them can, so I argue we need much more than just capitalism in the mix. Not something instead of capitalism, but something in addition to it.
My biggest complaint would be that that article doesn't really seem to compare it against the alternative. Which, at that scale, I would say is just giving someone a 100 lb. sack of rice. I imagine a loan (combined with some advice and a network) is better than a sack of rice if it creates the encouragement needed for someone to be more forward-thinking and invest in her future. Though in some circumstances the rice could do it too.
But also, we like to see people try to make something of themselves rather than live in dependency. Offering someone a subsidized loan, combined with advice and a network, is a lot more palatable to many donors than just offering a handout.
All that said, it's a drop in the bucket and mostly a scheme for a marginal and localized poverty alleviation. Bangladesh has undergone an economic mini-miracle in the decades since Grameen Bank started, and my understanding is that Grameen Bank had very little, if anything, to do with it. Instead, it was a matter of large-scale investment in its garment industry and supporting infrastructure.
If you give someone a sack of rice, you are significantly disincentivizing them from learning to grow rice themselves. If you help them make connections to be able to grow rice, without giving them the rice, then they are more likely to grow it. They still need it, and can't eat the connections, so the incentive remains for them to follow through and plant/grow/harvest.
Yep, that was basically my point. If done well, the loan probably works better. If done poorly, the rice is probably better -- it's simpler, harder to screw up, less overhead. And in some cases, maybe a large sack of rice is all you need to build a little personal capital and be able to take the risk of launching a small entrepreneurial endeavor.
In both cases, countries don't escape poverty from $30 loans or gifts. But a few individuals might.
I wasn't pushing for Grameen vs Heifer. I was using those two as examples of the distinction that I think the 'capitalism is better charity' are drawing. I know people who favor each. I don't know of anyone who favors spending money on things you want anyway and scoring this as charity.
"The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. In addition, it can produce unintended rent-seeking entrepreneurship.[4] There is no evidence that microcredit has empowered women.[5] In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued."
Capitalism can't beat charity, which is why it must have taxation. And the desire of the top-most capitalistic winners to avoid taxation is, in my opinion, just evidence of this.
I do think you're saying "couldn't we just vote with our dollars" and while we can, if those dollars are funneled into an investment / holding for a rich person the effort is moot. These winners still get the dollars to tip the vote however they wish.
IMO the only way capitalism works is if the money moves around, and currently we have a lot of people keeping the money in big puddles. A stream only works when it's flowing. Same with capitalism. Again, IMO and IANAD(octor or economist).
Money is free to produce. Back in the day you just needed a printing press. These days it's just an entry in a database.
We can have arbitrary amounts of money in stagnant pools, and still have enough to flow around.
Though I have no clue what those stagnat pools would be.
Mechanisms like inflation targeting take care of any stagnant pools automatically: if money ain't spent, it doesn't contribute to pricing pressure, so the central bank will automatically 'print' more to keep inflation on target (eg about 2% per year). If some of those stagnant pools start to move, the central bank prints less, or even takes money out of circulation to hit their target.
(They typically bring money into circulation and take it out, by buying assets with newly created money or respectively selling those assets again and shelving the money received.)
Money is an obligation from someone else, a debt. If you have money, other people are obligated to do things for you. It makes no real difference what form it is, whether it is government notes, precious metals, Bitcoin, or shells. Giving someone money only transfers the debt-owning to someone else.
Sure, but because we can print new money cheaply, we can distort that simple understanding. If there's $100 million in debt, and we print $2 billion more, we did not create any new debts that need to be repaid. We just inflated the money supply.
If we print new money, we have to give it to someone for it to be actual money. Otherwise it's a stack of fancy paper (cloth, technically). So we didn't inflate the money supply. We're just ready if we want to give it away in exchange for goods and services.
If they print lots more money and then spend it, people will start to think they want more money for the same items or doing the same work, which leads to inflation. But that makes a dollar worth what the collective public thinks it's worth.
So the government produces debt from nothing, an obligation that other people pay them in goods and services in exchange for this piece of cloth? Sure they can hold onto it, but as soon as they try to use it (the only purpose in printing it) inflation is the result. Due to complexities in the economy this doesn't always work out 1:1 and not immediately, but there's no other way to look at it.
I think calling money a debt obligation is a poor framing that does not produce much useful understanding.
On the contrary, I think it is a useful insight. People often think that throwing money at a problem will make it go away or make things better, or that spending money on something shouldn't be done because it should be spent on other things instead (such as the massive spending on the space program). If you think of money as a debt others owe you, how fast will you hand that to someone else?
When we send money to other countries, that means we're actually promising to do other things for them. That could be a good thing, but it isn't guaranteed. When we send aid, we ought to know what aid we're actually sending.
As I understand it, it doesn't create new debt, it just changes the denomination of the existing debt. If you double the money supply, the value of a unit of money is halved. Meaning that everyone who stored value in money (cash or loans) loses half the value of what they stored.
That is, if I have something I'm willing to sell for 1e-10 of the money supply, my asking price just doubled.
Which isn't to say that there isn't a basically-uniformly-positive effect of printing money when the money supply is too small for the economy. But after it reaches that point, the effect stops.
This is a poor analogy of what actually happens. M2 (the money supply) is a good predictor of inflation. This is because it is a tool that the Fed uses to fight and encourage inflation. However, the relationship is not innate. If the money was given to an entity who decided to keep it in the bank and never spend it then it would have no impact on inflation. Also, the relationship is not close to 1:1. You can see in the graph on the page I am linking (St Luis Fed), that in by the end of 2021 M2 had grown by 25% over the prior year. But inflation was unchanged (due to lag). Eventually, inflation caught up but only to 7% (year on year) or so. This particular example is muddied by the abrupt tightening but if you look at the longer term, from 2007 to 2020, M2 essentially doubled but the total inflation across that period was closer to 25% than doubling.
I'm horribly unsophisticated in my macroeconomic understanding, yes. :-/ In some tiny bit of defense, I think I was responding to someone with at least as bad an understanding as myself, and I think my own understanding isn't quite as bad as it may have appeared.
But here's a question or two about your example, in case you feel like providing a bit of free education.
Do you mean "bank", or "under the mattress"? Because in my understanding, if it's put in a bank-bank, then that bank will not only be able to lend it out (invest it), but thanks to fractional-reserve banking, be able to lend out more than that amount of money. Which seems like it would have an effect on the money supply, and thus inflation?
And, OK, the important concept is not the money "existing" (whatever that means in a world with electronic debt ledgers), but something more like "being in circulation in the economy". But still, if you learned that I had one quadrillion USD under my mattress, what kind of economic actions would you take based on that information? I'd argue that a lot of them would look quite similar to standard inflationary hedges. And more generally, that the potential to take action can in certain senses be equivalent to the action, kind of like the "fleet in being" doctrine.
And yeah, time lag is definitely a thing (which I have very low understanding of in an economic context), but that's what sophisticated predictions can take advantage of, right? Surely if I knew that inflation were coming, I'd account for that in my asking price, along with my predictions of how long it would take, and my time constraints on selling. (Or I'd try, anyway.)
And I did mention that increasing the money supply doesn't always cause inflation if the economy is growing, but I confess I don't really **understand** how that works in a complicated modern economy, just in some simple toy examples.
> M2 (the money supply) is a good predictor of inflation. This is because it is a tool that the Fed uses to fight and encourage inflation. However, the relationship is not innate. If the money was given to an entity who decided to keep it in the bank and never spend it then it would have no impact on inflation.
The fourth sentence is true, but it's not support for the third, and the third is false.
If you tag-team someone between an endocrinologist who doses them with growth hormones and a surgeon who removes bits of their legs to keep their height fixed, you will have neutralized the relationship between growth hormones and height. But that won't be evidence that there is no innate relationship between them.
Lack of 'stagnant pools' is what makes Capitalism work. Stagnant pools are what happens in low trust societies like Southeast Asia (Vietnam, Cambodia, Laos, Myanmar, India, etc. People store their personal wealth in gold, jewels, or hard cash in boxes under the floor. That money doesn't go to work, as Warren Buffett says, 'it just sits there.' In a low trust society, you're happy to have it just sitting there, because you don't trust the infrastructure. However in high trust societies such as Europe and North America, we invest that personal wealth in the markets, or a family business. That personal wealth—albeit at some small risk—has the opportunity to grow. Most workers in these high trust areas have some form of retirement savings account which invests in well, the Capitalist System, and these workers see long term good financial results from their investment, and the wealth of the low trust societies 'just sits there.'
All that wealth invested, earning money, going to the high paid employees, who spend it on stuff, maybe new kitchen countertops. This goes to making jobs for stone cutters, cabinet builders, wood cutters, wood millers, and then the guys who tear out your old kitchen, and install the new kitchen. Of course there's the new stove, sink, faucets, so there's a plumber involved, many people got work from the kitchen refurbishment. Then the high paid employee goes and invests in a startup, which goes on to grow the economy, this stuff never stops. Which leads to the situation, where in the US, an uneducated burger flipper makes US$20/hr, whilst in Malaysia, the Electrical Engineer with a Masters makes US$10/hr.
People "hoarding" money is not a real problem in countries with central banks, because central banks are capable of producing as much money as needed. In fact, the Federal Reserve overshooting and creating too much money (combined with excessive fiscal stimulus) was the main cause of the inflation problems we've been having the past two years.
Also, investment is good, because it increases labor productivity, which increases real wages.
>In fact, the Federal Reserve overshooting and creating too much money (combined with excessive fiscal stimulus) was the main cause of the inflation problems we've been having the past two years.
As far as I understand it, this is false. It was mostly supply side limitations from supply chain + commodity price changes tied to the Ukraine war as I understand it.
> They find that many forecasters, including those at the Federal Reserve, anticipated that inflationary pressures arising from the large fiscal packages in the U.S. would appear primarily in the labor market, as increased demand for workers put upward pressure on wages and, ultimately, prices. In fact, most of the rise in inflation in 2021 and 2022 was driven by developments that directly raised prices rather than wages, including sharp increases in global commodity prices and sectoral price spikes driven by a combination of pandemic-induced kinks in supply chains and a huge shift in demand during the pandemic to goods from services. Fiscal policy contributed to the inflation, but primarily through its effects on consumer demand for commodities and goods in limited supply rather than through the labor market.
"IMO the only way capitalism works is if the money moves around, and currently we have a lot of people keeping the money in big puddles. "
This form of argument seems problematic to me, but could you elaborate on it?
If you literally take dollars and put them under your mattress then it's not a loss to anyone else. It just increases the value of all the other currency in circulation. Frequently, this kind of argument (pooled currency vs moving currency) is used to criticize investment and favor consumption. But the growth rate is driven by investment, not consumption. The capacity to produce an item with one hour of labor when it previously required two hours of labor is the thing which allows people to have more material goods than in the past, and the quantity of investment dollars is the limiting factor on this. For example: it's been said that fusion is not 30 years away, it is 500 Billion dollars away. It we accept this equation the implication is that there are some very important projects which have not happened yet due to an insufficient quantity of investment capital.
I suspect he isn't talking about hoarders, but growing wealth disparity. Very wealthy people spend less of their wealth proportionally on consumer goods and services, and more on investments that add little to the standard of living of economically more average people.
"I suspect he isn't talking about hoarders, but growing wealth disparity."
I do too. But that's precisely the flawed argument I'm trying to address. I could at least understand someone complaining about a disparity of consumption. I could understand why someone would complain about a rich guy buying a yacht while some poor guy barely has a car to get to work. But... I keep getting people making the opposite argument that some people are investing too much and not buying yachts like they should. It's weird. Every investment also includes consumption, so it doesn't even make logical sense.
Disparate political influence? Sure. But that's a political argument, not an economic one.
Investments add remarkably to the standard of living of average people. All the improvements in chip technology, in available drugs, all the environmental improvements that allow us to have air conditioning without CFCs and have at least a quarter of our energy potentially and economically come from wind and solar power required investment. A shortage of investment in housing means not enough people are able to purchase homes or rent them and the price goes up. We have over 8 billion people on the planet, a decreased amount of arable land, very roughly the same amount of fresh water as 50 years ago, overfished oceans, and yet global hunger is *still* on the decrease. How can people argue that investments don't improve the standard of living of the average person? Are they still using IE 3.0 to search Archie on their 500MB Hard drive desktop with a 267 MHz Celeron processor?
Clearly some investments add remarkably to the standard of living of average people, such as in semiconductor design or manufacturing. As far as I can tell, investment in something like a health insurance company doesn't add anything to the mean/median/minimum standard of living, since health insurance companies operate primarily as rent-seekers (though I don't think marginal investment would make things worse?). Investment in something like Lokni, who make water dispensers that only work if you install an app on your phone, makes the world worse IMO, because they displace water dispensers that aren't horrible dystopian nightmares.
We can suppose that all of these have a similar return on investment (if not, I'm sure someone could pick better examples than I have), so rich people investing would (if they only aim to maximize their wealth) have no preference, even though some are clearly better for the mean/median/minimum standard of living than others. In principle, I think ordinary people buying more luxurious groceries would be a more efficient allocation of resources than, say, Lokni existing, despite how a rich person would allocate money.
I don't really know what to conclude from this, but I think this observation is probably part of a steelman of Victor's argument.
A distinction probably needs to be drawn between companies that are net consumers of capital and those that are net payers of capital. Most large, successful companies (i.e. all of those that dominate the US economy) are net payers -- they have little need for outside equity because they can easily fund any attractive investments with their own profits, and they can then pay any excess profits to investors in the form of buybacks and dividends.
The vast majority of the sorts of productivity-enhancing investments we're talking about are INTERNAL to companies. They are not funded by outside investors.
The secondary markets (i.e. the stock markets) are mostly -- if not quite entirely -- a game of deciding how capital's share of GDP is allocated among investors. They generally only have a very indirect effect on where capital actually flows for use by businesses.
"The secondary markets (i.e. the stock markets) are mostly -- if not quite entirely -- a game of deciding how capital's share of GDP is allocated among investors."
This is a notion that I find almost impossible to explain adequately, but because people make predictions and have expectations, their expectations regarding secondary markets can have a powerful influence on primary investment.
The result is that cause and effect can sometimes work, imperfectly, backwards in time. A farmer who buys a lamb raises it with the expectation of selling a grown sheep in two years. Eliminate the market for sheep, and farmers will stop buying lambs.
Similarly, funding of primary investing frequently hinges on an expectation of selling into a secondary market. Eliminate the secondary market, and you'll get less primary investment.
(This is always a hard concept to convey, and if you have any advice on how I might do it more clearly I'm open to hearing it. )
I don't know enough to say whether investment in something like a health insurance company would be beneficial since normal competitive markets are not at play there. A health insurance company that treats its customers badly may not be sufficiently punished by the market to disincent bad behavior. However I'm (sincerely) not sure I understand how health insurance is rent seeking, specifically.
"Investment in something like Lokni, who make water dispensers that only work if you install an app on your phone, makes the world worse IMO, because they displace water dispensers that aren't horrible dystopian nightmares."
Wouldn't we conclude that people would be less likely to purchase such items unless they were, say, sold with a lower initial cost. In which case the lower initial cost would be the benefit?
I don't know anything about Lokni or what their strategy is, but when companies that genuinely don't serve their customers persist, there's usually some explanation for the anomaly. I feel like something is important missing from the Lokni example.
But lets say, for the sake of argument that investing in some particular set of companies does not improve the world because of rent seeking or some other matter and may actively harm it. Are those companies representative? Are they average? If investment is critical to some net benefit I believe that's the relevant question.
I'm always careful of steelmanning arguments like Victors, because I'm not certain that they're straightforward and in good faith. Is his argument, for example, that investment genuinely does not matter? Or is his argument that if we admit that investment does matter that such an admission might be used as justification to lower capital gains taxes and Victor does not want that to happen? Actively claiming the second is true absent firmer evidence, of course, risks strawmanning Victor's argument, which I don't want to do. The suggestion is just one possible example of how people's arguments may not correspond with their motivations. But as to what a person's true motivations are, I can rarely be certain.
> However I'm (sincerely) not sure I understand how health insurance is rent seeking, specifically.
I believe that health insurance, in practice, tends to lead to rent seeking, though you have to really get down in the weeds to really see it - I'm not confident enough in my knowledge to make more specific claims, though I think generic drug pricing (and savings programs like GoodRX and PBMs) is an example of this. It's also tough because, in the United States specifically, medicare being poorly structured distorts a bunch of stuff, and more generally, patents distort markets as well, so I don't know how much is specifically related to those and how much is a general thing about health insurance. But the United States, for example, has a very inefficient healthcare system, and the profits from health insurance companies must becoming from somewhere. I'm not 100% confident in my claim that health insurance leads to rent seeking, though.
We could talk all day about exactly which companies specifically make the standard of living better or worse, but the general claim - that some investments will be profitable but make the standard of living worse - seems pretty obvious: it would be quite an extraordinary claim to say that no profitable investment ever makes the standard of living worse. A more interesting question, to me, is how much better one can do, if aiming to improve the standard of living, than just investing blindly in whatever's the most profitable (within one's own risk tolerance).
>A shortage of investment in housing means not enough people are able to purchase homes or rent them and the price goes up.
It's important to distinguish between actual construction, and buying land for speculative purposes. https://gameofrent.com/
>How can people argue that investments don't improve the standard of living of the average person?
Buying the exclusive right to produce EpiPens and then jacking up the price is a costly yet profitable investment which straightforwardly makes standard of living worse. Same applies to practically the entire intellectual property market.
Okay, lets start with Epipens. I'll agree that the FDA lagged by a year or two in approving alternative epinephrine autoinjectors, ostensibly for dosing issues. I will agree that Mylan, who acquired the patents for autoinjectors in 2007, hiked the price. Conventional syringes of epinephrine were always available, but are a bit more risky to administer.
In an absolute worst case scenario, which is not at all common, patents delay the benefits of investment by 20 years. Patents do not eliminate the benefits of investment. So this example is essentially cherry picking. We can point to particular investments that are harmful. Yes.*1
But in short: Mylan's price hike for epipens is cherry picking regarding the lack of benefit of investment in general. We can say "here is a specific investment which is not helpful to the public." But it does not follow that the average investment is harmful or that the net effect is harmful. On the time frame of decades, investment will continue to be positively linked to technological progress.
*1 Though pricing in the Pharma sector is, to put it simply, weird. It involves a lot of one area subsidizing another. It's not possible to sell near cost and still absorb the cost of various failed and very expensive trials. I'm not arguing that the way the US does things currently is good. I am saying that the matter is complex and it's not clear at a glance what portion of overpriced epipens went to executive perks (certainly some), what portion went to corporate profits (by necessity a higher portion than in other industries, given the long time horizons and opportunity costs for investment), what portion effectively subsidized the EU and the rest of the world, and what portion went to the development of other useful medicines.
Obfuscated pricing in the pharma sector seems like too severe a problem to attribute to inherent difficulty or ordinary incompetence. Whoever's currently profiting by making that situation worse needs to have their incentives realigned.
> But it does not follow that the average investment is harmful or that the net effect is harmful.
Making any claim about averages would require far more data. I'm just pointing out that there do exist net-harmful investments, so it cannot be trivially assumed that the aggregate effect of all investments is net beneficial when externalities are taken into account - and, therefore, when pursuing wider benefits, it's very much necessary to assess potential investment on its specific merits and repercussions, rather than simply figuring that everything's good so long as numbers go up.
If there exist investments like Mylan's investment in the patent for epipens, which we suppose both make the standard of living (or whatever other way we define it) worse and are also profitable, then it follows that investment based entirely on maximizing wealth is a less efficient way to allocate capital (aiming for the improving the standard of living, or whatever other way we define it) than a perfect allocation strategy.
Is charity a more efficient allocation strategy? Could one, in practice, devise a more efficient allocation strategy? I'm not sure. But certainly, I think it would probably be worthwhile to try to understand if such a strategy could be, in practice, devised. (I'm hesitant to say that EA should pursue this, because I feel negatively about EA, but this does seem like the sort of thing that EA could choose to pursue.) But the claim that capitalism is, in principle, the most efficient possible way to allocate capital is clearly false (though I know most people here aren't making that argument specifically).
"But... I keep getting people making the opposite argument that some people are investing too much and not buying yachts like they should. It's weird."
What you're getting here is classical economics, which sees increasing GDP as the goal of economic policy. People spending more = increased economic production, while people saving money (whether in the form of savings accounts or securities) as a loss of capital flow. It's better to buy a yacht, which provides employment, than invest in securitized mortgages, which doesn't. It's a distorted view in many ways, but is still useful for certain kinds of economic analysis.
"Every investment also includes consumption, so it doesn't even make logical sense." Not true, at least they do not all result in equal amounts of consumption. securitized mortgages provide a living to securities brokers, but that does little good for anyone else.
The ratio of stock market investment to US GDP has been going up over the course of many decades. More money is traded on the stock market than the GDP itself (although it has been trending down more recently): https://fred.stlouisfed.org/series/DDDM02USA156NWDB
One reason given for this trend is that the ROI of corporate and wealthy investors is higher when they buy each other's debt than it is for making a selling goods and services to consumers. Some question if this is an efficient use of national wealth, or at least if this is the best approach for raising the standard of living for the average person.
To be clear, "investment" isn't the problem, it's they amount and type of investment. They aren't all the same.
The good thing about capitalism is that it encourages people to do things that are helpful to other people, because other people pay you to do them. However, that only works for other people who have money - hence why huge wealth disparity is a problem.
If that still doesn't make sense, consider providing clean water to Africa now, vs after the Hypothetical Fairy grants each African person $100,000 USD. Now it's a thing charities do, but if Africans could pay for it, oh how businesses would scramble.
But that's mostly about absolute consumption, not wealth disparity. If you could give every person in a population $50 in real dollars (not subject to inflation) or give every person $100 but one person gets $100 million, which is better? Sure, in the second scenario the rich person may be better able to access the best doctors. But in the second scenario more people will have fresh water also.
You are talking about giving people real wealth; I am talking about giving them currency. The Hypothetical Fairy is just putting numbers in a spreadsheet. If you can magic in some actual wealth directly (i.e. goods and services that people want), then the more, the merrier. Perhaps "wealth disparity" is not such a good name for the problem, and "buying power disparity" would be better.
(I don't think anyone has misread it this way yet, but I'm not actually advocating wealth redistribution. I'm just using it as an example to demonstrate a quirk of capitalism in a way that is hopefully intuitive.)
It's good for the rest of society, if rich people consume less. Consumption takes resources, and resources are finite. (At least during any specific year. That's what GDP is.)
What do you mean by investing?
There's investing in the sense of giving your money to other people, so they can give you more money back later. (Either because it's a fixed income investment like a loan or a bond; or because you buy stocks, there the return is more variable. But it's still other people that are supposed to give you more money later.)
There's also investing in the sense of producing capital goods and using them to increase productivity.
The first form of investment is often done so that other people can engage in the second form of investment. But not always. Eg if I give you 100 dollars for a loan and you use it to buy dinner, and pay me back 110 dollars in a year, then we have done the first sense, but not the second sense of investment.
You can have the second sense without the first, when you are Robinson Crusoe. Or in general, when you use your own resources to increase your productive capacity.
If rich people invest in the first sense, that doesn't have much of a first order impact on anyone's standard of living. It's (close to) a zero sum game where people just shuffle money around.
Investing in the second sense can create or destroy resources. If you are successful, it enhances productivity and creates resources.
If you invest badly (think Theranos, or any failed startup, or whatever the Soviets did with most of their economy), then that destroys resources and is indirectly bad for the standards of living for average people, too.
Using this terminology, how would that square with your notion that rich people spend on investments that add little to the standard of living of average people?
"It's good for the rest of society, if rich people consume less. Consumption takes resources, and resources are finite."
This is wrong. Consumption rewards the development of resources, which results in their development. This is literally the model Tesla used - they focused on the luxury car market because a lot of the value in the market is signaling that the buyer has the excess cash to afford the high margins of luxury brands. Tesla took that margin and invested it into additional production until they reached a point where they had enough production capacity to produce more mainstream vehicles with lower margins in a self-sustaining way. Consumption by the wealthy *increased* the actual available resources to humanity.
No. If the wealthy had taken the money they spent on luxury cars and just stuffed it under a mattress, the clever engineers that spent their time coming up with better Teslas would have done something else instead. They wouldn't have just vanished off the face of the earth. Maybe they would have worked at Google, and improved web search a bit, or at General Motors or at Goldman Sachs etc.
Now there might be second order effects, perhaps it was good for society that those engineers worked at Tesla and happened to improve electric cars. But perhaps some of them would have worked at a nuclear fusion startup instead, and made commercial nuclear fusion a reality. We don't know.
(And in our world they didn't work for the nuclear fusion startup, because Tesla managed to outbid them slightly.)
You know software engineers, mechanical engineers, electrical engineers, and train engineers aren't all interchangeable, right?
More importantly, we now have viable electric cars (for a certain value of viable), an entire new industry, which we didn't have before. That's a much larger improvement to humanity than a marginally improved Google ad algorithm, better investments for billionaires, or being present at a failed and failing welfare case.
This argument could be made about any job doing anything, but if all jobs were eliminated the world would hardly be better. When you say "outbid them slightly", that's another way of saying that Tesla made the best offer, and all other offers were worse. Maybe only worse by a tiny bit, but still, worse. If that marginal improvement in the world gets shaved off, and then the next, and then the next, eventually there would be nothing left.
Certainly this must depend on what kind of resources we are talking about. If rich people all buy huge houses in one area, then other people will not be able to live there. Land is a finite resource.
If rich people buy Tesla cars, better cars will be invented which in the end might help everyone. Innovation is not a finite resource.
If rich people spend all their money on having the best doctors treat them for imagined illnesses.. well probably more people will become doctors. But the new doctors would probably have less average talent (we can assume that the first people who chose to become doctors / scientist / artists etc will be the people with most talent or drive for that profession). In total this might therefore lead to worse medical treatment for other people. Human talent is a resource with dimnishing return on investment.
Land is one of the few exceptions to the rule, but the idea that if rich people bought all the services of the best doctors medical treatment would suffer is ridiculous because unless you exclude "No doctors available". A mediocre doctor is better than nothing.
Also, I completely reject the idea that the best are the first. There's no basis for that at all.
Any given rich patient can only have so many doctors working on them directly. Instead, more people would become support staff providing secondary services to the best-paid doctors, such as inventing better tools for them to use - some of which could then be easily mass produced to benefit others. Not to say that would necessarily be the most efficient approach, but there have definitely been positive externalities from that sort of thing in the past.
"It's good for the rest of society, if rich people consume less. Consumption takes resources, and resources are finite."
Trying to parse what you meant by this, and am having trouble. Consuming things means paying an employer money for goods or services their employees produced, which adds to their income and creates new jobs. Any economic textbook will tell you that that is how capitalism works: spending = GDP. When the wealthy consume less, they tie up wealth in forms that do not lead to increased incomes or new jobs, at least not as directly. Ideally, they should buy stocks and bonds that allow entrepreneurs to start or expand a business, but see my answer to Ryan W--more and more, this doesn't happen, and money gets tied up in less productive investments instead (though recent trends may indicate a partial reversal).
Your examples are illustrative. Though the real problem are investors buying securitized debt, or useless things like gold or crypto, it is in fact quite common for very wealthy people to subsidize their lifestyle on credit, which they never have to pay back. I can explain at length, but beware, that way lies madness. Look at Donald Trump's lifestyle. "When you owe the bank $100,000, the bank owns you; when you owe $100 million, you own the bank."
Huh, what's the problem with buying securitized debt? It's just an investment as any other.
And how is buying gold worse than any other form of consumption? If I buy a bar of gold and stick it under my mattress, the labour and resources that went into producing that bar from the ground are gone. But how is that different from paying people to put up a play, or to make a cheesecake that I then eat? How is it worse than those examples of consumption? You pay people to produce gold. In your words: 'Spending = GPD'. No matter whether you spend on gold or hamburgers.
(And if instead of putting the gold permanently under my mattress after five years, I sell it on later; then economically we didn't really lose anything, at most five years of opportunity costs of other uses of that gold bar.)
I also don't get your complaining about rich people using credit. If the creditors are stupid enough, that's their problem, not mine. And I don't get at all how you complain about lack of consumption being a problem at the same time as complaining that rich people consume more than they deserve? Because never having to pay your debts is exactly that. (I have to admit that I found that GQ article endlessly confusing and rambling.)
The whole buy-borrow-die strategy is just a tax dodge that eg Americans engage in because their tax system is so asinine. My adopted home of Singapore avoids this whole can of worms by following economic orthodoxy and just not charging a capital gains tax. Why would you want a sin tax on something that's good for the economy?
But in any case, the strategy is not a problem for the economy. It just, very imperfectly, approximates the more ideal economic situation of not having a capital gains tax.
So the question I am trying to address here isn't whether or not the investment is a good idea for the *individual investor*, which, insofar as securitized debt, crypto and so forth, it may very well be (or not, I wouldn't know). The question is whether or not having a large proportion of our national wealth tied up in such investments is good for the overall economy, as opposed to investments that produce goods and services for consumers.
The way the stock market should ideally work is that a business owner offers shares in the company in exchange for capital needed to start or expand a production line or and entire business. This money then goes into purchasing facilities, technology and hiring employees. All of this has positive a secondary effect on economic growth. But securitized debt? Remember, this is money that has already been loaned out--in the case of mortgages, the houses are bought, and the owners are just making payments now. No additional goods or services are produced, it's just investors trading securities among each other.
The economic justification for these kinds of exchanges is that it creates an incentive to banks to provide these loans in the first place--in many cases they would rather have a lump sum of money by selling the debt than by waiting for all the payments to be made. However, if this is too profitable, it can distort the market incentives--risky mortgages start getting handed out not because the new owners are able to pay off the loan, but because the resale value is so high. In the early to mid 2000's this is what happened, a bubble in subprime mortgages eventually collapsed, causing the 2008 financial crisis.
So investment doesn't = "bad", but it may not always = "good" either. The devil is in the details.
Yeah, the US tax code sucks (sigh). I will have to research the Singapore model to see if it offers us a better example of how to go about it.
Putting dollars under your mattress does not impact the value of the dollars in circulation directly. It only impacts them through the path of what you would otherwise have spent them on. If you would have spent it on an overseas vacation then the impact is primarily felt overseas with very minimal trickle down effects back home.
Money invested in equities is not being hoarded - it’s being put to use. Imagine you invest your life savings into your startup, it makes 7% per year, and you live off this. Easy to see how that’s being used.
A passive investor plopping their money into the S&P 500 and making 7% per year is just as active a use of money. The mechanism of “action” however is a lot harder to see - it’s from raising the price of equity in companies, so that they can then sell equity or debt at better rates and put that money to use. Imagine everyone bought Apple stock and NO ONE was willing to sell. If Apple wanted to sell one share to go build a new iPhone factory, they could get an astronomical price on it and go to work.
The total downstream effect is measurable in the return. Saving money is pro social. The same argument applies for corporate bonds, and even government bonds (although that is even more diffuse to analyze, but just imagine the government as one big inefficient company)
As an extreme form, if you literally destroy some money, that's essentially a donation to the central bank.
An inflation targeting central bank will automatically 'print' more money to keep purchasing power on track. That 'printing' of money takes the shape of purchasing assets with newly created money. Creating new money is sort-of free for the central bank (the constraint is keeping inflation in check).
How is the desire to avoid taxation evidence of anything about charity? Capitalists also desire to avoid depreciation of their capital goods or natural disaster, so what does that prove?
There was a problem with a lot of money staying in one place when the Federal Reserve was paying interest on excess reserves while the natural rate of interest one could earn on investment was relatively low, but now that inflation & interest rates have picked up that's less of an issue.
Interest on excess reserves are indeed a bit silly, but that's not really a problem of 'money staying in one place'.
But you are right, that when the central bank pays a higher interest rate on excess reserves than investments in the market, that's not a good sign.
It's also not profit maximizing for the central bank. It's essentially handing out free interest payments for nothing in return.
(Central banks like the ECB or the Fed regularly earn surpluses and send them to their respective governments. Governments like getting money for their general budget.
The analysis is a bit complicated because the central banks can essentially 'print money'. But if you take inflation targeting as a constraint, the amount of money they can just conjure out of thin air is limited. And anything extra they can earn works just like regular profit in any old organisation.)
Forcing charity diminishes the value to the giver. I think your viewpoint illustrates a fundamental difference between liberals and conservatives: liberals want good things for everyone even if some need to be forced to do the right thing, whereas conservatives want everyone to determine themselves what the right thing is.
I have, however, a compromise. We could have some amount of income taxed for purposes of charity, but that amount would be offset by voluntary charitable donations as a direct credit. Still, some conservatives wouldn't like being forced into charitable contributions, so this compromise still leans left.
I think it boils down to a disagreement about consequentialism: one side prioritizes the consequences to the recipient, the other to the donor.
It's bad for society when we continually walk by people dying in the street, but also bad for society when people are compelled to perform performative acts of loving-kindness at gunpoint (to frame it in a maximally libertarian way). I'd be more happy with the second way if any of the attempted solutions to the first problem actually seemed to work.
Ian, capitalism works just as well as does charity because both have a democratic structure whereby people who have money vote for what they believe is important through the medium of a wallet. A charitable donor may vote only a handful of times a year while the capitalist donor, or consumer, votes many times every day. Coca-Cola, Walmart, McDonalds, they all became evil capitalist giants because they got billions of votes and they keep on getting those votes every day. It is really not a crime to give consumers what they want, and if the people who give the world what it wants become rich in the process, that's not a crime either. The Waltons, Bill Gates, Jeff Bezos, Sergey Brin, the late Steve Jobs, they all created trillions in value of which they happened to retain a couple of per cent. Someone who became rich selling alcohol may not match everyone's idea of morality but, the tribe has spoken. We must be very careful that our visions of a better world are not motivated by base envy.
As the resident Objectivist bore, I'll just note that Scott's completely right here.
The real criticism is that we have a society that thinks charity is superior to production. But you cannot give away anything that hasn't been produced. And capitalism is the only system that allows production, so it is the only system in which charity can flourish.
CCCP/GDR was: state-monopolistic capitalism. The worst capitalism there is. In combination with very non-free markets: much less in useful! stuff. Lots of steel, sure. - Not sure families without capital-goods "produce" "plenty of stuff". My family "produces" next to nothing of value outside a capitalist context. 20 kilo apples, 2 kg berrys / year. Any family in Niger produces much more than mine, I am sure. Strangely, THEY are dirt-poor.
I have heard the 'state-capitalism' moniker before, but I don't think it's very useful here.
If you want to bend definition of capitalism enough to make some form of the label apply to East Germany and the Soviet Union, then you will have bend it beyond the point where we can exclude 'charities' from 'capitalism'.
I agree that family production is generally less efficient, especially at scale, than production in capitalism. But the comment I replied to proclaimed that capitalism was the only system that allows production. So even an inefficient alternative producer serves as a counter example.
"Ineffecient" fits much better than "producing plenty". Glad we agree. The "moniker" is actually popular among Left (Lenin: "Stamokap" - https://de.wikipedia.org/wiki/Staatsmonopolistischer_Kapitalismus ) and critics of CCCP. And describes the economic reality rather well: Capital (ie: machines, factories, energy) as a main factor of production + ONE owner: the state. Voila. - Fine definition, no matter what is the relation of charities to capitalism - Scott's question.
Which could be re-framed as: "NPOs or POs - what's better for living standards of the poorest billion". Great question. I like both, but assume POs will have delivered more. Though I see no way for me to "help" those. Buying "Fair trade"? Nope.
My wording was perhaps sloppy. 'Plenty' was just to say that in an absolute sense they produced a lot.
The state capitalism moniker is just a silly as Marxism in general.
In what sense is capital even the main factor of production? You still need land and labour.
And eg the Soviet Union was arguably a petro state. I guess that falls under generalised land as a factor of production.
East Germany didn't have much (at least comparatively) in terms of natural resources. Incidentally, they are also the example of real existing socialism with the most success ever, if you eg measure it in terms of prosperity achieved. (They did much worse than West Germany, of course. Which isn't even the most successful example of capitalism.)
I think Scott's question should be: how can Scott get the best impact in terms of eg QALYs saved for his effective altruism dollars? Should he eg give to charity, or invest the money and continuously reinvest all returns indefinitely?
His whole essay shows some tension between knowing that capitalism works, but also trying to figure out how to make it work for his charitable dollars.
Peace and prosperity to you, too. - I wrote "a main" factor not "the main", I hope. The USSR invested billions into modern machinery (and qualification of its people to use those), and they did produce much, much more than pre-industrial Russia (steel, weapons, brutalist architecture ...). At what point "capital" becomes "the main factor" of production, is an exciting question. ...
I agree with your summary of Scott's S.A. (mis-spelled as: ess-ay), and I see no easy solution - if one is not a savvy businessman: Boris Becker's ex-manager Ion Țiriac, also known as the "Brașov Bulldozer" or "Count Dracula" did probably much more to improve the lot of Romanians by his profitable investments there than the do-gooders who collected donations to improve the appalling orphanages there. (Disclosure: we donate)
> In what sense is capital even the main factor of production? You still need land and labour.
It's tools. There's always been land, and always been labor, but the increase in the capability of our tools is what's let humans create the modern world. But the tools have gotten more resource-intense as well. So the question is, "who controls the tools"?
It's literally just a thing Trotskyites et al say to express that they think the Soviet Union is/was bad but are still in favor of a command economy organized by a one party state.
You can go to any former eastern bloc country and see it wasn't a market economy and property rights for land effectively didn't exist. You can also read someone like Alec Nove or James C. Scott to get a deeper understanding of how different it really was.
It wasn't all failures but the successes were more relevant to the world of the late 19th and early 20th century while the failures were specifically failures in consumer goods and the conversion of military technology into applications for the consumer economy.
*plenty of bad stuff that had no actual market value and could only be sustained because of trade restriction imposed by East Germany and Soviet governments. When markets opened it became clear, that their "stuff" was bullshit and all firms making it went bankrupt, as they could not compete with better quality products from the free world.
Are you talking about how they are doing now, or how they were doing back in the day?
I grew up in East Germany. It wasn't pretty, but we didn't have any starvation. You had queues for exotics like bananas or Levi's jeans. But not for the 'meanest goods' like potatos or bread.
Much of the former Eastern Block is in the EU now and doing reasonably well.
I prefer capitalism, even the watered down version that west Germany has to offer. But we shouldn't delude ourselves about the real situation in the East Block.
Well put, if overstated. Production obviously does occur in other systems--just not as much and also not as well-tailored to what people actually need/want.
Charity as I understand it is intended to fill in the gaps left by the market. As such, it isn't superior or inferior to production, but a needed supplement. One can also argue that tax supported government programs are even more effective at filling in market gaps than charities are, but that's a different issue.
It might very well be true that government programs are better than some charities. But every time I've heard the argument made, it involves quite a lot of cost shifting. There are costs to, say, collecting taxes. Those costs are borne both by both the government and by private individuals. But in determining the cost of a particular government program the cost of revenue collection is typically not considered.
It seems probable that the argument for the effectiveness of a government program could be made persuasively without hiding some of the costs relative to the larger and more bureaucratic charities like UNICEF which are notoriously inefficient. But the argument for government solutions is rarely made while considering all relevant costs. And the most problematic charities tend to be cherry picked for comparison.
The budget of the IRS is about 80 billion; meanwhile they collect several trillion dollars. Seems to me that the overhead costs are pretty marginal, something like 3% or so. Back when I was a professional fundraiser for non-profit organizations, the accepted fee was about 15% of the amount raised, depending on the client. But this may be an apples to oranges comparison--no nonprofit has the economy of scale the government can take advantage of. If you want to help a niche population, then you have to accept higher overhead costs.
"And capitalism is the only system that allows production"
I'm pretty pro-lassiez faire capitalism as things go, but this sounds like overselling things a little. There was still "production" and even a little growth under feudalism, say, or the USSR.
I'm not sure this addresses the argument for "If you give people in Africa medicine that boosts their health they'll be able to be more productive". Even if you (not unreasonably) assume the barrier to productivity in western countries is culture, there's a much stronger argument that in sub saharan Africa it's bottlenecked on public health and improving it will enable them to be more productive.
It's your money. Work out what you want to use it for.
If your compassion is moved by the sickness of Africans, go for it! If you think you'd rather try and untangle the mess of regulations, do that. And so on
But what if the charity is just paying for the production for good things like mosquito nets or vaccines, which will then be distributed to people who can not normally afford them?
"Capitalism is the only system that allows production." I respect that Objectivism has gone all in on metaphysics and will soon be eligible for religious tax exemptions. The most generous interpretation is that this is a religious truth claim which is non-falsifiable. A less generous interpretation is that you have a lot of trouble making friends and are drawn to ideas which provoke strong negative reactions because they're so extreme yet so trivial to falsify.
Still I hope you do things like walk through (private!) nature preserves, praising ant colonies and mycelium networks for practicing capitalism while condemning nursing mothers for encouraging parasitism.
Do you need anymore straw? Seems like you might out. Also, you might need some more condescension; you're reusing old stuff
One can usually assume a certain contex. For instance, when speaking of "production" in this context, it should be clear we are referring to human production, specifically of the goods that enable and enhance human life. Goods produced by applying human intelligence to the world. So your comments about mycelia are bad faith of the first order. As to the suggestion that I or any Objectivist condemns nursing mothers - that's just a lie and an insult.
And this is fairly easily observable: every case where we directly contrast two competing societies, one less and one more capitalist, the results are unequivocal. East and West Germany. North and South Korea. Old Hong Kong Vs Mainland China. China under Mao Vs China under Deng Xiaoping. And so on.
I wanted to make a similar point that capitalism enables high performance charities. Pre industrial revolution, the richest country in the world could not have delivered clean water to 50000 ppl for ten years by assigning 15 or so median workers to the problem for about a year (1mio usd).
It still doesnt answer the marginal dollar question though.
But there are 3 paths available:
Invest in "capitalism" in the poor country (to improve worker productivity there)but maybe there are limited ways to do that effectively.
Invest in capitalism locally to make future charity better (the avenue here is still worker productivity, so should be investment not consumption oriented.
Consume capitalism by deploying high impact charity
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
"Before 2020, based on the available evidence, we didn’t believe that water quality interventions had a large enough effect on mortality to make them a competitive target for funding. We’ve since seen new evidence that has led us to significantly increase our estimate of the mortality reduction in young children that’s attributable to these interventions: a 14% reduction in mortality from any cause,[1] up from around 3%.
"Though we have remaining uncertainties about these numbers, we’ve substantially updated our view of the promisingness of water treatment. Where we previously found that Evidence Action’s Dispensers for Safe Water program was about as cost-effective as unconditional cash transfers, we now believe it’s about four to eight times as cost-effective, depending on the location. That was a primary factor in our decision to recommend a grant of up to $64.7 million to Dispensers for Safe Water in January 2022."
Why isn’t this being solved by capitalism right now? People in the third world are poor, but are they so poor that they can’t afford to pay $2 per person-year for clean water? Wouldn’t it be more effective (and more profitable) to hire a traveling salesman to visit every rural village in Africa to sell miniature water chlorinators? Is the issue that African villagers are too stupid to understand the importance of clean water? Maybe they don’t understand how chlorination works, but then why would they even bother to use the free water-chlorinators?
Dividing the cost by the years of benefit and the (average) number of people per household is a cute way to disguise the fact that you are probably asking a poor person to make a three-digit payment upfront. And even then, it is not just a question of "is it literally impossible for them to afford this", but rather "why would they give up a bunch of other stuff for a while to save up for a water purifier, when regular water is 'good enough'?" Even if they believe the statistics of the people trying to take their money, there is only around a 1% chance that the purchase will actually matter over the course of the next decade.
>Maybe they don’t understand how chlorination works, but then why would they even bother to use the free water-chlorinators?
Worth using for $XXX.XX and worth using for $FREE are different things.
Of course they don't rely just on the fees charged customers. But I was sad when I saw that people also search for "how does instacart make there money".
I'll save you a search, they mark up the prices. Anecdotally, I had some baby formula Instacarted yesterday and it cost me $15 a bottle instead of the usual $11.
Even without marking up prices, they still get to count grocery sales as revenue. If you pay Instacart $5 for a bunch of bananas and Instacart pays the grocery store $5 for the same bunch of bananas (i.e. they don't mark up the price at all), Instacart still gets $5 of revenue. Their COGS (cost of goods sold) is also $5 but that's separate.
This is wrong. You don't buy bananas from Instacart, you buy them from the grocery store. Instacart is a delivery service.
Take a look at Instacart's Q3 shareholder letter, page 9. You can see that in Q3 they had $7.5B of Gross Transaction Value (the total amount their customers spent on groceries) while their own Transaction Revenue was $542M.
Honestly surprised by the lukewarm thoughts on strategy 3. I haven't done a tenth of the charity research Scott has, but I remember reading about efforts like the Gates foundation basically acting like a super generous bank for small farms in developing countries. Offering loans with good terms, and making a commitment to buy grain at a certain price to protect the burgeoning market from price shocks. That sounds like a good way to set up a much needed industry in the absence of credible local banks and other institutions. Is there some bit of research that indicates this isn't very effective?
Anecdotally, I remember getting my micro finance bubble burst by research showing its ineffectiveness. But I have no sources and this has inspired me to re-dig for the truth
Most likely what's happening here is that this data just isn't public. Not that there is evidence against, but that there's no evidence for on the level of malaria nets. A lot of existing interventions are probably way better than malaria nets! It's not like the world would end if there are no more malaria net charities, but there are probably load bearing institutions where its absence would lead to the end of the world (trivially civil war "ends the world").
EA existing doesn't mean that all non EA interventions don't work, just that EA interventions are the most evidence backed interventions on the margin.
I think it's worth keeping in mind that "effective" in the GHD context is basically "donate to AMF", which is a super high bar. So "isn't very effective" can still simultaneously mean "far more effective than the usual charities non-impact maximizers give to" and "< 10% as effective per dollar as donating to AMF".
I don't know about supporting capitalist charities (and I don't think I feel quite as bullish on capitalism for various reasons) but I think a different strategy to consider is 'investing' in (or donating to) charities that also operate in the market economy. Nonprofits make up 6% or so of GDP and there are many interesting nonprofits that have sustainable revenue, allowing them to re-invest in more work 'for good.'
Profits go to investors. If you are investing to do good, you can just reinvests the profits yourself. No difference. Or at least no first order difference.
If you pick an accumulating stock fund, they will do that reinvesting for you automatically.
Of course, like all sensible things, accumulating funds are banned in the US, so Americans have to reinvests their dividends manually (or make their broker handle that aspect).
Hmm, there is a pretty huge difference. A nonprofit is designed to serve a greater-good purpose. A for-profit could certainly donate profits but is unlikely to retain that model, and is typically not specifically committed to doing good-for-the-world things. A nonprofit can also incorporate different revenue streams as well as sales.
Also there are now hybrid entities which have been established in law in most US states. They are for-profits whose obligation to shareholders is explicitly balanced with pursuing and measuring a public purpose. In some states they are called "L3Cs"; in others, "B corps"; in some parts of the civic sector these entities are referred to as "slow money". (Because investors have agreed to expect lower rates of return than in the open investment markets.)
These hybrid entities can with some limitations also seek and accept grants restricted to specific pieces of work. Though few grantmaking foundations are yet comfortable making such grants, that fraction does seem to be slowly increasing. (An inherent barrier to entry for grants is that philanthropic money must be rigorously segregated from investor funds, with fairly dire consequences for failure on that point.)
The 501(c)3 that I run is currently working directly with a national "slow-money" for-profit that is pursuing a specific initiative which fits well with one of our organizational priorities. Thus far I have been positively impressed with the B-corp, and have begun recommending it to subject-matter peers as a project partner to consider. If all goes smoothly we will be together putting something pretty exciting into the ground by the end of 2024, which my board of directors is quite fired up about from a mission perspective, and which our mid-sized nonprofit would struggle to pull off on its own anywhere near as quickly. (But we are freer to play some parts in the process than they are, and it's our concept that we had already penciled out, which are reasons they sought us out.)
In the United States, publicly owned companies can theoretically forgo higher profits for the sake of the public good. In practice, however, this is very risky, because if you aren't maximizing shareholder value, shareholders can sue and win.
Have shareholders sued Meta or Google for that? Zuckerberg explicitly wrote an open letter when Facebook went public explaining that he's not gonna maximise profit.
Management has to act as a fiduciary for shareholders, but they don't have to put profits above everything.
See also how most companies donate to charities. Every dollar donated is a dollar less in profit (modulo taxes). According to your theory any company that donated anything should get sued left and right.
Obviously that doesn't happen. So you might have to revise that theory.
The value of capitalism isn't the "second order effects" so much as the cascading-indefinitely effects. It's the "give a man to fish" vs. "teach a man to fish" principle. While I in no way wish to denigrate the value of saving lives with better water... once you do that, then what? You have people who are alive, and still in the same situation they were in before.
The value of capitalism is that it elevates entire civilizations to a higher state of living. There's a reason why stuff like water dispensers to save lives are going to developing countries with no market economy: *in capitalist nations, there is no need for such things in the first place.* The equivalent work was baked into our basic infrastructure long ago.
Seems to me that one of the best places to invest, then, would be in research to figure out why the "charities that send economists (or other professionals) to developing countries and advise them on how to do more capitalism" were ineffective and how to do it better.
I think Scott agrees with your observation that capitalism obviously works in practice.
The real question in the essay is: why? Our author investigats first and second order effects and finds them lacking. But your suggestion that higher order effects are important might be a good one.
We also had other suggestions in the comments about production (though I don't necessarily buy that one, charities can also produce societal wealth), and I made some suggestion that Scott should take leverage into account when comparing charity to investment.
Yeah, thinking about it bribing these people to accept market liberalism is probably one of the best uses of money we can get, as long as we can ensure the bribes are bigger than the amounts they would be able to embezzle (shouldn't be too hard for poor countries).
I don’t know. Some leaders of poor countries can be quite wealthy. And you’d probably have to pay off the leader’s underlings to keep them from murdering him for the cash or extorting it from him. Also there’s always the perverse incentives problem of paying people NOT to be bad--it encourages new entrants to the bad behavior club, as it were.
Pay everyone who isn't doing the bad thing, regardless of whether they're threatening it. This works because people don't think far enough ahead to create the bad-thing-movement just so they can exit it once you oppose it.
Brilliant! Just pay every adult male on earth $1 billion for not being a dictator and withhold payment to current dictators. But seriously, is there a way to incorporate that insight into designing a program of paying off dictators to institute good econ policies?
I think the statement "alive but in the same situation as before" is incorrect. Do you think that the economy would basically be the same if the US suddenly got Ugandan child mortality rates? Do you think human capital accumulation can continue at the same rate if American children end up as sick as subsaharan Africa children? Both of these seem fairly implausible.
I agree that "just" saving lives does not result in a first world country. But it's not clear to me that lower mortality isn't a precondition to developing an an advanced, self sustaining economy.
I agree that I overstated the case for child mortality being a dependency of a modern economy, but I don't think it's quite as bad as the numbers you are citing suggest.
There's a reason why I specified child, not infant mortality, which is that dead children are far more expensive than dead babies among almost every relevant axis.
When you take child and not infant mortality into account, from statista: https://www.statista.com/statistics/1041714/united-kingdom-all-time-child-mortality-rate/ shows 225 deaths per 1k births, or around 7.5% child mortality once you subtract out infant mortality. This is indeed comparable to the current Ugandan under 5 child mortality rates of around 7% from 1996-2000(from https://dhsprogram.com/pubs/pdf/FR128/08Chapter8.pdf) , but 1. Uganda grew around 3-4% in GDP in the last 5 or so years (https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=UG) and eyeballing https://ourworldindata.org/grapher/total-gdp-in-the-uk-since-1270?time=1718..latest for 1900 it looks like gdp growth was around 4% a year for Britain. So I don't think it's fair to say that 1900.Britain has drastically outperformed Uganda. 2. Uganda was starting from the same infant mortality baseline 50 years before, and on top of that had gigantic reductions in child mortality, which means that a present day 3% infant mortality rate implies far less about total human capital accumulation over the last 20 years. 3. You are implicitly using the glory of 2000s UK when citing the 1900 number, without Uganda having the benefit of having a 2100s (edit was 3000s because I was dumb) version of itself. Economic strength comes from compounding gains of 1-2% extra annual GDP growth per year, and thus the time spent at increased productivity also matters a lot for total economic gain.
Obviously Britain gets a lot of credit for having much better institutions and for starting the Industrial Revolution, this is not in doubt. I'm interpreting the parent post as if it's saying that people being alive in and of itself does not constitute human capital that participates in the economy, which seems to place the GDP value of a life saved at approximately 0%. I'm personally waffling on how much economic value a life saved actually provides, but I don't think the arguments presented thus far for the other side is unambiguous, and it's definitely much less actionable.
I was actually thinking of the glory of the industrial revolution (that's why I chose to use the UK for the comparison) rather than whatever glory the UK has had lately. But I didn't find comparable mortality numbers that far back (didn't look too hard tbh), so I just kinda assumed they probably weren't better off then than in 1900, which your link confirms.
Is there a reason you're looking at GDP rather than GDP/capita? Those tell rather different stories for Uganda, with a GDP/capita ATH in 1969 that was only surpassed in 2004 (!), while GDP looks less dramatic.
I'm using GDP because saying "you're in the same situation as before" implies that total economic capacity is the same, rather than "whatever agglomeration effects that lead to the Industrial Revolution are the same as before". For sure you want to have good institutions, norms and technology drive up the gdp/capita number to make you way better off, so I do think the fundamental intuition behind the original post isn't wrong, but all of the above are composed from people! If you treat the drivers of economic productivity as completely separate from total productivity, of course you'll end up assuming that increasing total productivity won't help.
Economic productivity cannot be decoupled from the raw number of humans for every situation. We talk about gdp/capita because for most places it's easier to institute net productivity increasing policies than to change the fertility rate or population. In the case of the world's poorest nations, we don't actually know what economic interventions would currently help, but we do know what life saving tech exists. It doesn't make sense to me to say "well I guess if this person is a 1x Ugandan instead of a 1.05x Ugandan, they are better off dead." Especially since, if agglomeration effects start kicking in later the additional person also benefits from the society wide productivity increase.
Wait, this doesn't parse. Compared to today, the United Kingdom was a hellhole in 1900. Things have improved a lot in the past 124 years. We'd have to see Uganda in 2148 to see what impact their (comparatively) lower infant mortality rate will have. Uganda's prosperity gains in the next 124 years could DWARF British gains from 1900-2024. Who knows? That's so far in the future it's totally up in the air. But until we get there, or at least until we get halfway there, you have little basis for your argument about Ugandan childhood health.
That's ONE way to interpret his comment. Besides, England was still a hellhole for the vast majority of its citizens in 1910, too. Even by the standards of the time. It's my understanding that living conditions for the average American were far better at that time. I wish he would chime and explain his comment, it was kind of cryptic. Too confusing to be "wrong," really.
> There's a reason why stuff like water dispensers to save lives are going to developing countries with no market economy: in capitalist nations, there is no need for such things in the first place.
You’re perfectly correct. Not only that, but if the capitalism wasn’t there, the water dispensers would cost way more than $1 million per 500k people-years of clean water, and also that $1 million wouldn’t be available for charity.
The only way to measure the indefinite cascading of effects is to actually look at the final effects of capitalism, not to try to add the low-order contribution of an individual company, representative or not. GiveWell’s estimate of lives saved was not done by following the first- and second-order effects of each cup of water on a randomly-picked average person, it was done by looking at the final effects of an intervention on a lot of people (hopefully).
So a while back I listened to Magatte Wade on Lex Fridman. https://www.youtube.com/watch?v=Q6tDV3BhrcM And the sense I got was that the big problem is corruption in the government. There is just too much friction in trying to get any business up and running. I don't know how we can make this any better. But maybe an idea is to invest in people... which is a little like what Scott is doing with his grants.
Fair enough. So this gets me wondering. Massively corrupt third-world governments are a big, obvious problem. It's one of those "everyone knows" issues. It raises the question, were the failed economist/consultant types somehow unaware of this? If not, why did their approach for trying to deal with it fail, and how can it be done better in the future? Or *can* it be done better in the future? If not, what alternatives exist?
Oh, so the answer might be to find those governments/countries with less corruption (Wade mentions a few.) And look for investments there, and if that helps one country thrive, then the nearby countries will have to take notice. This is a long term type answer.
The obvious way in which personal market spending could do more total good than charity but charitable spending could do more good on average would be if charitable spending were much less than market spending. As charitable donations make up only 2% of US GDP, the conclusions here aren't at all surprising.
Comparing capitalism to charity seems like comparing chocolate to Mozart? They're not comparable. One is an economic system, the other is a personal choice. Capitalism applies to a society - you live in a capitalist system, or a non-capitalist system, and your personal ability to choose which system to operate under is pretty limited (short of moving to another country). As for charity, you can choose whether to give, and how much (and, of course, where), independently of the choices of anyone around you.
So I don't really understand how "does capitalism beat charity?" is even a well-formed question. To put it more sharply: on *what metric* are we asking whether capitalism beats charity?
Insofar as we're talking about third world charity, the concern isn't that charity is incapable of providing good things; it's the idea that external charity from much richer sources crowds out the economic activity which will allow those societies to sustainably build themselves up. Aid acts as another type of extractive resource which allows locals to prosper by maintaining access to the aid-source, rather than by providing goods/services to their fellows. It also actively incentivizes the development of corrupt clientelist political institutions.
An interesting hypothesis, that is probably true of some types of charity. But is it true of all types of charity? That's an empirical question that can be tested. And preliminary evidence is pretty decisive that it isn't true of some forms of direct aid. For poor people in third world countries, direct cash transfers increase economic productivity, they do not decrease it.
I would hesitate before generalizing from one sociopolitical context - Kenya isn't even really a poor country; it's had pretty decent growth since the 90's and has been solidly "lower middle income" for the last decade. Moreover, it appears to have a pretty solid social fabric - apparently a 2017 ban on single-use plastic has been widely complied with, something I would not expect to see in other "poor country" contexts.
However, direct grants to individuals, under close administration by the donor agency, seems less likely to be seized and re-routed to the benefit of corrupt local elites the way many other types of aid are. However, that's something to be carefully monitored - there are other historical examples where sudden public windfalls to individuals only yielded massive speculation (e.g. the attempted privatization of soviet-bloc countries by distributing newly-printed shares to the public...which were quickly liquidated by most people and resulted in consolidation of ownership by speculator/oligarchs).
Well, ok, then let’s full fund Kenya and based on that success also fund similar exploratory experiments elsewhere to see if it generalizes (this is what GD is doing in fact).
“It might not generalize” doesn’t seem in any way an argument against their plan.
And indeed, “kleptocrats might steal their wealth” is also an argument against engaging in commerce with a developing country too. The concern generalizes pretty strongly; see China disappearing Jack Ma and others. Any philanthropic capitalists that said “let’s invest in China to help it grow” just lost their shirts in terms of impact.
A question probably better directed to Angus Deaton, whose work I'm generally parroting, than me. I would expect that it partly does - benefits provided by outsiders and capable of seizure/redirection by local elites to favored clients would seem to at least in part crowd out development of actually functional local institutions - but I'm not an expert here.
Scott, may an anonymous commenter offer brash advice? These people, why say such utterly confusing things, should be - in this specific instance - ignored. The “I shouldn't donate to charity because capitalism is better” thing is so… confusing, it’s not even wrong. Just ignore.
To be clear, these people may otherwise be great/caring/etc. They are just very confused about this one thing.
If you're donating to charity that drills water wells in Uganda then if you're wrong, you can't possibly be wrong by much. So this isn't one of those issues that, it seems to me, should drain much mental energy unless you enjoy the mental exercise.
I’m about as big a fan of capitalism as there is out there, and I agree with you that there is no feasible way to effectively “donate” to capitalism. The people telling you not to donate to charity seem very confused to me.
Also as a big capitalism fan - kinda seems weird to want to donate to it, feel like you should only give it money if it's giving you something in return and you should take what the literal market will bear!
Except for the rare cases where people do charity by spending their own time under their own initiatives doing labor for a charitable end, not through some institution, all charity is done by means of purchasing ("donating") a product (whatever its for) from a firm (a charity).
It certainly doesnt have to be that way, it just happens to be that way. Charity is one of the goods sold by capitalism, because capitalism will sell anything people will buy, and lots of people want to buy charity.
> there is no feasible way to effectively “donate” to capitalism
The closest would probably be lobbying to make markets freer. Lobbying against rent seeking etc.
But due to political realities this may actually be very expensive, because you're fighting against people lobbying for rent seeking profits for themselves.
Eg if you help someone move from Germany to Singapore, you have made the average human live in freer market; but you didn't have to change neither Singapore no Germany.
It seems literally very possible to "donate" to capitalism in the sense of doing capitalism-promoting activities, even if it's much less effective (under most lights) than effective charities.
For example, most people who bring up "capitalism beats charity" probably thinksthe government is a worse allocator of capital on the margin than capitalism. So tax evasion (or its legal cousin, tax avoidance) will be a (small) donation to capitalism. You might be more leveraged if you figure out tools to allow other people to evade taxes.
You can also fund neoliberal (in the traditional Hayekian) thought, and/or politicians who advocate for reduced taxes and less regulations.
If, instead, you are a state capacity capitalist who think the existing government structures are a necessary precondition to capitalism, presumably you don't believe the government exactly the right size. So you can take activities like donating to the US government (https://www.fiscal.treasury.gov/public/gifts-to-government.html), paying politicians to advocate for bigger but more capitalism-friendly policies, etc.
Wasn’t the premise of Effective Altruism that charities are poor capital allocators?
And isn’t part of EA’s infatuation with prediction markets the discrete price signals and falsifiable outcomes?
Whatever expected value calculus is being done by poor capital allocators (charities) probably isn’t going to be as effective as self interested people reacting to market prices.
Those people are rather silly, for the reasons outlined by Steve (for full disclosure, I am a huge fan of capitalism).
Capitalism is obviously superior to charity for producing a self-sustaining, positive feedback loop of development that raise standard of living in a society. But it's an economic system that takes places at the level of entire societies. You, as an individual living in a different society, can't really contribute to that outside of moving to the country and working to develop capitalism there. In contrast, donating to a charity with a specific mission is something you as an individual can do.
So I reject the dichotomy and the supposed tension between capitalism and charity inherent in this framing.
You are right about the 'true' form. But fortunately, freedom in markets works piecemeal, too.
Slightly freer markets are slightly better. It's not all or nothing.
You can try to make changes at the margin.
Either by directly trying to make (small) political changes. Or via technology: the zoom-ification of software development during the pandemic acted a lot like slightly freer movement of people would have. Even as an individual you can help make things like remote work more viable.
I don't think that "giving to capitalism" is the same as using Instacart (or any other commercial entity). In the case of Instacart, you are trying to meet your own needs, and any good that comes of it is the result of second or third order effects. In contrast, with charity you are trying to think about others' needs and help them be fulfilled.
A better proxy for "giving to capitalism" would be giving others the wherewithal to participate in the market economy for themselves. After all, capitalism is about creating *capital.* So how would that look in practice? Probably at least one answer would be teaching people skills that they could use to better themselves. This creates human capital in terms of their potential productive output, which they can then use to create other types of capital. This is more than the classic "teaching a person to fish" - it is teaching the person to catch and sell fish so that they don't just have fish, they have the ability to sustainably get all the clean water they need for themselves and their families.
To provide a concrete example, the Python Software Foundation (yes, technically a 501(c)(3) charity, but stay with me) has been funding Python education in Africa for fifteen years or so. Some of those people have been able to use that training to start selling services that have potentially permanently raised them and their families out of poverty. This is an effect that is orders of magnitude greater than could be gained through the charitable donation of a consumable item. Not only is it much larger in effect for that person, but it is also potentially indefinitely self-sustaining (as you point out).
Even if the training was provided on a for-profit basis, it would have the same effect. The business plan would need to be carefully constructed, but done correctly, this kind of endeavor would also be self-sustaining. You wouldn't be dependent on people's feelings of charity to keep it going. This is basically the idea behind almost all professional schooling: by creating human capital, you are making a person more productive so that they can pay back in the future more than it cost to create the human capital in the first place.
You could say that I am just repeating the arguments for microcredit, but that narrows the argument too much. Microcredit isn't a universal solution, but in some cases it has been very successful. Similarly, education isn't a universal solution, but in some cases it is very successful. We shouldn't be surprised that not every person can be equally served by the same "good." After all, that is part of the genius of capitalism - different people can perceive different needs and different ways to fill them, and in general the people who need the goods will be able to get them at the lowest marginal cost.
Is there anyone who has put together a strong argument that you "shouldn't donate to charity because capitalism is better, so I guess the metric is "ability to do good per unit donation?" I don't even understand the anti-charity argument.
Under capitalism, the expectation is that you and Bill Gates are going to earn money by doing things that other people value, and you are going to allocate that money to things you value. If you both value saving the lives of people by charitable donations, then I don't see how that's different from you spending your money on fancy watches and yachts.
There are some weaker form arguments, in particular that (a) people are undervaluing the value of promoting capitalism because it's harder to measure than bed nets and water purifiers; (b) it might be a net loss if you were to quit your medical practice and go work for a water purifier company, but it sounds like you sympathize with those arguments to a degree, so it's possible there isn't much disagreement after all.
The term "capitalism" was originally used to refer to what capitalists do rather than to anything government does. So in that sense, one would have to choose between directing one's funds toward capitalism (i.e. investment) or toward charity.
Framed this way (should I direct a given dollar to investment or charity), and taking Scott's metric of "ability to do good per unit donation"... it seems to me that "does capitalism beat charity?" is now perhaps a well-formed question, but far too low-resolution to support a meaningful answer, like "does wine beat music"? You'd need to engage in the details of the specific investment or charity. For instance:
- Suppose you identify an early-stage startup that is pioneering a new zero-emissions process for producing cement, and due to your special expertise you're able to determine that their approach is extremely promising. Investing here does a lot of good per dollar.
- Similarly, there are forms of charity that do enormous good per dollar, and others where the impact is low or possibly even negative.
Perhaps there is some argument to be made that investing, as a general rule, does more good per dollar than donating to charity. But it's hard to say much about that, unless someone actually puts forth such an argument. I'm skeptical that a good argument can be made, but who knows. I do think that such an argument would need to articulate a model for evaluating "good per dollar" that could be used to evaluate specific investment or donation opportunities, and at that point, comparing the general category of investment with the general category of donations might not be the best or most important use of that model.
Say investing in a global index fund has expected returns of 7% per year. Then one might argue that it is better to give $1070 to charity a year from now than to give $1000 now. And that's without taking into account the positive externalities of the investment (which are difficult to measure but seem huge considering how rich many societies have become over the last few centuries).
Yes, but charity can also have compounding effects and positive externalities. All of the potential actions we're discussing have myriad first-, second-, and Nth-order effects. You can't pluck out one knock-on effect of investment (the fact that it yields returns), disregard all other knock-on effects of investments and donations, and conclude that investment is broadly "better".
Kind of? The primary effect of investing in supplies for a factory is that the factory can operate. Returns occur if the resulting product is sold at a net profit. The primary effect in *building* a factory is that there is a factory; again, returns only occur if products are eventually sold at a net profit.
If some charitable act saves a life, the person whose life was saved might go on to contribute to GDP. Or if you help bring electricity to a village, economic activity in that village might increase. Are those effects "more secondary" than the return on an investment? If so, is that distinction somehow helpful to our analysis? It seems to me that the interesting question is the net impact, taking into account all of the downstream effects, regardless of whether those effects are "primary" or not. (Which of course can be complex and difficult to model, but that doesn't mean they should be ignored, it just means we should be humble in our analysis.)
I suspect the "right answer" is to provide capital to the malaria pharma company or well builder which are just below the point where they would be profitable enough to get investment.
I have no idea how it would be possible to evaluate that.
This fails to engage with the actual argument of the social enterprise movement. The argument is that there is an irrational aversion to profitable activity among people who seek to do social good. Largely, in my opinion, due to ideological anti-capitalism. It is not that maximizing returns is the best use of money at all times or that we need to go around preaching the gospel of capitalism.
To give you a simple example, Foodhini is a for profit company that takes various refugees and has them make their regional cuisines then sells them in an Instacart or Uber Eats like model. It's a profitable company but it also does significant work to help these people get on their feet. Whether that's services to make sure the work is legal or helping them set up restaurants (which in turn profits Foodhini in various ways).
The argument is this is better than just giving them money or funding classes to help them integrate and that you should direct money toward this type of cause rather than charities that rely on constantly receiving a stream of donations. The model of constantly asking for money or grants to sustain the charitable activity is (according to the argument) supposed to be a last resort, not a first resort.
If that's not third world enough for you there's companies that help deploy limited resources to repair potholes in Central Asian roads (which the government is happy to pay for because it saves money), a company that makes water purifiers that it sells in Africa (while donating a significant number to poorer villages), a company that provides cheap industrial milling into certified gluten free flour for poor farmers, and so on. You also have non-profits that are 'profitable' in the sense they make enough money from standard business to operate like Ten Thousand Villages.
These are often not strictly the most profitable thing that people could be doing with their time but they both serve a social good AND they're profitable and therefore self-sustaining, able to raise investment, and don't need to spend nearly as much time asking for funds. That's the argument.
To be honest, I haven't heard a good counterargument. Which is one of the main reasons I'm backing this horse instead of EA.
I think the strongest argument against things like Ten Thousand Villages and fair trade movements generally is that they create economic rents for the artisans lucky enough to participate, which distorts the economy and is ultimately counterproductive for producing the conditions of abundance. Better to just buy the best value goods, and then donate whatever would have been the markup for comparable fair trade goods to GiveDirectly.
I think you've misunderstood what Ten Thousand Villages does vs the regulatory fair trade movement.
There is no distortion if American consumers decide they want to buy artisanal goods from Vietnam because of the quality or novelty or their private morality. Not anymore than liking French cheese or refusing to buy Chic Fil A. Of course, the preference for French cheese also creates advantages for French cheesemakers lucky enough to participate in the export market at the expense of cheesemakers who are not competitive abroad. But that's just normal economic competition.
Put another way, how is the economic benefits from getting into a Ten Thousand Villages store meaningfully different from the economic benefits of getting onto Amazon?
This is separate from the regulatory Fair Trade movement which seeks to use regulation to artificially boost prices of goods in the third world which creates distortion for people who can get political certifications. This creates rents for both the certifying body and the people who possess the certificate. The failure of African mining certifications is another example. But that criticism has more legs there because, unlike with Ten Thousand Villages, the certifying bodies have different incentives. But since Ten Thousand Villages is effectively a marketplace connecting craftspeople and consumers there's no similar dysfunction. Ten Thousand Villages doesn't issue certificates, it retails the goods in the west and profits only if they sell. Everyone directly bears the effects of their choices as in normal markets.
Manufacturing also doesn't have the resource curse issues that something like a preference for buying sulfur or diamonds does. Quite the opposite, China, Korea, etc all climbed the economic ladder through such manufacturing preferences. Often starting with consumers.
Certainly there is nothing objectional about wanting artisanal Vietnamese goods because of their quality or novelty. Inasmuch as Ten Thousand Villages offers the best value proposition, I recommend buying them there.
I believe that most people buying goods from TTV do so because they both like the goods themselves, and out of a charitable impulse to help others. I believe these people would, at the margin, do better by the metrics of both "quality of goods obtained" and "degree of help provided to others" if they separated these two purchases in the way I have suggested.
You say that "Ten Thousand Villages is effectively a marketplace connecting craftspeople and consumers" and ask how it is meaningfully different from Amazon. The difference is that literally anyone can sell pretty much whatever they like on Amazon, and these sellers compete with each other to provide the lowest possible prices (i.e., to be as efficient as possible in producing their goods). By contrast, a select few artisans are permitted to sell their goods in TTV stores, after first establishing a relationship with TTV and determining a price floor. If my neighbor weaves 20 baskets a day to sell at TTV, and I can produce 40 comparable baskets a day, I don't have the opportunity to undercut her on TTV.
Thanks for the clarification. But now that I understand your position better I am more convinced that your argument is wrong.
Firstly, you emphasize that Amazon has a less selective process for getting onboard than TTV. This is true but also irrelevant. If you define that as distortion then every bar that only lets in certain kinds of wine is "distorting" the market. It's perfectly normal for firms to pursue a variety of strategies for their suppliers.
Since you're emphasizing selectivity: what's the difference between TTV and Costco which is also selective and only lets in people who meet their standards both for quality of goods and for other things? You don't have a right to be stocked on Costco's shelves either. (You don't really have a right to be on Amazon either. They don't allow vendors on all the time.) And you DO have an opportunity to undercut the basketweaver in the general market.
Secondly, you say they would be better off buying a cheaper, higher quality good and donating the difference to charity. By this I take you to be claiming the amount of value produced for the consumer by the purchase plus the value of the donation to the producer would be higher than the value created by the transaction.
But this presupposes a cheaper, better good exists from the perspective of purchasers. It also presupposes that there is an inherent quality tradeoff. Neither is necessarily true and both are unlikely to be true because TTV is a market firm. If customers didn't feel its goods were worthwhile it would die out like any other firm. Nor does having some social good mission make it different from most firms which give lots to charity and blast it from the rooftops.
What your argument really boils down to is a pure efficacy argument. In effect, you are claiming that earning money from exports is less effective than receiving money in charity/aid. You haven't actually made that case though.
You would have to argue that a one time grant of, on average, $200 per person does better than boosting manufacturing and giving people jobs that pay an order of magnitude more than that every year more or less forever. (Very few of these artisans only sell to TTV.) This is a dubious proposition. If you want to argue it I'd be interested to hear. But my counterexample would be literally every country that's industrialized over the past century. They have literally all done it through trade and boosting manufacturing (or, in a few cases, services). None have done so through aid, even block grants like GiveDirectly.
On the contrary, I'd argue that GiveDirectly would have done better to direct its donations into productive investments in poorer countries. Developing nations generally have weaker investment than consumption and tend to start growing when investment increases relative to consumption. Which exporting does by boosting invesmtent to satisfy foreign demand, changing the investment/consumption ratio within the country. Again, is the universal growth story of every successful middle income country.
And yes, your one purchase (or even all of TTV) isn't going to do that on its own. But it does move the needle. Vietnam's artisan villages or Bangladesh's moves into higher end cloth or Uganda's coffee branding have all helped even if the countries aren't wealthy yet. Because of wealth disparity even a single relatively small industry can make a huge difference.
" this presupposes a cheaper, better good exists from the perspective of purchasers. It also presupposes that there is an inherent quality tradeoff"
Please read the second and third sentences of my reply where I explicitly contemplate that TTV offers the best value.
"You are claiming that earning money from exports is less effective than receiving money in charity/aid." Absolutely not. I am claiming that earning money from protected fair trade exports that pay above-market prices is less effective than earning money from ruthlessly competitive free trade exports, plus getting the rest of the money via direct aid.
If you do not claim that people are buying partly due to something beyond simply getting the best value then your second paragraph is a weird digression and you don't actually come to a conclusion.
Also, TTV is in no way "protected fair trade exports." Again, you seem to think TTV is the government or a cartel or something? It's not. There's no protection. You can go and start a basket selling firm or export goods from wherever they do quite easily.
What aid does is boost consumption which, from a humanitarian point of view, is great. From a development point of view it needs to be done very carefully to not be counterproductive and, even if done correctly, doesn't really boost development.
"If my neighbor weaves 20 baskets a day to sell at TTV, and I can produce 40 comparable baskets a day, I don't have the opportunity to undercut her on TTV."
OK, can you unpack that a a bit more? You're making it sound like TTV is some sort of cartel, like you have to have special pull to get your goods sold via TTV. Is this so?
In your hypothetical example, what's stopping you from contacting a TTV representative and telling them, "Look, you sell my neighbor's baskets for $40 each, but I can weave twice as many baskets per day, and hence can sell them for $20 apiece!"
TTV then has a choice. They can tell you:
a) "Sure thing, go ahead and sell your baskets with us for $20 each! This will likely drive your neighbor out of business, too bad, so sad, that's the market working as it should!"
b) "Look, we want to make enough money to stay in business, but we also want to support a variety of artisans. You can sell your baskets with us, but you must charge $40 each, otherwise you would drive your neighbor out of business, and we don't want that. These are the terms, take them or leave them."
c) "No, we don't want to sell more than one type of good (basket) from one part of the world. Your neighbor is our designated basket provider from [your part of the world], we don't want anyone else, too bad so sad, bye."
I don't have any insight into TTVs practices beyond what they describe on their website. It's entirely possible that TTV answers with a), in which case the market distorting effects will hopefully not be large. But since TTV explicitly describes creating a safety net of dependable income for their makers, I suspect that truth is somewhere on the spectrum closer to c). And if "fair trade" means anything, surely it means that sellers are receive above-market-value prices for their goods - i.e., greater than what they would expect from ordinary ("unfair?") trade.
I think, if I understand correctly, that I agree with this take.
If we presume the goal is the best possible outcome for the people in question, there are 3 different kinds of interventions that are relevant in this context:
1. Interventions which attempt to bring about, expand, or preserve, capitalistic institutions in a place with people we want to help
2. Interventions which directly give resources to people we want to help
3. Interventions which improve the profitability of value-adding enterprises in places with people we want to help
People claiming 1. is better than 2. I think dont have much good data to back it up. Interventions of type 1. are really, really hard, theres no straightforward approach that will definitely work, and the results are pretty much impossible to measure. If you can do it, fantastic - you might end up with postwar japan. But overall these interventions dont have a fantastic track record purely in terms of QALYs/Dollar
However, if I am understanding you right - I think EA types undervalue interventions of type 3 relative to type 2, due to a psychological flinch away from interventions that feel less like charity or feel like engaging in commerce etc. Thats not to say type 3 interventions strictly are better - but I think they often may be, as they have the massive benefit of being partially or totally self-sustaining.
Type 2 interventions are great but work so long as you continue funneling resources into them (but not always - a lot of EA is just basically resource transfers, but a lot of it is also raising the infrastructure or health or education waterline, and these are nearly type 3 interventions)
Whereas Type 3 interventions ideally assist them in bootstrapping their own economy and society more quickly.
So I think "remember to set up self sustaining value adding enterprises when you can, these youre flinching away from them more than you should be!" is an accurate and important thing to remind the EAs of.
Yes, this is more or less correct. Something social enterprise does is try to distinguish projects between 2 and 3.
For example, there's no profitable way to fight childhood malnutrition in the short term because of time pressure. You can't wait to affect food prices or something. You just have to give them food now or they get stunted permanently. And there's no good way to make a profit off it that isn't morally horrible. But this is inherently unsustainable. You stop supplying food and the malnutrition returns.
On the other hand, boosting income and productivity through giving subsistence farmers access to crop insurance subsidized by industrial mills that then make a profit from fees and selling flour is both sustainable and long run better for the entire region. Eventually malnutrition goes away on its own as incomes rise. This is, in general, better than just giving food. It both has more positive externalities and is cheaper in a QALYs/dollar sense.
So the argument is Type 3 is better than Type 2 and should be the default. But where Type 3 doesn't work you should do Type 2.
The problem is this is the opposite of what we see in reality. People default to Type 2 and often consider Type 3 to not even really be helpful or 'real' charity. This is because (at least in my opinion) people care about charity more as a status game and being engaged in a flour milling operation in Africa is low status while going to Africa and distributing food is high status.
I agree with the last paragraph, with some reservations that Type 3 is always or by default better than Type 2.
Im only confident at the moment that the current equilibrium has too little Type 3 and too much Type 2 (and I think for the same reasons as you), but I guess what Im saying is the messaging should be "You should actually check!! The type 3s are often better!" no "Stop doing Type 2 you selfish status seeking dunce! Type 3s are better!"
Hey, if you've got advice for selling this to the EA types I'll take it. They've directed something like a few billion dollars which could have, in my opinion, gone to better use. If I really believe this stuff then I have a moral duty to be making the strongest case I can.
To my instincts the right messaging is something like
"Helping developing and third world economies bootstrap their own value adding industries is just as important as helping provide the immediate means of survival. The causes of their misfortune are often systemic, problems that in our own societys history required good institutions and productive enterprises to solve. If you only hand out resources they will quickly be in the same predicament as soon as your funds run dry - which recent experience should warn you could happen at a moments notice."
It's actually worse than that - having a readily available and free alternative actively destroys the local economy that may exist, rather than just failing to build a new economy. Nobody spends time and money growing food when there's free alternatives available. In the end they're worse off than before getting the charity.
ETA: I'm not against charity, but think we need to be a lot more thoughtful in how and why we do what we do with it. We need a lot more Type 3 and to be very selective in the Type 2.
Do any of the horses you back let me do more good per dollar than donating to AMF / MC? I'm being absolutely serious -- I care virtually ~nil for the "charity vs capitalism" debate, I just want less suffering and more welfare for my (limited) donations (since I'm from a middle-income country). AMF / MC are hard to beat not just due to cost-effectiveness, but robust evidence along the whole theory of change chain, so I'd like the second part as well.
Most of the AMF calculations are, to be honest, kind of made up. (I'm less familiar with MC.) The way it works is you have fairly rigorous estimates of the amount AMF distributes nets. They add a somewhat more dubious percentage of reduction of malaria this creates. And then they value how much not getting malaria is worth in what's basically made up numbers. This then creates a "return on investment" that has no actual third party verification. For example, they've made no attempt to empirically measure the GDP growth they claim will happen as far as I'm aware.
Their numbers honestly make a lot more sense if you're putting a moral premium on charity and preventing disease. Which is perfectly defensible on moral grounds. I too want to prevent disease. But at that point it's just using bad math to justify moral intuitions, something unfortunately common among utilitarians.
The actual numbers they claim is a 1:12 annual return delivered in perpetuity. (They might be using sloppy language but this is what their claims imply by using GDP, ROI, etc language.) I don't think this is right. If nothing else presumably the benefit goes away after the net is destroyed which takes, on average, less than a year. (https://malariajournal.biomedcentral.com/articles/10.1186/s12936-018-2391-5) I do mean on average of course: 35% survive more than a year. They're effectively suffering extremely rapid capital depreciation, with almost all nets gone within 3 years. This means the return on your $1 is, over the course of 3 years, $17. After that it basically goes to $0. It's slightly less due to discount rates but let's ignore that.
Okay, let's compare that with setting up a McDonalds. That costs $2.3 million and generates $2.7 million in revenue per year on average. Further, McDonalds produce another $1.4 million in GDP in addition to its own contributions for a total of $4.1 million. Unlike AMF these numbers are subject to market discipline and so as objective as you're going to get.
But the McDonalds will not be gone after three years. The franchise agreement lasts 20 and most franchises make it to that point. So your $1 will produce, arbitrarily stopping after 20 years, about $35.5. Assuming 100% of profits and franchise fees are not spent in the host country (unlikely) and you're still left with $32. In other words, AMF underperforms opening a McDonalds on a long term timescale. (And measuring in GDP is AMF's choice. They do this in their own documents.) In fact they even underperform opening a McDonalds in California and donating the profits to bed nets.
Now, of course, I'm not saying the most virtuous thing you can do is open a McDonalds. But you don't have to open a literal McDonalds. You can open flour mills or road construction companies or even a system of corner stores in some poor parts of Mexico that help people transfer money with lower remittance fees. These are all profitable businesses that contribute more to GDP than AMF does over time. And if you then want to take some of those profits and donate them to causes that can't be commercialized, like food to the starving or bed nets to the poor, all the better. That just boosts the amount of good you're doing even further.
The "smart" counter has to do with bringing back in discount rates. Because growth tends to be higher in poorer economies the discount rate tends to be high such that profits far in the future are heavily discounted. This can swing things closer since the AMF gives more up front. Though over the long run, unless you really pump up the discount rate, business still usually wins. But I also think this is a bad use of discount rate. The compounding growth of business is how poor economies get out of poverty. And the volatility of the discount rate in poor countries makes that analysis qualitatively different, in my view, than it is in more stable, rich economies.
At any rate, there's nothing per se wrong with wanting to stop disease. I have no issue with people living their morality. But if you really want to do the most good for people in the third world socially minded enterprise, not charity, is what gets them there. It's also the story behind nearly every successful national journey out of poverty. China didn't give its people bed nets, it set up factories.
GW mainly evaluates AMF on health benefits, which are really rigorously calculated (ie based on RCTs), and give a cost per life saved. What about those?
Calculated in what sense? AMF and GW both use economic calculations and they're not rigorous because they don't have a good way to give a price to human life. Especially with how quickly that ends up in Singer territory.
If you just want to optimize for short term saving lives then bed nets might be the best answer. In the mid to long term, though, rising incomes and infrastructure has better outcomes on virtually all health metrics. Richer countries are generally healthier. This is not really in dispute except at the very high end where we're comparing, say, America and Denmark.
If bed nets existed in a constellation of charities with significant weight toward that then I'd feel much less exercised about the whole thing. I don't think MSF or AMF are bad organizations. I just think it gets too much funding relative to other initiatives. (Or ideally they'd both get more funding, I guess.)
Again, the core argument is not "there should be no charities." It's that "an aversion to business and profit is leading to an inefficient allocation of resources."
Could you sketch what you think a better alternative would look like? Let's say that operating a McDonalds or flour mill would contribute more to long term wellbeing than mosquito nets. What would we do with that information?
Move to poor countries to start businesses? Wouldn't that lower our own productivity, on average?
Invest in businesses in poor countries? How might an individual do that, and what would it look like if scaled?
Would any trade of goods and services with poorer countries count? If so, wouldn't operating the supply chain to e.g. distribute mosquito nets in sub-Saharan Africa qualify?
[Now I see your comments above referencing a couple of initiatives, but the questions mostly still apply about those in particular, and what scaling / contributing would look like within that paradigm.]
> Could you sketch what you think a better alternative would look like? Let's say that operating a McDonalds or flour mill would contribute more to long term wellbeing than mosquito nets. What would we do with that information?
Rebalance the money you set aside for helping others from straight up charity and toward impact investing. If you want extra credit commit to donate the proceeds from such investments at some point. Ideally to the places the returns were generated in.
> Move to poor countries to start businesses? Wouldn't that lower our own productivity, on average?
Depends on your skill set. Some people it would, others it wouldn't. The attitude's a bit similar to EA in this regard. Some people should do the work and some people should earn to give (though they do not use that term).
You also don't always have to move there. The company that makes that helps road maintenance/repair for Central Asian roads is run out of America because it's primarily a series of drones, sensors, and software products. They can't get to Central Asia now because of the Ukraine War but they're still operating in those areas. They did some work on demining in Kyrgyzstan that's actually potentially going to get applied in Ukraine from what I hear.
> Invest in businesses in poor countries? How might an individual do that, and what would it look like if scaled?
The same way you do anywhere. People imagine that putting your money abroad is orders of magnitude harder than New York. It's somewhat harder but not that much harder. And you can scale very easily. The mechanisms for such investments are well developed because, as I've repeated several times now, they're profitable. There are also numerous funds and organizations that do this specifically if you want to delegate. Which is usually best unless you want to develop expertise.
> Would any trade of goods and services with poorer countries count? If so, wouldn't operating the supply chain to e.g. distribute mosquito nets in sub-Saharan Africa qualify?
Sorry, I think I misunderstood. Distributing charity does not qualify as trade and it doesn't qualify as economically productive activity either. Operating a supply chain could do and you could certainly give preferable shipping or help move what is normal charity at favorable rates.
> Thanks.
If you are seriously considering changing your mind then thank you.
> I don't think this is right. If nothing else presumably the benefit goes away after the net is destroyed which takes, on average, less than a year.
This would only be correct if mortality risk from malaria were uniform throughout time. If a child is especially vulnerable to dying from malaria before age 5 and then has a substantially lower chance of dying or getting permanent brain damage from fever, the life after their counterfactual death is all return.
It's also plausible that if you cross some threshold of sick days per year, your life ends up substantially disrupted afterwards because all slack for non subsistence projects go away.
Obviously the effectiveness of malaria nets works against itself in this analysis (if malaria is super bad, then not having malaria nets gets worse and these later returns get curtailed), but it's not clear to me you can assess a health intervention's impact after the preventative period if the disease is potentially lethal or debilitating.
I can be convinced these numbers don't work out with a model with plausible assumptions or an extremely well constructed study, but the verbal argument of protection from debilitating diseases offer no return" does not pass my bar.
My argument is not that it offers no return. And of course not having diseases has some economic value. My argument is that their own numbers estimate a 1:12 return and it's not hard to beat that. In fact I give them a 1:17 return by adding in some favorable factors!
What you're doing is speculating that there's some secret, even higher value such as avoiding brain damage or a disjoint where too many sick days causes an outsized effect. Maybe! Prove it. AMF doesn't claim that.
My actual theory is you're trying to smuggle a normative moral intuition in on utilitarian terms. You just don't like the idea of children dying of diseases and no amount of economic math is going to convince you. Which is fine. But then we can stop pretending this has an objective utilitarian answer and have the discussion about how to balance limited resources toward savings lives now vs longer term investment that can solve the issue more permanently.
> What you're doing is speculating that there's some secret, even higher value such as avoiding brain damage or a disjoint where too many sick days causes an outsized effect. Maybe! Prove it. AMF doesn't claim that.
Wtf. Is it really controversial that high temperature fevers to young children can cause brain damage? Or that a disease worse than the flu / cold, which we already know is damaging to first world economies, would be damaging to third world economies?
Now I can admit that I am *too partial* to believing those studies, or that those studies are motivated about proving effects that do exist. But I believe you are wrong about specifically utilitarianism motivating my incorrect views.
Or is your claim that my prior that brain damage is economically damaging is wrong since I'm too charity pilled? That doesn't seem right either, I doubt you would accept a bet where your firstborn is infected with malaria and I only compensate you for the chance of death plus hospital bills, where we allow the fever to cook a brain for a couple of days before treatment begins. This just seems like a reasonable prior that ~everyone accepts.
If your claim is that believing in any of this without exact studies with the quality of RCTs, I think this is an isolated demand for rigor, because from the last 3~ times you posted about EA not listening to your advice, I do not recall any links to high quality evidence you're (hypothetically) demanding, only verbal arguments. If I missed it, then apologies, but I don't think "I want proof around the level of RCTs givewell uses" is a double standard so much as a standard. Hey, if you think that I should have **more** of a prior that economically beneficial interventions are helpful vs healthcare interventions, then you are much better off showing what informed your prior rather than showing my prior is wrong.
> My actual theory is you're trying to smuggle a normative moral intuition in on utilitarian terms.
And the same back to you! Imagining health interventions which prevent brain damage not having economic effects sure seems like motivated reasoning where you stopped trying to think of possible economic effects once you've determined it's an "utilitarian intervention on health!
To be more explicit, I am a first generation ABC and grew up with stories about how wonderful a free market is compared to how horrible economic life was under a communist regime. The idea of a one time donation that solves ~all economic problems, or comparatively simple policy adjustments like how the Asian Tigers made are *especially* appealing. The problem is that almost all of the economic interventions I looked into as a wee EA around 5 years ago, they all sounded as verbally good as you say here, but ended up having lots of unexpected second order effects (mostly remember this applying to research on microfinance, but also some on naive policy implementations). I also have a family member who is deeply involved in operations of an Ugandan company for similar economic altruist motivations, and we regularly discuss this and we think there is reasonable room for disagreement. Maybe I should revisit this, maybe I was premature! But I am emotionally compelled to believe people who are incredibly inaccurate about my internal mental state would also be accurate about charity interventions. Please stop accusing me of vices I do not practice, and instead preach virtues you do practice.
> This then creates a "return on investment" that has no actual third party verification. For example, they've made no attempt to empirically measure the GDP growth they claim will happen as far as I'm aware.
I think you're referring to row 147, where they estimate 29-48% of the value coming from development benefits, calculated in rows 108 onward. I agree with what you point out here, so I discount this from my own decision-making re: which GHD charities to donate to.
I do broadly buy Pryce et al 2018 though, so I still buy the cost-effectiveness (CEA) claim with development benefits zeroed out, where it's still competitive with basically any GHD charity I've seen evaluated as extensively (emphasis 'as extensively'). I have 2 considerations that push down the CEA estimate (nets are more expensive now than last year; marginal CEA < historical avg CEA more generally) and 1 consideration that pushes it up (AMF is cash-strapped https://forum.effectivealtruism.org/posts/fkft56o8Md2HmjSP7/amf-reflecting-on-2023-and-looking-ahead-to-2024#2024_to_2026_are_shaping_up_to_be_challenging_years_); I'm not sure how this changes the CEA on net but I'll call it a wash.
FYI:
> If nothing else presumably the benefit goes away after the net is destroyed which takes, on average, less than a year.
Ehh, you could see the social enterprise movement mention upthread as a steelman of the arguments that people make at you, in which case you might still want to engage with it.
You are, of course, welcome to beat up strawmen on your own blog. I will still point out you're beating up strawmen rather than steelmanning the other side.
“Double bottom line” has been a buzzword for awhile. Shareholders largely don’t respond well to these expansive definitions of fiduciary responsibility in higher cost of capital environments.
Yes, and b-corps and the 1% rule a bunch of other buzzwords. The issue is very often that's just an existing business effectively donating to charity and expecting to fundraise off it. There's already been research on this. The answer is it buys you some extra consideration but not a ton.
So it's necessary to structure the business model properly from the beginning to ensure that its a good value to investors and produces the proper outcomes. Something that relies on investors passing up better investments is, again, unsustainable.
I always thought the capitalist argument was that, thanks to compound interest, if you invest your $1 million now, in 30 years it will be $1 bajillion, and thus will fund much more charitable activities. To put it in terms of your #2, invest in companies that produce the highest rates of return, and this will produce more surplus value in our national economy, and in the long run will create a wealthier society that can spend more on philanthropic pursuits, some of which will be determine by you, since you now have more surplus, too. You have to balance that against whatever discount rate you want to apply, obviously, which, ya know...starving children probably have a pretty high discount rate, so I don't consider this an easy question to answer.
I guess the point I'm trying to make is that that's not clear to me. It would seem to me that the choice between doing some good now vs lots of good a couple decades from now is not exactly a no-brainer. I would be inclined to prefer the latter, really, so that would imply a low discount rate. But, then again, starving children. I have no idea how Scott views the situation, though.
I guess my argument would be that if we decided to always distribute goods in the present, and apply that philosophy to previous eras, we would all be living a menial existence. It takes years of reinvestment in order to create the underlying infrastructure to raise living standards. It's like Amazon making no profits for many years reinvesting all of their revenue in order to become much bigger and more profitable later.
I've thought about this a lot in the context of early Communism (late 19th century). By their own standards, the economies were so large and prosperous in the west that everyone could live "comfortably" by those standards and work very little. By the standards of people now, those people lived in extreme poverty with outrageous mortality rates, especially among children.
At some point we can and should distribute more than zero, but it's hard to draw the right line and we may continue to find that reinvestment pays off in the long term enough to discourage short term redistribution.
I'm not sure he's taken care of it correctly. With a normal discount rate, investing in a good VC fund should provide positive net present value from a purely selfish point of view. In other words, if the investment does actually do good for the world, it does so at zero personal cost, for a cost/benefit ratio of infinity. Of course if the discount rate on charity is much higher than typical investment returns (because an intervention today has an exponentially cascading effect through subsequent decades) then it's harder to answer. But if charity had such a huge cascading effect, we might expect the countries that have received charitable aid to be doing much better now. So I think we have to assume that the discount rate isn't massive, unless there's strong evidence for such a rate for a particular intervention, and therefore the "return on investment" argument is highly relevant, not just a factor of 2.
Why don't the villages have clean water dispensers? Is there an issue preventing their inhabitants from prioritizing clean water? If they don't care about it, fix that. If they do care but can't afford it, fix the problem where they have no jobs to earn enough money to buy clean water dispensers by investing in local companies to those villages.
As far as I can tell, there's lots of other things you want people to be able to have, like say education or medical care etc, and if you go down the chain of causality for what preventing people from helping themselves, you probably reach lack of clean water quite often.
So I suspect that concentrating on the water dispenser is probably already the result of someone applying your algorithm a few times, and finding out that the 'fix' step often has 'fix the water supply' somewhere in the causal chain.
Of course, you don't have to stop the causal chains or graphs at 'clean water '. But you usually have to stop at some point, if you ever want to do act at all.
These villages are often located far away from the source of water they depend on. People (mostly women and children) spend so much time hauling water around that they have little time to do anything else productive. So the water situation is a bottleneck that prevents them from having good jobs, getting a good education, earning more than just a little money, et cetera.
I was wrong about Dispensers for Safe Water; I assumed they dug wells or ran pipes, like other charities I'm familiar with. They actually provide chlorine, from machines that facilitate getting the ratio of chlorine to water right. GiveWell highlights them because there are lots of popular charities that dig wells (ie the ones I was already familiar with) but not as many working on treating existing water sources.
The more healthy people live in a place, the more effective man-hours are available in the local labor market to support business. Diseases from dirty creek water are strangling the local economy just as effectively as anything else that harms businesses. Cholera is a huge waster of time; a giant productivity suck. Way worse for jobs than high taxes or onerous regulations.
You're right that it's hard to understand why they don't get the chlorine themselves. I don't understand that part. But I think if foreigners are going to help at all, helping with the water situation is one of the best ways, because everything else people do is dependent on water first. You're not going to build a factory in a place where your workers are going to get cholera all the time.
I think the answer is "politics"--ie, markets do not operate in a vacuum, and the interests of wealthy producers and consumers tend to warp the incentives such that policy (in both the locality that is providing the money and where the money is being received) supports the interests of these wealthy participants (be they local elites, global elites, middle class donors in developed nations, or whomever). The one faction with the least leverage over development policy are the poor people receiving the aid.
Chlorine isn't the only way to clean water. Everyone ought to be able to boil water, which ought to clean it at least as well as chlorine, since chlorine only kills bad things in the water, and does nothing for bad impurities.
This is a bit of a necromance as I didn't see the reply. I can't help but wonder whether the obstacle to utilization of microcredit is cultural or biological. Both seem plausible in terms of environmental or genetic loading. Your priors may vary but I have this gut feeling that overall human development is more IQ-loaded, implying the root is at the bio level and that investment in biotech gene editing might have greater overall impact, albeit much more long term.
"And it saves its customers time, which they can spend on productive economic activity." - I think this is close to the actual reason why Capitalism is Good. Expanding and generalizing a bit: capitalism creates material abundance, by allocating scarce resources extremely efficiently.
You write "On the other hand, saving people’s lives allows them to engage in productive activity too." But the question is how much productive activity? People abject poverty are for most part deeply unproductive (in the capitalist sense, not in any moral sense). It is at least plausible that saving an hour of some silicon valley engineer's time today via Instacart creates more total economic surplus than the result of saving some poor kid from malaria (after applying some discount rate to future value). Arguably, the fact that morally neutral hypercapitalists seem more interested in investing in Instacart than in saving poor kids from malaria is evidence for exactly this claim.
Fortunately, I'm not a utilitarian, so I have no problem just donating to charity.
Taking your analysis at face value, the problem might not be that an hour of my time is worth more than the life of a starving child, but that starving children can't get loans.
A functioning credit market would make it so that the malaria prevention just needs to raise economic productivity enough to pay back the loan in twenty years when the kid is economically active.
(This is a bit tongue in cheek. But I'm actually quite serious about how access to a well developed financial system, or even 'just' a strong community network, can help you bridge cashflow issues, and makes life so much easier.)
"It is at least plausible that saving an hour of some silicon valley engineer's time today via Instacart creates more total economic surplus than the result of saving some poor kid from malaria (after applying some discount rate to future value). "
I think it's probably not that high in magnitude (an hour vs. a lifetime), but I agree there's a big productivity gap. I do think you recover some of that from the fact that the Silicon Valley engineer's productivity mostly goes to enriching Silicon Valley, whereas a Nigerian farmer's productivity mostly goes to enriching Nigeria, and the marginal effect of creating an extra dollar of wealth in Nigeria is higher than the marginal effect of creating an extra dollar of wealth in Silicon Valley.
I'm going to take a bit of a social credit risk and steel man the claim that 1 hour of the SV engineer's time is worth more in terms of global economic value creation than a lifetime of a child in a third world country who is currently dying from Malaria.
The SV Engineer is already selected from a significant portion of the world population (including immigrants on employment visas) and is likely at near the top of the list in terms of human productivity. This is compared to a random child in a third world country who is clearly in a very bad situation. The chances that that a random child end up a net producer is, optimistically, above 50%, but that SV engineer is not a random human. They are the proverbial cream of the crop. They probably have an IQ in the top 10th percentile, they are already trained and have had laziness filtered out (or optimized for depending on how you look at it). They aren't just a "net producer", they are a 1000x net producer (depending on how you calculate such things).
If there is a one in a million chance that the kid you save goes on to become a 1000x net producer, the other 999,999 kids are a wash (in aggregate) in terms of net production/consumption, and you throw in some other assumptions like 50 productive years in the life of an SV engineer, then saving that 1000x engineer 1 hour of their time outweighs saving one kid in a bad situation for a lifetime.
You can certainly fiddle with the numbers and get a different answer out, and you it is reasonable to argue the premise that productive value of an SV engineer is not actually all that high because it is being directed at stupid/useless things, but I don't think it is obviously wrong to make the claim that the productivity difference of a human selected through a highly competitive free market is many orders of magnitude "net more productive" than a random human in an obviously bad situation.
I think all of this is screened off by an economic argument. A good Silicon Valley engineer earns what, $200/hour? Average yearly wage in Kenya is something like $5,000, so if they work for 30 years, total lifetime productivity is $150,000. So the Kenyan over a lifetime creates ~1000x more than the engineer in an hour.
If you disagree, I'd be interested in hearing why you don'you think the market value of their work is the right way to measure this.
Using your Instacart example, the only reason you are willing to use Instacart instead of going to the store yourself is because you believe that you are coming out ahead on net. This is true for any non-coercive trade between two parties. What is important here is that without coercion, it is impossible for a company to extract 100% of the value of any freely entered trade. Companies will, of course, try to extract as much from the trade as possible but there will always be some amount that goes to the counterparty. The sum of the benefits to both parties is the "productive surplus" we are talking about here.
As an Instacart customer yourself, at what cost does their service become a wash in terms of whether or not it is worth it for you to use their service vs go to the store yourself? Subtract from that number the price you are paying for their service now (including their markup) and then multiply that by 10M customers (assuming you are "average" here for simplicity's sake) and you have a rough estimate on the customer side of the productive surplus equation.
On the business side there are a couple things at play:
1. Paying employees is a small part of how the company's productive value is distributed. A lot of that productive value gets distributed back to investors, service providers, etc. I worked for a big tech company as an engineer a while back and the company was 80% sales & marketing, 20% engineering in terms of HR costs.
2. The productive surplus created by the business is the sum of the productive surplus to each party voluntarily involved in any way. If I can get $150k at company A and $155k at company B, then I would count the productive surplus distributed to me by company B is $5k. The company similarly distributes some productive surplus to every employee. They also distribute some surplus to every supplier, vendor, service provider, etc. in the form of their side of freely engaged trades they make. Investors also receive some non-trivial share of the productive surplus generated by the company. We would want to add all of this up to figure out what the net productive surplus the company is adding (which is very hard to do because it is so diffuse!).
This is all a long winded way of saying that I'm not convinced that engineer salary is the right way to calculate productive surplus created by that one employee.
As a simple illustrative example:
Imagine I used a bunch of modern technology available to me to create a business that is nearly fully automated and improves the lives of all of its customers. Further, lets assume that I only accept the minimum salary necessary for me to live and I charged my customers essentially no mark-up over my costs of operating the business. The "productive surplus" I am adding to society is about the same (maybe a bit higher) as it would be if I took a big salary and charged my customers the maximum they would bear, the only difference is how it is distributed.
I think a better proxy metric would be to ask yourself what the maximum markup over in-store costs you would pay for Instacart is, and then multiply that by 10M (don't subtract Instacart's costs). This doesn't account for the alternative things the company and its employees could have done with their time, but I think it gives a slightly better proxy for productive surplus then employee salaries.
Of course, all we are doing here is adding a couple spherical growths on our spherical cows. Real world economics is far more complicated then our feeble human brains can process. There are other ways you could dissect this problem and come up with different answers. You can pick a proxy metric that makes one point or another proxy metric that makes an opposing point. I'm not strongly married to the description I gave above and I fully recognize it is missing a ton of variables (some I have thought of but don't have time/space to include, some I haven't thought of). My belief that I cannot possibly account for all of the variables properly is precisely why I'm a fan of free markets ("capitalism") rather than centrally planned markets ("donations").
Most of the Nigerian kid's earnings are far in the future, and you need to discount them at a rate above 0%. Also, I'm not sure where you are getting $5000/yr but it seems too high. The first Google result ( https://www.tuko.co.ke/343265-average-salary-kenya-2020.html ) says 20000Ksh/month salary, which is $1521/year. But even that is too high, because that's average wages in the formal sector, which does not describe the extremely poor marginal recipient of an antimalarial bed net. Isn't that marginal recipient from the extreme poverty, <$2/day population?
If the marginal recipient earns $700/year, then assumptions about the discount rate determine whether the lifetime earnings in the future are more than the hour today. E.g., if earnings start 15 years from now and the discount rate is 20%, then the engineer's hour is worth more.
This. The kid who was saved from malaria today, may die of water impurity tomorrow, or starvation the day after that, or gang rape the day after that, or be conscripted into a child army the day after that. (Or not!)
I think it also is worth considering that the possibility the kid would go on to have a productive life really varies, depending on the kid's culture and parents and community, and the subset that needs charity is likely to underperform the average. To use the Nigerian example, if you save an Igbo kid who lives in the city maybe he does produce that much value, and there's a segment of possible outcomes even higher like he joins the diaspora and becomes a wealthy doctor in Nashville. OTOH if you're saving a Hausa kid in the interior his chances to have a meaningful productive life are still pretty low, and he could even be a net *negative* to value creation because he ends up joining a roving military band at 14 and spend the next decade killing people and demolishing buildings and trying to prevent social advancement.
Whereas if you put the resources into developing Nigeria into a modern state with the levels of stability and rule of law that are necessary as a precondition for capitalism, and economic liberty and social mobility begin to flourish, you've moved every Nigerian's range of possible outcomes further to the positive side. (I suppose the Hausa might disagree, if their highest value is maintaining their destructive and oppressive traditional way of life, but their next generation would still wind up with more productive lives.)
You are treating a person's propensity to destructive behavior as independent of the aid the receive. This is unwarranted - prosperity is a great liberalizer. Otherwise, this seems like perfectly valid consequentialist reasoning, and also wholly repugnant.
I completely reject the idea that you should condition life-saving charity based on someone's parentage or culture.
My argument is not that you shouldn't save incredibly impoverished people from malaria. Quite the reverse. It's that you shouldn't expect this to give you a good ROI. Of course positive externalities can be hard to capture, but if the return is large enough and the regulatory environment sufficiently benign, then the good capitalists will find a way to solve the profitable problems for you. Let the market save the lives of people with high expected future productivity - charity should be target the rest!
> I do think you recover some of that from the fact that the Silicon Valley engineer's productivity mostly goes to enriching Silicon Valley
I don't think this is actually true? Most of Silicon valley's productivity improvements have worldwide implications, they're not fancy things SV types consume that no one else does (you had that article a few years ago about how the juice pill startup is nonrepresentative).
Sorry, "enriching Silicon Valley" probably sounded too sneering, I just meant that they'll spend their dollars close to them (in SV), and the Kenyan will spend their dollars close to them (in Kenya).
I agree there's a different effect from the SV engineer creating a product that could be used far away, but realistically SV products are more likely to be used in the developed world than whatever an African is producing.
So this raises the question of what fraction of productivity gains a tech worker captures for themselves (since the rest goes to global productivity gains)- I actually suspect it's low relative to most jobs (no unions and less value on money as an end goal than e.g. finance workers), but don't have a good way to estimate (conversely since many tech products are highly competitive - if Instacart fails there's a dozen similar startups - tech workers may have leverage for high capture even if they don't work hard to use it).
The effect, in utils, of a marginal dollar of consumption in Nigeria is much higher than in Silicon Valley. But the effect, in total surplus created, of a marginal dollar of wealth invested in SV is way higher than in Nigeria, because SV productivity is so much higher.
Instacart's service isn't free after the $100 subscription - while you may no longer pay a per-order delivery fee, they continue to extract value through upcharging you on the cost of the groceries themselves (an item which costs $2 in-store costs $2.10 or $2.50 on Instacart), charging a percentage of the revenue to the retailer itself (so even if the price is equivalent in-store and on Instacart, Instacart charges a few percentage points of revenue to the retailer for the customer traffic), charging the retailer directly for providing services (most notably with smaller retailers, where Instacart may pick the products from the shelves, provide the back-end of the ecommerce platform, etc), or some combination of all of the above.
In all cases, the value extracted by Instacart far exceeds the stated fee that they charge you (either per-order or as a subscription), and you end up bearing it in one form or another at the end of the day. It's an interesting experiment to buy the same basket in-store and on Instacart at a retailer where the prices are NOT equivalent - often you'd surprised at the premium they're charging you for convenience. Certainly worth it for a segment of the population and a segment of retailers, but there's a reason that most retailers of scale are moving towards bringing the services formerly provided by Instacart in-house and figuring out ways to monetize it themselves - it's a frighteningly expensive proposition when you lay out all the costs end-to-end.
Obviously capitalism is the dominant mode of production in our world so it has a much stronger effect on things than charity. So when compared to charity it has some very big positives, but also some very big negatives. By all accounts the US seems like very unpleasant place to live for a large proportion of the population, undoubtedly for someone who is forced to take a “job” (or are they a self-employed contractor with no benefits) for instacart. Doesn’t instacart also contribute to social isolation and all the problems that causes?
My point is not to say capitalism is wholly bad and we should stop producing hospitals and vaccines and clothes and live in the woods, but that although it’s the main form of production currently it could be changed and improved, and money could be better spent doing that rather than blindly reproducing the current system
In what sense is capitalism a "mode of production"? My opinion is that we should even have the word "capitalism" at all - it's literally defined as "what naturally happens, always, if you don't have an authoritarian communist government that kills you for exchanging things with other people" - but if you insist on using the term, you should at least avoid things that imply it's some sort of "system" or "mode". It's literally the lack of a system. A simple description of the emergent state of the world that always occurs, except for when authoritarian communists kill people for trading.
I’m sorry but I think this is really bad thinking: to take something that is culturally produced and which we could change and assume it is part of the natural order of things and unchangeable. You even suggest not even having a word to describe capitalism to make it even more obscured. Of course, people throughout history have always thought the system and mode of production they were in was natural: people in the Middle Ages thinking Kings had a divine right to rule in keeping with Gods order of things.
I have a stick, but I want your rock. You have a rock but want my stick. We trade. How exactly is this "culturally produced"?
> people throughout history have always thought the system and mode of production they were in was natural: people in the Middle Ages thinking Kings had a divine right to rule
You're conflating the descriptive, actual natural state of things with the moral justification for a particular state of things. In this case, "divine right" was a reason that was used to justify a deviation *away* from the natural state of things.
You are being silly. Barter is not, by any definition I am familiar with, "Capitalism". There are many economic systems that have been practices or proposed that are not Capitalism. You might argue that Capitalism is the "best" or "most efficient" of these many alternatives, but to suggest that Capitalism is all that exists is just not historically accurate.
"Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, voluntary exchange, and wage labor."
Well in your example of two people with sticks and rocks, I think there are a number of implicit assumptions. You’ve assumed some kind of private property or ownership of sticks and rocks, which may occur in some cultures but equally there exist cultures where the stick and rocks are part of nature and not for one person to own. There’s also a desire for sticks and rocks. Where does this come from? I would say the desire is socially/culturally produced, but I’m sure you would assume that the desire and concept of private property come first before the social? If you make those assumptions then I think capitalism as nature follows.
If I ask my friend "Hey, can you hand me that stick over there?", do you think he'll say "Sure, here you go," or "I refuse to do labor for free, give me a rock first"?
Most likely, unless I'm asking for an unreasonable number of sticks, he'll just hand me the stick, because we're friends and picking up a stick for a friend isn't a big job. This is a favor-based economy - there's no formal ledger of how much value we're producing for each other, just a social understanding of how much we're both contributing to our shared need for sticks and rocks.
This works just fine at the scale of two guys picking up sticks, it works okay-ish at the size of a village (think "who's allowed to graze their sheep on the commons"?), it's only as the economy gets larger that currency and well-enforced property rights become necessary to keep better track of what everyone is producing.
...What? A complete lack of a system is just anarchism, which usually doesn't last that long because some group inevitably fills the power vaccum, which can possibly end up as feudalism or capitalism or any other system. But capitalism can't exist without some centralized power to manage the actual capital. It's a system like any other.
Capitalism isn't necessarily incompatible with "systems" broadly - but it just isn't a system in itself. It was a word invented by a communist that described, generally, the way the entire world naturally operates. The thing that we call "capitalism" is literally just "agents following their incentives," which is itself a given. Agents follow their incentives by definition. Thus, the term has near-zero informational content, describing the vast set of states consisting of "literally all possible states of the world except for the particular one where I institute a communist dictatorship and kill anyone who tries to voluntarily exchange stuff with other people."
Ah, agreed, during the 40,000 years of humans living as immediate return foragers without any fiendish authoritarian communist states around - or indeed any authoritarians, or states, anywhere at all - people were extremely capitalistic. One can only imagine after hunting down an eland in what is today Namibia, some young, enterprising man began a startup with the infusion of capital its meat provided.
If you want to define "capitalism" as "not having an oppressive state," cool. That's called anarchism, or freedom, or something. Not capitalism.
Capitalism is different from previous modes of production in the increasing economic dominance of capital as a factor of production (versus land and labor, which were the dominant components in premodern economies) that came about with the industrial revolution introducing mass production schemes which relied on capital expenditures to buy spinning jennies, steam engines, etc. Thus the name, capitalism.
Well, of course, as our ability to make tools becomes greater, the tools become more resource-intensive, and thus more of society's resources are invested in tools. There's nothing capitalist about that, that's just kind of what we call "progress" or "development".
Capitalism, as I understand the Marxian definition, is the extension of the concept of "private property" to include those tools (aka the "means of production"). Whereas in other societies the tools might be controlled by some other entity, such as a king or church or Central Committee, for stated purposes like "because I said so" or "the glory of God" or "the greater good". The nicer sounding the statements are, the less they may have anything to do with what really happens, which is a nice feature of capitalism, in that "do whatever you want to do" is personally appealing and non-coercive and pretty much a definitionally accurate description of what happens. But it's a little lacking in the area of "being a compelling vision to unify hearts and minds", unless you're Ayn Rand or a Chicago-school economist.
"Private property" is another weird term in that it describes something so obvious that it shouldn't even need to be said. It's like if we had a special word for "the right to not be tortured", as if that were some specific thing that we might deliberate over granting or not granting, and not an inherent and obvious right.
> Evidence of slavery predates written records; the practice has existed in many cultures and can be traced back 11,000 years ago
The earliest records show extensive evidence of people having *other human beings* as their private property. If that level of ownership was normal, I'm pretty sure people would have been able to own a plot of land or two.
> capital as a factor of production (versus land and labor
I don't understand what this means. What is "capital" if not "land and labor" vouchers?
> mass production schemes which relied on capital expenditures
If capital is just vouchers for land, labor, goods, etc., all former production schemes also relied on capital expenditures - just to a lesser degree, because the economy was vastly smaller. What you're describing is simply growth - a difference in quantity, but not a difference in category from previous economic conditions.
While I generally take a similar stance that people use the word "capitalism" poorly and should just describe the mechanics of change and trade, I dont think your model here is useful.
A meaningfully functional market DOES rely on some baseline shared assumptions and knowledge that did not exist apriori and had to be culturally developed - namely property rights. To address your stick and rock example - likely actually in the ancestral environment I steal your rock when youre not looking, kill you and take your rock, or convince our peers that I deserve the rock and we communally "decide" (read: coerce you) that the rock is mine. Markets do no function well in these conditions.
Additionally, while not _technically_ a pre-requisite for the loosest definition of capitalism, a market system at all resembling the ACTUAL capitalist activities that correctly get all the credit for catapulting the productivity and quality of life of the world over the last 3 centuries DO require some legible and reliable institution for the enforcement of contracts, prevention of fraud, assignment of liability, and disbursement of debt - while not NECESSARILY a government, these certainly do not arise from the state of nature either.
Therefore, capitalism is a "mode of production" (not the wording id have chosen but its good enough) in the sense that capitalism describes the operating state of a particular kind of market economy which leads to the production of goods and services, and it is different from other systems, which may be authoritarian, may not recognize currency and instead rely on barter or service barter, may not recognize any kind of property rights at all, may have a pseudo-market economy with a centralized owner and essentially all market participants rent or lease (feudal), etc.
And the government subsidies and regulations are a result of companies using their (economic) power to influence government policy through lobbying.
Power these companies inherently do get in capitalist systems.
And capitalism is inherently extractive, trying to externalize costs. To stay with the car centric society - seat belts as a feature cost extremely little when compared to the whole cost of the car, but were not widely implemented before government regulation made them mandatory, and they obviously save lives.
So some unpleasantless in the US might be despite capitalism, but some of it probably is because of it.
> were not widely implemented before government regulation made them mandatory
This is a common but pervasive myth. Consumers prefers safer cars, and they consistently choose cars that have better safety features. Safety is one of the most advertised features in a car.
> companies using their (economic) power to influence government policy through lobbying
This is why the word "capitalism" is a mind-virus for your type - you use it incessantly when you really just mean "incentives". In any "system" you can imagine, if you create the incentives for people or companies to gain favor with the goverment by making it so powerful that it can profoundly impact the economy, you will inevitably get people who will attempt to benefit from that. The problem is not the people following their basic incentives, it's the fact that you've made the government that powerful that an essential business strategy is getting in bed with it.
That's what capitalism is--a system of incentives. Invest in a business enterprise in the present so that one can reap a profit later. Capitalism is often criticized for not having any built in disincentive for unlimited growth, either system wide or for individual businesses. When businesses grow beyond a certain point, they start becoming powerful enough to distort government economic policy. One can argue whether the best alternative is some form of better regulated capitalism, such as democratic socialism, or whether an entirely different economic system is preferable, but capitalism as a system does come with certain societal costs.
I am under the impression that seat belts only became universal after they were made mandatory. Not true?
> And the government subsidies and regulations are a result of companies using their (economic) power to influence government policy through lobbying.
Not really. As an example, companies are almost universally in favour of more open borders. Yet, if there's lobbying, it doesn't seem to have much effect.
I think it's basically a sort of complicated geography and infrastructure rock-paper-scissors:
• Public transport (in the form of ferries, aeroplanes, high-speed rail, etc.) can take you to *plenty* of places you couldn't possibly drive to.
• If you live in a rural area (or for that matter the sorts of sprawling suburban wasteland type places that probably house most of the West's population) public transport is next-to-useless and nothing is as fast, comfortable, convenient, safe, and practical as a car.
• If you live in the middle of a bustling European-style city your car becomes a sort of slow-moving metal coffin that you sit in for hours on end watching elderly ladies overtake you on bicycles whilst carrying their week's shopping, before you finally get where you're going and have to pay £10 per quarter of an hour to park and any time you have the car with you and/or you even just expect you might have to drive somewhere you have to watch what you drink (and possibly eschew other substances besides) and basically behave like a heavily pregnant teetotal liver transplant recipient who has taken a vow against spontaneity lest you end up in prison, meanwhile people on bicycles or the tube or whatever can go wherever they want for next to nothing in half the time and spontaneously divert to the pub whenever they fancy.
• If you really crave that exhilarating, borderline-life-changing sense of freedom, driving a car can't even remotely hold a candle to the experience of riding a motorcycle - there's a good reason why motorcyclists call cars "cages" - but motorcycling is also almost-comically dangerous (and can be a pretty bloody miserable experience in the rain..!)
Depending on where you happen to live and/or where the sorts of things you want to travel to happen to occur* you might have a vastly different personal experience of all of these modes of transport to all the others.
(* and possibly also on how sober your government requires you to be whilst you're using your preferred mode of transport..)
I have lived in a couple car centric cities and liked it, and I do not want to live in the Netherlands, and I'm not convinced those kinds of cities are nearly as good when both the number of residents and amount of geography scales up.
I'm not saying everything about current cities is correct and good - far from it. But I don't think the problem is that they were developed for cars. (Rather a lot of times it's so congested because they _werent_ developed for cars)
Living in a place with cars around means you constantly need to be vigilant and watch where you are going. Otherwise someone will kill you. And they will blame you. Just like they used to blame black people when they died to lynching, if they walked around certain towns after sunset.
And the legal system will agree that killing you was not the fault of the guy darting around in a massive death machine.
The Dutch have a lot of people, and high population density. Their model scales to that.
I did not argue against cars for traveling between cities, if that's what you mean by scaling the geography?
(Though for really long distances planes scale better.)
Trains also work well for intercity travel. But your regulatory framework has to make that kind of infrastructure possible. Trying to get the US back onto trains by throwing money at the problem is a fool's errand. But they could at least remove all the implicit and explicit subsidies for driving.
(The US doesn't have a monopoly on silly regulations. In Germany they explicitly lower your income tax the further you live away from work. The assumption is that commuting has a cost that you can deduce from your income.
But they don't give you similar deduction.for eg the higher rent you'd have to pay to live close to your job.
So there's a.tax incentive that on the margin drives people to prefer a longer commute. So much for the green policies they are so keen on.)
Scott, I'm not sure your comparison between charity and investing in companies is a good one.
For investing, I would pick an exchange traded index fund. For the charity equivalents, I would pick whatever top charity GiveWell suggests.
I think the charity you did pick is very similar to what my method would suggest. At least in terms of impact.
But the investment is different. Mostly because it's much easier to load up a S&P500 portfolio with leverage than to do that for a single stock.
If our goal is to have the biggest economic impact, we should use the amount of leverage that maximises something like the Kelly criterion, I guess. As a rough guess, it's probably 2x to 2.5x. (Diversification allows more leverage. Leverage doesn't create more capital to invest in the economy. But it sort-of transforms risk-averse capital into at-risk capital. The latter can be a lot more impactful.)
About the impact on jobs: you are right that in a reasonably well functioning economy, Instacart doesn't create jobs.
It's all about opportunity costs and substitutions.
Without Instacart people would still be able to buy groceries, just slightly less convenient.
Similarly, without Instacart the people now working their would have slightly less nice jobs on average. Instacart also bids up the wages all across the economy. It's all about equilibria.
(It's the same as when you explored a few years ago why Switzerland has more expensive haircuts than Turkey, even though hairdressers are presumably just as productive in both places. It's all about who else is competing for their labour.)
The charitable version of capitalism is GiveDirectly. It's just like buying things for yourself but the first person to spend the money is someone else.
This is a good point, but I think there have been plenty of studies showing that other charities are more impactful than GiveDirectly, at least if you accept utilitarian calculations about how much people value various goods.
I'm willing to accept this analysis being definitive for answering your question. Charity is better, but mostly because some modern charities are freakishly good.
As a related note, I keep meaning to write up something about how, on priors, it's unlikely e.g. bed nets are genuinely worth more than cash if, with cash, people do not buy bed nets. It's not like we should expect people to love their kids less than foreigners love their kids. Something like half the vitamin A charity money goes to essentially marketing, so it's not like the nonprofit model skips the overhead we associate with for-profit businesses.
It seems to me that you are confusing donation vs investment.
Yes, you try to address that in your Return on investment point, but this:
> ... but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
Definitely isn't correct.
There is no "amount you donated" in the Instacard example. You made money! In the case of charity you lost money! Discounting this with VC discounting rate doesn't solve anything?
Is there anything preventing you from investing into Instacard, making wagons of money and then donating into charity? How do you know that this is worse than just donating to charity?
There is a way to know. In theory, at least. The correct approach would be:
1. Take Instacard and calculate discounted cash flow + discounted externalities and come up with ROI.
2. Take your favourite charity and do the same. Yes, there is no cash flow but you are presumably making up for this on the externalities front.
I think this argument is nonsensical because money donated to charity eventually ends up back in the capitalist economy anyway the difference is what gets consumed along the way. If I donate $1 million dollars to the charity that builds wells that charity will then spend that on things like the materials to build wells, the capacity to ship those materials to the locations they need them, paying the people who build the wells etc. all the supposed second order benefits you would get from the money being spent in the capitalist economy would still happen since its still getting spent.
Sorry for the imagery, but there appears to be a similar complexity with the U.S. "donations" to Ukraine's defense: a recent billion-dollar "donation" to the war effort, for example, was in substance a defense contract to Raytheon. That's great for the U.S. labor market, but it's a stimulus to the U.S. economy and the defense industry before it helps Ukraine.
Of course, altruistic charity is usually peaceful, etc., but a contract for DC electrical systems or well casings might benefit the U.S. economy and workers before it reaches the nominal beneficiaries.
Africa's main complaint about China is that when they set up an industry, they import their own labor -- cutting Africans out of the loop.
I mean, if we want to give Ukraine more rockets, and we're running out, we need to build more rockets, right? We really ought to be getting our weapons manufacturers to tool up and increase their capacity, at least for the next decade or so, so we can give Ukraine all the weapons they can use, and still have a large stockpile at home, to prepare for the next time we want to help fight off an invasion. (Yeah, yeah, the weapon systems needed to defend Taiwan are probably completely different from those needed to defend Ukraine, but still.)
This makes sense, but I assume it must be false, because it seems too much like free money otherwise.
Suppose that eg the US government decided to give everyone free health care by taxing people and spending it on health care. It seems like this should have tradeoffs or hurt the economy somehow. But you could argue that the health care money just goes to doctors and nurses and so on, who would then spend it on normal economy stuff, so the non-health-care economy is just as big as always.
I think the solution is that money is just a symbol of production, and if you're diverting production to water dispensers (or health care), you're using less of it for other stuff, even if the money eventually all events out.
It's not free money, there is a trade-off. In case 1 (where you donate instead of buyng whatever goods you personally wanted to consume) the trade off is that you don't get those goods. So for example if you choose to donate 30k to the wells charity instead of buying a car the trade off is that you don't get that new car. But in either case you have spent money in the capitalist economy (either to buy wells or to buy a car) and that has all the second and third order benefits of spending money so the only relevant moral comparison is whether more good is done by the wells being built or by you having a new car. This is an incredibly easy decision and makes the argument look like nothing more than pure rationalization for selfishness.
Now cases 2 and 3 are a little more complex. In case 2 what you are giving up is the value of your investment at some point in the future. Depending on the rate of return you can expect, the opportunity set to do good you expect to exist in the future and your discount rate this might be worth more than the good you can do with the money currently.
And case 3 is simply proposing a different type of charity. the effectiveness of this would depend on the specific charity, how effective it was at enacting legal change, etc. A capitalism spreading charity could have a greater EV than a well building charity if it was effective but its not guarenteed just because capitalism overall has been a success.
>I think the solution is that money is just a symbol of production, and if you're diverting production to water dispensers (or health care), you're using less of it for other stuff, even if the money eventually all events out.
I think that's the point - if you spend money on Instacart you're diverting production towards having people deliver you groceries instead of towards water filters or health care or whatever. Since the second-order effects are a wash, the correct way to tell Capitalism that you want more wells dug in third-world countries is to just spend money on wells. Or if you want to tell Capitalism that you want it to produce more productive capacity, then you should invest the money.
Would be interesting to run through the thought experiment with investing in options with huge asymmetrical upside. Put the 1m in a vc fund. Maybe that all gets lost in a crypto scam. Or maybe you marginally help research for a vaccine that saves millions. Not sure what that tradeoff look like.
Why would you have to do the experiment? Can't you just look at an average VC company's portfolio now?
(I think this wouldn't be quite right, because you should look at the effect of a marginal $1 million on a VC company's portfolio, but you couldn't figure this out by doing the experiment either)
Sure, the specific estimates would be incredibly hard to pin down but I would think the order of magnitude calc would be reasonable due diligence.
Average (median) vc portfolio wouldn’t really be relevant because the wins have a such a fat failed distribution. A top vc firm could help enable tech innovation that saves hundreds of millions: glp1s, malaria vaccine, self driving cars, fusion, etc.
Even if the odds that you specifically help in any way are very small (0.000001 %) it could still be higher EV than clean water projects.
Of course my estimates could be off many orders of magnitude. But the fact that tech benefits to society can scale so much faster than water bottles and bed nets means throwing as much $ as humanly possible towards tech development should be dismissed outright.
Charities are only possible because existing systems of production/management (Capitalism being a piece) allow excess resources which can be donated. Charity outside the family is rare in resource constrained environments. Proponents saying "Capitalism is better than Charity" are right when it comes to outcomes but that doesn't really help short term decision making if you want to send money to one of those options. If I had to choose a society with no Capitalism but with Charity or vice versa I would obviously pick the latter but that isn't the question here.
If your goal is to maximize lives saved then the water charity will clearly be better than the Instacart option. The water charity cheaply saves lives while the Instacart option furthers and improves the current Capitalist system but its effect is so diluted it is impossible to measure the incremental benefit.
Also, there are several economic misunderstandings in this post but the most prominent one I will point out is when you say, "...existing rich countries will out-compete them ..." - it is pretty common knowledge that in global capitalist systems less developed countries have a competitive advantage when it comes to wage demands which encourages companies to go there and set up production...ultimately raising the living standard in said country. See China, India, Vietnam, Taiwan, Mexico, etc.
The problem that developing countries face with outside investment is that the outsiders do all the decision-making and don't let the locals develop the skills to run local businesses. Low-skill laborers get a short term benefit from this, but it doesn't create opportunities for advancement.
If you are talking about capital investment- that can occur if local government does not have adequate protections or developed strategy to acquire skills/tech. Frequently though countries require joint ventures and information transfer for foreigners to invest in their low wage markets.
Charity, however, can also cause problems in developing countries where locals can become dependent on it and the charity ends up causing more harm in the long term. One example of this is TOMS, who drove all local shoe makers out of business because of their massive and regular donations. They actually had to stop the policy due to the market distortion it was causing in the target areas.
Having now read both those blog posts (the Asia one being a treat) I have a better grasp on your worldview.
I largely agree with Studwell, especially on your bold point(s) 2 (and point 3 which you note is really a sub section for point 2) in the Asia post. I hesitate to comment on point 1 because I am not as familiar with the agricultural scale up for economies so I need to do more reading there. Many advanced economies have different farming regimes (compare USA to France or Italy to China) which makes me skeptical but I am just not learned enough to comment here yet.
Reading your post on Allen's book I am surprised you cite it here as you seems quite skeptical on it in the blog post. I give this book a VERY low weight regarding conclusion making. It seems to omit too much to make useful conclusions.
I am not sure how either of these linked book reviews support your point- my reading of them shows that they support my point. Could you explain how they back your claim of "...existing rich countries will out-compete them..."?
My stance is that developing countries can bring in foreign manufacturers to jump start their industrial revolution and learn from them while keeping some of the financial benefit to themselves. They can also go the tariff plus "learn yourself" route but this is slower. Companies are incentivized to do this because manufacturing is labor intensive and if you have two identical plants the one where you can pay the employees lower wages is going to be more competitive globally.
If you are talking about a country who tries to learn themselves without the tariff barrier, then yes, I agree they will get out-competed by foreign export capable companies. That, however, is not the norm as I think you would be implying in the prior sentence.
Whereas I agree that capitalism is somewhat better than charity, I don't see the world as black-or-white.
What I miss among your list of options is:
4. Start / invest into a business that will (profitably) solve the problem your charity is trying to address.
If the problem is real and can be solved by a business, then a business solution will be permanent and self-sustainable, whereas charity will be just a sink-hole relying on more and more charitable donations every year.
I agree that in Spherical Cow World this is a great idea, but in real life I may have $500 to donate to something without also wanting to move to Africa and become a hydrological engineering entrepreneur.
You could solve this with donation lotteries which then invested seed funding in startups trying to address those problems. An example might be Wave (https://www.wave.com/en/), which offers cheaper remits.
I agree that donor lotteries are cool, but is possible for someone to have any amount of money and still think that that money is better used paying others to engage in some charitable activity rather than self-funding a charitable venture of one's own.
The thing that immediately jumps to mind for me is not your #1-3, but an obvious #4:
4. Start or join a company that provides or improves upon the good or service about which you most care.
Your 1-3 all work via aggregate effects, rather than directly. But there's no reason to limit your thinking to such aggregate effects when thinking about capitalism. One can engage in direct action to bring about targeted effects. That's what founders and early employees do all the time.
Yes!!! Invest in a water cleaning start up perhaps? Anyone have ideas on more cost effective desalination? You’ll make a lot of money in the Middle East and help a lot of poor people in Africa.
I think minification of these technologies is what is required, and not enough people focus on that. Building a desalinization plant sounds like a great idea, but the problem is that these third world countries tend to be that way due to corruption, and anything that is city scale is going to be subject to the negative effects of corruption over the long haul.
Take wastewater treatment as an example (related to the clean drinking water problem). There are city-scale and village-scale solutions to self contained waste water treatment (turning sewage into drinking water, burning methane to power the whole system) but these solutions don't make it to or survive in third world countries because they end up "owned" by the same corrupt people/systems that are preventing the country from getting out of the gutter in the first place. A system that is scaled to single-home would penetrate developing markets significantly better than top down solutions.
You can see this in solar power and starlink, both of which can be installed at the single household scale. You only need a small number of intelligent/capable locals who can "demo" the advantages of such technologies well to have them spread rapidly to the rest of the population. After the 20th brownout in a month, people notice the one guy with solar panels/starlink still has power and internet, so they copy them. Since each residence manages the resource themselves, you no longer have the problem of corrupt governance/social systems mucking up the waters.
Showing up and building a power plant or multi-million dollar desalination plant just results in the same corruption problems destroying the effectiveness of the solution that got the country into that situation in the first place.
See above: "I agree that in Spherical Cow World this is a great idea, but in real life I may have $500 to donate to something without also wanting to move to Africa and become a hydrological engineering entrepreneur."
But also, I don't think it's trivial to start a company that solves a problem. If it was very profitable to solve that problem, someone else should have already started that company. Often the problem with poor people is that they don't have enough money to afford the things that would make their lives better. If you can start a company that charges 1/5th what everyone else is charging for health care, that's great (and I am doing something like that in my own field), but it's hard, you have to know a lot about it, and you usually fail because other entrepreneurs aren't making stupid mistakes.
> ... it's hard, you have to know a lot about it ...
The reasons that make it hard for entrepreneurs to solve a problem make it even harder to do so via charity, for which all manner of critical information signals are missing. I would argue that it is precisely charity that depends on Spherical Cow World.
Yes, but charity has things like GiveWell, whereas investing is anti-inductive and you can't create the List Of Ten Best Investments and expect it to stay true for any reasonable amount of time.
Scott wrote: "But also, I don't think it's trivial to start a company that solves a problem. If it was very profitable to solve that problem, someone else should have already started that company."
Some thoughts:
Thinking "someone would have already started that company" is very nearly the same as thinking "what if I'm not the first to spot this opportunity." This is generally a wise thought. Being first to a new idea/opportunity/whatever is pretty rare.
As many folk have already noted, most startups fail. Similarly, it's also pretty rare to have only one startup trying to address a problem/opportunity. And the odds that the one that started first will be the one that succeeds are *only very slightly* better than the odds that one of the others will succeed. First to try, or even first to try with the right approach, in no way implies first to succeed. Further, there are plenty of real-world examples in which we see N>1 successful startups (perhaps "no-longer-a-startup") addressing a given opportunity. Just like in research, your path to (potential, albeit unlikely) success in this instance is to have at least a glimmer of an idea regarding how to do it better than those other guys. Maybe your insight is big enough to justify kicking off yet-another-startup — this is the hardest path. Maybe (in decreasing order of difficulty!) it’s something you can sell the idea/insight to one of the existing startups. Maybe it (along with your skills) are enough to get you employment at one of those startups. Perhaps you could take your skills (no particular idea required here) and contribute to the success of one of the existing players. Maybe you just publish the idea, or push it in the blogosphere… (Note: doing this last one *successfully* may be really really hard. But I put it last because in most cases it is — or can be — a smaller investment of time and effort than the other approaches I listed.)
But what if I AM the first to see this? Well, you won’t know that until/unless you do a fair amount of investigation. Due dilly if you’re a would-be startup founder or a VC; literature search if you’re a researcher; <fill in here for other areas of endeavor>.
Most of the time, you’ll find out that you’re not the first to see it. But you might still be the first to tackle the issue in a meaningful way. In this case see the various paths to potential success, above.
In rare cases, you may actually be first. For any problem/opportunity that gets addressed, it’s trivially true that _somebody_ must have been first to see it. The odds that YOU are that somebody are quite low (even for less-impactful situations), and the opportunities rarely last long. Nevertheless, there truly are $20 bills lying on the sidewalk; they’re rare and they don’t last long, but they DO exist.
All of that is a very longwinded way to get to my largest point. Scott’s observation that “I don't think it's trivial to start a company that solves a problem” is exactly correct. And perhaps the most important wisdom there would be best stated as “I don’t think it’s trivial to start a company.” Full stop.
Founding an enterprise is not for the faint of heart. Folks in Silly Valley “know this.” Nevertheless, I would argue that nearly all of them fail to comprehend just how hard it is, unless they’ve been either (a) a founder themselves, or (b) not just an early employee at a startup, but one whose position requires them to engage with issues of funding, business challenges, hiring & firing, etc. or, maybe (c) a VERY close family member or friend of one of the previous two. It’s way harder than you think. Consequently, I recommend avoiding the “start a company” approach unless (at least) the potential impact and/or reward for success is large AND you have a true passion about it. And many other things not germane to my point.
Possibly relevant: One of the amazing things of capitalism is that it works (relatively) well despite the involvement of many selfish and/or ignorant actors.
You are intelligent and well meaning. It would not surprise me if you outperform the "charity market" (for example by giving to GiveWell). The majority of charitable donations of course go to things that aren't even clearly a net positive. (I.e. promoting a favorite sport/church/political party etc.)
It works precisely *because* of selfish actors. Self-interest and competition are what cause creative destruction. Many here bemoan Moloch, but without him we would all live in extreme poverty.
If it only worked where actors were selfish it wouldn't be a very resilient system - and even capitalism's sternest critics can hardly deny that it's resilient. Rather, it works mostly-independently of whether actors are selfish or altruistic. As you said elsewhere in this threat, it's kinda a baseline. One might even say that capitalism=anarchy+time
(That being said, in those rare microcosms where actors actually are mostly-altruistic I don't think capitalism works anywhere near optimally)
Moloch has always been here, and we have only very recently (and perhaps very temporarily) not been living in extreme poverty; we're in a window, possibly only centuries-narrow, of technology and resource (and possibly also cultural) whalefall; if that ends and we hit diminishing returns again but we haven't broken free of Moloch in time we shall, I'm sorry to say, all be going back to the extreme poverty we've been in for most of history and all of prehistory.
Yes, capitalism doesn't care if you want to make money (and follow incentives etc) because you like to be rich or because you want to feed starving orphans.
I think this is a type error in a way that the current post is only kind of a type error.
Suppose I have $500. I can easily donate that to charity.
I can't donate it directly to Capitalism, but you can imagine ways to sort of kind of donate it to Capitalism, like investing it in socially beneficial businesses.
I think there's even less way to donate it to Public Welfare State, other than maybe voluntarily paying extra taxes, or donating to a think tank that lobbies for more welfare.
Put another way, if you could magically materialize the perfect welfare state into existence, that might be pretty great, but it's not an interesting "what should I do in the real world?" question in the same way as the other things under discussion here.
(it would also be great if you could magically materialize the perfect capitalist economy)
My primary motive was actually based on an argument I recently heard that wealth taxes on billionaires are bad because, although there are few billionaires who give to effective charities, the returns are so astronomical that they outweigh welfare state considerations.
So yes, it probably wouldn’t be a post focusing on any particular intervention, but I am still interested in a general discussion about the turns to welfare vs. charity. One could imagine interventions existing in principle, eg hiring someone to advise poor/middle income countries on how to build a better welfare state, sort of analogous to the capitalism case.
The question I think deserves engagement is whether you should give money to GiveWell top charities or just give money to poor people via something like GiveDirectly. For the most part, the former appear to be producing private (i.e. rival, excludable) goods for very poor people, and then using spreadsheets to argue that those goods do much more "good" per dollar than the things those very poor people would buy ("from capitalism") with a marginal dollar. These arguments are usually somewhat plausible at the object level, but the poor people in question are probably the experts on their own needs (but don't have so much time to make spreadsheets to pitch charity evaluators). And they seem to often have very high return investments available (e.g. buying a cow or a metal roof that doesn't need to be replaced every year), at least according to the spreadsheet-mongers on the GiveDirectly side.
Isn't it kind of plausible that the best way to spend money to make a particular very poor person better off is to give them that money to spend however they want? That capitalism works well enough to provide for their needs once they have money to spend? Isn't that the approach that treats them with the most dignity and respect? Are the object level arguments of the "good charities" sufficiently convincing to overcome this presumption, when you take into account the "multiple comparison" problem that in picking the "best" charities you are magnifying any sources of error that went into evaluating them?
Change my view, it might redirect $1M or so this year.
i think your argument is pretty solid. however there could be an equilibrium problem. think bednets -- maybe buying a bednet is only a little useful so nobody buys them, but living in a place with reduced malaria because everyone uses bednets is great. free bednet distribution can shift the equilibrium.
You can give 1,000 random villagers $100 but they would still lack clean water because they're all in different villages or they're in the same village but don't have the organizational capacity to schedule a water pump installation. Or you could just pay $100,000 to a company so that they install a water pump locally to deliver fresh water to the whole village.
Consider its 1978 and you have $1M that you want to dispose of charitably, because you value the wellbeing of others, and youve heard of this place "America" where things arent so great.
You could give 100 people $10,000. They know their needs and preferences best, and they will take that money and improve their lives with it, according to their best interests as they see them.
However you also know that theres a small startup who is trying to bring computers to the backward country of America, and youve had them for a decade now and know how incredibly useful they can be - so you could instead "invest" that $1M into "microsoft", and be the difference in whether that company has the start up capital available to get rolling, or doesnt.
Whether microsoft and computers are a good idea or not, you should be pretty darn sure that if you went the route of giving 100 people $10,000, they are most definitely not going to collectively coordinate to invest in microsoft themselves. Probably they dont know much about microsoft, but even if they did all know for a fact how awesome computers would be, theres a coordination problem.
As a single wealthy actor, you can single handedly solve the liquidity challenge (capital acquisition challenge) for a lot of relatively easy and low hanging infrastructure, health, and education improvements, that they would be doing themselves, if only they had the capital _and a way to coordinate_.
So, using charitable dollars to help bootstrap their value adding enterprises or providing capital to improvements that we here in advanced economies know have a large impact to health, productivity, and quality of life, that may well be more effective than giving people money directly.
If you do take an honest look and in your assessment none of the proposals at givewell look like that to you - then just GiveDirectly.
We know that Microsoft turned out well. But you might have invested in eg AI in the 1970s, and that wouldn't have gone nearly as well. (AI went through several hype cycles.)
The reason for that selection is that, from our position as an advanced economy, we know "clean drinking water" and "not dying of malaria" turn out really well.
I don't mean you'll get the same returns as if you invested in Microsoft, but that the productivity gains are a sure thing.
> the poor people in question are probably the experts on their own needs
I find this argument much less plausible in the specific instances of e.g. averting infant mortality from malaria by giving parents insecticide-treated nets to hang over their beds. What would change my mind here (I'm also about to donate, albeit far less than $1M) is evidence that e.g. LLIN effectiveness is falling due to insecticide resistance, or that net distributions are subpar somehow, or that there's no more room for more funding, etc. In other words gears-level stuff.
A couple of EA orgs found that GiveDirectly is less efficient than health charities if you think of the health charities as producing money equivalent to their health benefits, see eg https://www.givingwhatwecan.org/blog/why-we-still-dont-recommend-givedirectly . I haven't looked into this very hard and am mostly going off their summaries without having thought too hard about them.
The problem is that you're looking for charities when, conceptually, what you are talking about is development finance institutions (e.g., the U.S. International Development Finance Corporation).
There are all sorts of mission-oriented specialty financial institutions, including not-for-profits, which issue loans at below-market rates for 'good causes'. On the domestic side of things (in the US), you could be talking about CDFI Fund lenders or green banks. These get their funds from grants, government programs, and traditional banks which are incentivised to provide capital at below-market rates courtesy of things like the Community Reinvestment Act.
> but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
What discount rate are you using? This is probably the single most important question when comparing your options.
If you pick something low (like a 2% real rate), the expected multiplier of getting an S&P500-historical average return diverges to infinity the longer you keep doing capitalism with the plan of donating later (even if you assume the companies capture literally 100% of the value they create in the meantime and have no net positive effect on the rest of society).
If you pick something high (like 8%), you avoid that problem, but you also invalidate much of the reasoning for caring about long-term climate impacts of CO2 emissions (which is based on low rates in the 2%-5% range), and other similar issues. And there's now a question of whether you should borrow against all your future donation spending at $DISCOUNT-1% in order to spend it now and do more good by your own metric.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Suppose the charity does not invent the equipment to purify water themselves, which I presume is the case, they must buy it from a for-profit company who can offer it at price X only because of innovation and market competition, without capitalism none are possible.
Without capitalism the basis of wealth creation, effective charity will not be possible.
I actually think it's not your Instacart example choice that's bad for this thought experiment, but your clean water charity. I myself donate to water charities because they seem to me to provide the same kind of benefit that capitalism does -- so it's not a good example of the ways capitalism can be superior to charity. The water charity allows more people to live in a place, which is one of the preconditions for "people consensually doing useful things for each other" -- which is the inner Venn lemon of both charity and capitalism. (Modify it to "people consensually doing useful things for each other, out of the goodness of their hearts" and you get charity. Modify it to "people consensually doing useful things for each other, in exchange for money, according to market price signals" and you get capitalism.)
For a clearer thought experiment, use a charity that just does something useful, instead of one that does something useful and also creates the preconditions for people to do useful things. Then the contrast with capitalism (and with the State) will show up more clearly. I actually think charity is usually superior to capitalism, but for completely separate reasons.
The Copenhagen Consensus Group of economists rates various charitable and miscellaneous initiatives and intriguingly has a runaway first place item that breaks the charts. They say money spent on free trade negotiations pays off at 1000-1 with the larger proportional benefit recieved by the lower income countries involved
However it's difficult to personally spend money on free trade negotiations, and might rather be a bigger focus in terms of political capital and in the opportunity cost of not promoting freer trade in some way while doing other charitable or capitalistic things
Folks have mentioned business-aligned charities, but another option if you want to "give money to capitalism" in a way that would theoretically be helpful to folks in poor countries, you could just buy in some emerging markets mutual fund and continuously re-invest the profits. Similarly, you could lower the cost of borrowing by buying up corporate bonds from similar markets.
Or just buy mosquito tents, which goes a ways to ensuring that the recipients won't be too sick to work. So the question is, do you buy mosquito tents, or do you invest in emerging markets? And what is the methodology for determining which is better?
I think you are too quick to brush aside the criticism that instacart is a bad example. Capitalism works because it incentivizes production and innovation. It also incentivizes corruption and rent seeking which is unfortunate but seems to not be significant enough in most societies to cancel out the good from production and innovation. Instacart does have a little innovation, but it doesn’t look profound to me and so I’d mostly call it rent seeking.
Rent seeking and corruption aren't really worse under capitalism than under alternative real world systems. So they are not a downside you could avoid by avoiding capitalism. So they are pretty irrelevant here.
"Charity vs. capitalism" is indeed a category error. You make various consumption choices with your income (and also have a savings/consumption margin). Apparently one of your favored consumption attributes is utilitarian/EA (I don't keep up that closely with all the inside baseball, here, I'm afraid), so you like to donate to things that you believe help lots of people a lot per dollar donated.
It's entirely possible that there are hidden "altruistic" or "benevolent" impacts from your non-donation consumption choices that do more good to more people than direct donations. Quite likely, however, is that these are perverse "Fable of the Bees" type effects that run counter to what most people think of as "altruistic." For example, if you buy products that include imported cobalt (lots of electronic stuff has this element), it is often mined by desperately poor children who queue up and even pay for the opportunity to go into open pits and scoop it up with their bare hands. The fact that they are willing to queue up and even pay strongly suggests that their next-best option is truly horrible. An incremental increase in demand for cobalt will probably raise the incomes of desperately poor children in the aggregate, so your purchase of an item containing cobalt is a contribution toward their welfare.
On the other hand, ostensibly benevolent charitable endeavors, even when pursued efficiently rather than wastefully, often make matters worse in the long term via perverse incentives that they create. A number of serious thinkers and observers (Bauer, Easterly, etc) have noted that the on-the-ground effects of foreign aid are often destructive of local markets and local governing responsibility. One needn't look at extreme situations such as the Gaza Strip, where foreign aid propped up a vicious and oppressive terrorist "government" that was able to ignore the productivity of its society because of this inflow of external resources. There are third world governments all over the place that have been relieved of all responsibility to allow for a flourishing economy because they don't need to extract surplus via taxes from their population, instead battening on charitable giving from abroad. In that sense, a piteous population that can attract foreign aid is a version of the "resource curse."
Since we like prediction markets so much, why don't we allocate charitable giving according to prediction markets? But one of the big challenges of prediction markets is phrasing the questions correctly. In this case, the most difficult question is what recipients actually consider most beneficial to themselves. We might think that charity should be judged according to lives saved or homes built or whatever, but isn't that a very paternalistic approach? Shouldn't the recipients get the main say here? So maybe the recipients should run a prediction market to decide what would be best to receive, while we should run a prediction market to decide how best to give it. But it doesn't make sense to have two separate markets, so let's combine the markets or let them predict each other.
And that super combined prediction market for allocating charity already exists. It's simply called "the market". That's what the market system is meant to do. It lets us most efficiently spend and invest resources toward production in the way that consumers communicate (through their spending) is most valuable to them.
This isn't about "capitalism", which is separate from markets. (Communist and socialist countries also have markets for goods and services, they just refuse to use them for *investment* because they believe the resulting means of production should not be privately owned.) It's purely about the power of markets to elicit, communicate and process information about the preferences of consumers and the limits of producers in the most efficient way. If you think prediction markets work better than other ways of aggregating information, then you should think that just spending your money as the market naturally incentivizes you should also work better than other ways of deciding how to benefit others with that money.
You wrote: "And that super combined prediction market for allocating charity already exists. It's simply called "the market".
Reasonable enough, but this (to my eye) doesn't address the central issue here, which is 'how to do the maximum amount of social good for each dollar allocated'. Keep in mind that 'social good', in this context, includes the global population, and further keep in mind that there are a million market distortions (tariffs, corrupt governments, and so on) to which the global population is subject to.
Yes, I agree that the story that the market maximizes social good for each dollar is complicated by market distortions and differing initial endowments (i.e. the preferences of the rich are communicated more strongly than the poor). These are absolutely real problems. However, I am not convinced that centrally planned alternatives to the market -- like conventional charity or EA approaches like GiveWell -- can ever do better despite this, because the market's informational advantages are too great. Also, these issues with the market can be dealt with. Reducing market distortions has been a long running politico-economic project, and reducing the difference in endowments is what stuff like GiveDirectly or Universal Basic Income or just plain progressive taxation is meant to address.
Why are you sure that the market's informational advantages are too great? I concede they may be (and in case you're curious, but I'm about three counties away from being your typical economic 'liberal'), but what if they're not? How does that question get answered?
I'm not "sure", but I lean more toward the market as a more effective engine for welfare improvement than charity for two main reasons.
First, history. The largest improvement in human welfare recently has arguably been the export-led economic development of China. More than a billion people were raised out of crushing deadly poverty into reasonably comfortable lives. And it was done not by calculating DALYs, but by the Chinese government letting the market operate, and regular people in rich countries buying stuff made in China if looked like good value (i.e. just acting as the market incentivized).
Second, the intellectual approach of charity, including EA. In my original comment, I mentioned that deciding on behalf of recipients what they need -- lives saved, homes built -- is paternalistic. To expand, controversially, I think that charities and thinking around charity are too focused on visibly virtuous targets like saving lives or increasing DALYs. However, if you actually let people make a choice, e.g. "You can either have a new scooter, or reduce your chance of dying next year of malaria by 2% equivalent to 1 DALY -- both costing me the donor $5k", far more people than you think would value current consumption over their lives or health. I certainly would. And I feel that this choice should be respected! Charity thinking massively undervalues both choice and basic human pleasure. If the market gives people more bread and circuses at the cost of lives that could have been saved, I think that is a superior outcome as long as it was freely arrived at. Charity should be about enhancing human welfare in all forms. (This applies especially to the goals of longtermism, but that's another kettle of fish.)
Certainly I could be wrong. Again, I'm not super sure about this. But I think there is no good way to decide this for both epistemic and moral reasons. The epistemic problem is that it's hard to even know which approach would have done better even in retrospect -- deriving causality, defining counterfactuals, etc. are a bitch. The moral problem is that it's hard to even decide what "better" means. Again, I don't think we should just go by "lives saved", because that's not what people actually appear to value. So it's a hard problem -- that's why I'm not sure.
Magette Wade says that Africa is poor because of bad business laws, which kill capitalism before it can generate prosperity. She wants capitalism for Africa, instead of charity. see: https://magatte.substack.com/p/why-is-africa-poor So perhaps investing in her is a good idea.
The developed world stopped bothering with colonialism because it wasn't worth the effort. Turns out it's just easier to leave the countries to their own devices and exploit the ones that end up producing environments conductive to generating value. The various impoverished countries of Africa failed to do this, and thus their lives are now worthless to the rest of the world. I doubt changes to policy is enough to save them. As long as Africa continues to be riddled disease, crime, and generally inhospitable environments, they simply cannot compete with countries like China and India.
Exploit as in "exploiting resources." In this case, absurdly cheap labor with good returns. The problem with much of Africa is that its population is not even worth using as (wage) slaves because of the problems I mentioned. Companies don't need infinite supply because there isn't infinite demand, and there's no reason to resort to less efficient measures when the current ones are sufficient.
Without disagreeing with her, I think I would have to know a lot more to "invest in her". Ron Paul talks about increasing capitalism in America, but I don't think he would be a "good investment" because I don't see him having any plan to win.
Indeed: so far the only investment she has from me is my subscription to her substack, and my purchase of her book. But she is one person who really _does_ have a plan for bringing capitalism in the small -- the 'nation of shopkeepers' model to Senegal and the rest of Africa, as opposed to the idea that with enough investment, and by removing enough barriers such as bad water and disease capitalism will just 'naturally happen' because 'people are like that'. I think that a lot of barriers are social, not physical, and what you need to do is create a culture of wealth creation, which is difficult when people think of wealth primarily as something you get from foreigners or dig up out of the ground.
Acemogul & Robinson argue that “Why Nations Fail” is poor institutions. They further argue that it’s very hard for non-democracies to maintain good institutions, as there will always (like recently in China) be a temptation to sacrifice the economy to stay in wealth and power.
It really tears "Guns, Germs & Steel" a new one, and is skeptical but not fully negative about international aid and charity, noticing the the _vast_ majority of resources get lost in a mix of administration, logistics, and corruption.
The casual mention of the dairy industry as a core type of capitalist enterprise hints at another key drawback of capitalism: it doesn't necessarily promote absolute welfare, but the welfare of citizens with money (weighted by how much they have). The welfare of this subset can often be increased by arbitraging away the welfare of others, like dairy cows and their prematurely separated calves forced into ever-tinier pens and more-miserable conditions by capitalist farmers competing with each other to provide consumers with ever-cheaper milk.
If you believe the world is on a trajectory towards more and more of the world living under systems resembling rich countries' capitalism, it's a smart move to work on stably improving the total welfare of all human and nonhuman creatures (weighted by speciesist bias if you insist) under systems like these: animal welfare regulations when they outweigh the marginal interest of consumers in cheap animal products, social safety nets when the outweigh the marginal utility of money to the relatively rich, etc.
...And if you do that, you're going to be outcompeted by countries who are willing to sacrifice everything for the sake of power. Your system doesn't exist in a vacuum. Technological advancements and dwindling resources will inevitably increase competition in the future, and eventually your inefficiencies will put you at the mercy of those who don't assign arbitrary value to welfare.
Suppose Instacart had never been founded. Then people would spend whatever money they now spend on Instacart on something else (let’s say booze and porn), which would also create jobs (for brewers, bartenders, and porn stars). There’s no particular reason to think spending the money on Instacart creates more jobs than spending it on those other things would.
If you believe this, then you don't believe any economy can ever grow, barring the introduction of some kind of utterly disruptive consumer good/service that doesn't have any conceivable substitute.
I think Instacart hasn't created jobs but it has created consumer surplus, which means it has grown the economy.
I guess there's a stronger version of your point, where maybe I shouldn't believe any economy can ever create jobs. Maybe it's the consumer surplus that indirectly creates the jobs, not the actual employment by the company?
I think it's a pretty good first-order assumption that capitalism doesn't *create* jobs in the sense of increasing the number of employed people. (I know there are things like unemployment, but it's still a good approximation.) In this sense, yes, economies don't create jobs.
What capitalism does: it replaces jobs by more productive jobs. Capitalism is much better in this replacement process than other systems because the measure for "productivity" is literally built into the system: it's simply the money generated per time unit of work.
Other systems like Soviet communism also tried to have jobs that are as productive as possible. But they had to rely on proxies for productivity. Politburo tried to predict which goods where how valuable for the next year, and allocate resources accordingly. This was less precise and less flexible and made Soviet communism less efficient.
I was glad to see the EA Intervention Report on Charter Cities but it was limited by the fact that it was written by non-expert outsiders. Mark Lutter's response is much better informed than was their write up.
Regarding the widely varying success of SEZs - Read Lotta Moberg's, "The Political Economy of Special Economic Zones." Tl;dr privately financed zones are more likely to be successful than are crony capitalist, politically-motivated government financed zones, plus a lot more nuance worth reading for serious SEZ students. Moberg and Lutter are two of a handful of scholars who have done dissertations on zone related issues. The EA report was not informed by Moberg's research, thus they did not understand the political economy dynamics of different types of zones.
Insofar as one of the core conclusions of the "Intervention Report" was "economic development and reform zones," the actual work done by Charter Cities Institute and others in this domain do, in fact, work on a variety of zone-based reforms. The Romer-esque version of a "Charter City" was to some extent a straw man for what should have been a deeper dive into the global movement of zones with distinctive law and governance.
Thus several of their conclusions were sensible - but should have led you to increase your support of the Charter Cities Institute (CCI) rather than question it:
"Charter cities are expensive to build and take a long time to come to fruition, so if your focus was on the value of information, it seems likely that you could more cheaply and quickly generate this by focusing on alternatives which do not require you to build a new city, such as economic development and reform zones."
Hello? Much of CCI's work is towards what are de facto reform zones rather than grandiose Romer-esque Charter Cities - and that is the way they should be working.
There is a global movement towards zones with distinctive law and governance (precisely because it is widely recognized that bad institutions limit economic development). The Charter Cities Institute is indeed a leader in this movement, and should be supported, but the issue of better law and governance in zones is broader than their work alone. The most successful example is the Dubai International Financial Centre, where a common law legal system was placed in a 110 acre zone within UAE sharia law. It led to Dubai becoming a top global financial center in twenty years.
Zone based reforms are a hack around the public choice challenges of nation-state reforms. Bob Haywood, former director of the World Economic Processing Zones Association, makes the case that zones address Doug North's "natural state" of oligarchy preventing liberalization because export zones don't immediately threaten the rent-seeking structures. In his experience, usually zones were adovcated by the peripheral elites - not the core elites, but the son-in-law, cousin, younger brothers, etc. who had access to elites but were not currently benefiting from rent-seeking themselves. Without zone solutions, however irregular their success, most nations tend to be stuck in the "natural state" of oligarchic rent-seeking. Haywood makes the case that zones led to broader economic liberalization in Mexico, China, Mauritius, Ireland, and elsewhere. If the benefits of zone-based reforms includes broader economic liberalization then the returns are much greater.
The most important work being done by CCI is not necessarily creating Charter Cities - Prospera alone has a much more sophisticated platform than anything CCI has. But they play a crucial role in mainstreaming these ideas so that development economists, multi-lateral institutions, media, and well-intentioned Westerners pay more attention and are more likely to support reform zones. Prospera's technology is ready to replicate - we need this greater mainstream support to close the deals.
I've been involved in selling these ideas in multiple nations, and being able to point to the growing mainstream credibility achieved by CCI is definitely a factor leaning towards adoption. Conversely, without CCI's leadership, developing world government "reforms" are driven by a combination of venality, corruption, populist or leftist ideologies, World Bank banalities, and the occasional McKinsey analysis. CCI is a big positive step in the direction of concrete, actionable reform zones that are likely to improve institutions incrementally. If we can get to the point at which zones with their own law and governance become a routine technology of economic development, then the value of these institutional experiments is likely to become high.
Most people have no idea how much harder it is to do legal business in developing nations. The upside of making Prospera-quality law and adjutication available in zones in Africa will be significant over time. My wife, Magatte Wade, is working to bring Prospera to Africa because of this. She also writes and speaks about the ridiculous over-regulation of business in Africa that makes it necessary - she has first hand experience of what it is like to do business in the US vs. in Senegal. The fact that African nations are ranked at the bottom of the Doing Business index is not an artifact of measurement.
So by all means support CCI. The work it does is much more important than the EA Intervention Report acknowledges.
Have you heard of microloans and microfinance? They are in my opinion the cleanest example of "donating to capitalism". The actually donation is not getting any interest, and you taking on the default risk/lack of due diligence of making a loan to to e.g. lend $500 to Nain Isai in El Salvador to buy animal feed for his livestock, or lend $1,250 to Hương in Vietnam for school supplies and tuition for her children. It's essentially giving a bit more oomph to the invisible hand for these people to use on what they feel is the best use of the money.
Givewell seems to have a largely negative view of microfinance, though these may be outdated, stating that it "is not among the best options for donors looking to accomplish as much good as possible", but if you're looking to make a more developmental donation than non-capitalist mosquito nets, you might be interested in it. To the best of my knowledge the biggest player is Kiva, which makes it very easy to match with microborrowers across the world (my two examples above are from there), Givewell doesn't like them either from what I can tell.
tl;dr If you'd like to make a donation to capitalism, go to Kiva and you can immediately find a fledgling capitalist to lend an arbitrarily small amount of money, and consider the default risk and interest opportunity cost a donation.
1. Give to the Institute for Justice, which fights for the legal rights of small entrepreneurs against arbitrary and unconstitutional regulations. I wish I knew of a more international version of this.
2. Work for, or invest in, a company like Sendwave which focuses on bringing more of the infrastructure of capitalism to people who now lack access to it.
Educating people with high value skills is capitalism-charity that seems to have good trickle down and helps countries get rich (programmers in India).
I think when most people say 'capitalism makes the world richer' they're saying investment spending and research make the world richer. You can trade coconuts and bananas all day, but at the end of the day you'll still only have coconuts and bananas. I think a similar thing can be said about any consumption spending, including Instacart.
Well, you'll have coconuts in the hands of people who like coconuts more than bananas, and bananas in the hands of people who like bananas more than coconuts. That's worth something.
I can't quantify any of this but here are some systems-oriented charities that would improve capitalism a lot:
- Improve the incentives of the arena by producing more deeply informed product reviews. Information is a non-excludable good, so the market wont do this very well. Do this well enough and you will obsolete the FDA.
- (Edit: Industry-government partnerships actually seem to be doing okay at this today, so idk, but it's an example of the kind of thing that *could* be needed) Thinktank to develop better interoperability standards. Governments preserve competition by requiring competing products to be interoperable, apple must use USBC (this is a real act that the EU passed), Mastodon can access Threads (happened without regulation though (confusing)), the user can get their data out in a standard format (used to happen without regulation but seems endangered today), that kind of thing, but designing these regulations is genuinely difficult. If they get it right, it supports a lot more competition and innovation than the market otherwise could (*competition and capitalism are antonyms*), but if they get it wrong it can forbid progress in standards, or burden projects with standards that're antiquated and complex, which stifles innovation. Getting it right is *expensive*, it requires deep expertise and consideration. Governments can't reliably do this job. Charity is needed here.
- Decentralized finance system development actually has suffered a lot from the lack of charitable investment. We could've had systems with unlimited global transaction rates and negligible transaction costs (built around a P2P approach that allows the user to earn enough gas to get by without even knowing that there are transaction costs). It's called Holochain, it's been in development for a long time, it's still not complete because having these qualities prevents them from extracting rent on the system later on and that very fact means they make relatively little from token presales and can't hire enough R&D. They haven't had the manpower to develop ZK-rollups and they're going to have history bloat problems.
(And the fact that these systems are all open source should be a clue that they're not going to be capturing much of their value.)
It's worth mentioning that american FOSS funder FUTO actually are charitably funding Freenet (2), which afaict is at least adjacent to the genre of Holochain.
Isn't the argument simply that capitalism creates a powerful system of incentives for people to be productive - in the broadest sense of the word - which in aggregate results in economic growth and rising living standards? Perhaps the greatest reduction in poverty in history was China over the past 4 decades (770 million people brought out of poverty is the number the CCP used in 2021) without having any significant domestic charitable sector and without receiving any substantial foreign aid. The country simply pivoted away from Maosim in favor of a more capitalist approach.
I think the humorous irony of using marginalist reasoning (the basis of modern capitalist theory) to argue against capitalism has to be noted (of course, in this case I think it's legitimate, but funny nonetheless).
I think rather than using money to "promote capitalism" the more appropriate alternative would be to use money to promote the conditions that capitalism, at least the successful style of rich-world capitalism, requires -- which mainly comes down to rule of law, education, good (generally less) regulation, less corruption, and good (generally more) antitrust enforcement. This doesn't really solve the "how do I do that" problem, though, since it largely becomes a "how do I accelerate political reform" problem. Then again, given the dictator book club series, maybe you can figure out how to do that? Incidentally I think the challenge of solving these antecedent problems (especially corruption) are what really makes it difficult for countries to get richer. I kind of suspect western countries mostly had an easier time getting rich because they'd already solved many of those problems. The United States took, what, a hundred years to get from patronage to civil service exams and antitrust law? And we had a very free press, very good courts, and a lot of luck.
One alternative to charity worth considering might also be more science funding: there are a number of private bodies that give grants to scientists, though their scale is far smaller than the federal programs.
Imagine, for a moment, you have a magic box, the contents of which grow by 5% a year. You have a rare and expensive medicine that will save lives.
What do you do with this? Do you save lives, or put it in the box to save lives later? When should you take it out of the box?
That's sort of like investing. You get a return on investment; you can then use this to save -more- lives, -or- you can invest it and save even more lives later.
Now imagine that as long as the medicine is kept in the box, random improvements happen. People get slightly better cell reception one year. The next year, everybody's computers get 1% faster.
Now how long do you keep it in the box?
What if, by keeping it in the box, sometimes the world production of rare and lifesaving medicine slightly increases?
That's what capitalism has to offer. As long as you keep the medicine in the box, and let some people die this year - next year you can save a few more people. But also things randomly just kind of get better in small ways.
Now - if you're going to consume the money instead, charity is probably the better option. The real question is whether you direct your share of market consumption towards single events - getting a motorcycle or saving a life - or whether your direct your share of market consumption towards making the market better/bigger in the future.
Most people want things better now; they want the hungry fed, the homeless housed, the sick healed. And this is quite fine, if the alternative is consumption. But where the alternative is to forestall consumption for another year, to leave the rare medicine in the box, and both have more medicine in a year and ALSO food delivery gets slightly more convenient - the choice looks a lot more in favor of "investment" than I think a lot of people actually think it does.
Yep. But that doesn't stop being true - if you could save 100 lives this year, or 105 lives next year, do you take the medicine out, knowing that there will be 5 additional lives producing goods and services the year after that? What about the year after that, when it's 105 lives then or 110 lives the year after that?
That question seems legitimately hard. But, again, when you throw in that the return on investment isn't the only thing investment produces - it's also producing random other small benefits as well, even if they seem kind of trivial - the answer seems relatively easy.
One problem with capitalism is that it is predicated on perpetual growth, that growth ultimately consumes Earth's biosphere, and therefore capitalism will eventually destroy life on Earth. So "donating to capitalism," in whatever sense, contributes in the long run to destroying life on Earth.
Maybe life on earth is a net utilitarian negative, though. As de Maistre said, "the whole earth, perpetually steeped in blood, is nothing but a vast altar upon which all that is living must be sacrificed without end, without measure, without pause, until the consummation of things, until evil is extinct, until the death of death," and as Schopenhauer said "the pain in the world always outweighs the pleasure. If you don't believe it, compare the respective feelings of two animals, one of which is eating the other." So perhaps reducing the amount of suffering life on earth is a good thing, from a negative utilitarian perspective. Of course, my answer is to redirect earthly resources towards developing a system that can turn as much of the universe as possible into minds experiencing pleasure, most likely via some system of self-replicating machines, which would by their sheer magnitude be the only conceivable thing that could outweigh in pleasure the billions of years of net suffering on earth and any other planet supporting life.
That was more a devil's advocate for capitalism on my part, what I actually support is the system of universal pleasure-mind generation that I describe in the latter part of my post. Whichever socioeconomic system would be most likely to bring that about would be the best socioeconomic system by my metrics, and which that is remains unclear to me. Maybe central planning would be best for devoting earth's resources to trying to figure out how to make an ever-expanding cloud of Von Neumann probes that create constantly pleasurable minds, who knows.
That's the great thing though: It doesn't need to win anyone over. The relentless power-seeking exemplified by capitalism is utterly inevitable. Natural selection ensures that those with power, and by extension, control, will outlive those without it. What's "good" for humanity or anything else is completely irrelevant. Competition will continue until all power is centralized into one being, bringing about a perfect, unchanging order. It's just a matter of time.
Nonsense. The vast majority of growth isn’t having a bigger chunk of matter, it’s about making better stuff. While growth _can_ be having two cars instead of one, it’s far more important how cars become safer, lighter, more fuel-efficient, get safer exhausts, become nicer to ride in, and so on, and so on. In Western countries, growth is accompanied by _less_ environmental impact, including CO2 emissions. We can literally have growth forever, as long as people don’t stop coming up with good ideas.
It’s true that at the lower end, like in China, this doesn’t hold, but reasonably, this means we should help countries over the hump rather than condemn them to an eternal poverty where we can give them charity to feel good about ourselves.
Givedirectly seems like a pretty solid option for "investing in capitalism itself." You give poor people money, figure out some way to keep them from losing it to corruption or criminal shakedowns, and then those people use that money to buy things they need, which results in the businesses that provide those things succeeding, and so on.
If capitalism is a very good system for giving people with money what they want, then the problem might just be that people don't have money and that means they aren't getting their needs met.
Honestly feels like a category error of a question.
Capitalism is what keeps us in the game without everything going completely to hell.
"Charity" such as we refer to in terms of EA or give well or such, are just providers of a good under capitalism.
Walking back a step - Whatever people are willing to pay for, Capitalism will provide.
If people value assisting people in the third world, capitalism will (and does) lead to the creation of firms whose mission is to accept money from customers in exchange for making water safe for 10 people or giving two families mosquito nets or whatever.
At a previous time, what most people who wanted to "do charity" actually wanted to buy was the feeling of having given to charity in a personally satisfying way. The firms capitalism created were numerous, existing in fractally obscure philanthropic niches such that an individual could easily find something personally satisfying to them (and even make it part of their identity), and then have slick marketing to make the sale feel as good as possible. Because that was what was being demanded and supplied, these firms didn't optimize for outcomes.
When people began demanding outcomes, capitalism created charitable firms that carefully evaluated and tracked their outcomes and made different kinds of charity compete with each other, so that now people who value assisting others can get the most bang for their buck - all of the good that something like GiveWell has done is ultimately the totally expected and excellent result of capitalism. People wanted effective altruism - firms entered the space to sell it.
"Capitalism" and "charity" aren't alternatives. If someone says capitalism does more good than charity - it's like saying capitalism does more good than cars. Sure? Almost by definition? what does it even mean?
But are you suggesting we should do away with cars and instead have more capitalism?
If they are specifically making the claim that charitable interventions for the preservation or support of capitalism are better uses than for any other kind of charity - first make sure you agree you want to buy the same thing (effective altruism in your case)
If they are making that claim that it's more _effective_, well, that can be at least approached empirically, but I think it's extremely likely pro-capitalist interventions will be much less effective. Much of the low hanging fruit has already been picked, and we don't know how to make there be capitalism in places that don't already have it.
The normal operations of capitalism do a lot of work towards the end of preserving capitalism - but they never ever provide things nobody is willing to pay for. The normal operations of capitalism do not lead to good things by accident, but by purpose.
If you specifically want to altruism most effectively, capitalism will sell it to you, but it won't provide it on it's own.
"If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
As long as investment growth rate > discount rate (which it is), this actually changes things by a factor of infinity.
One way to consider this would be consumption-charity (make things a little better now) vs investment-charity (make things much better later).
Suppose there are thousands of people chained up in a terrible prison. You have enough time and energy to unchain one of them every month. Who should you unchain first?
It's not whoever is suffering most in the prison.
It's not whoever is most sympathetic.
It's whoever will be able to unchain someone else once you unchain them.
For the sake of argument, suppose you believe that humans are causing a problematic amount of climate change via CO2 emissions. Elon Musk shares that belief. He could have donated the vast majority of his PayPal fortune to some kind of charity. Instead he's using it to build the industry-leading electric vehicle company, whose 18-wheelers stand poised to electrify the highway freight market. Effectiveness of altruism is positively correlated with the amount of care, attention, proximity and self-motivation that you can put into your altruism. Care, attention and proximity are maximized when you do something yourself. Self-motivation is maximized when what you are doing is so valuable to other people that you make money by doing it.
Charity is great at saving lives by providing people with the basic necessities of survival. Capitalism (or rather, a mixed economy like the one we have in the US and Europe) is great at creating a world where charity is unnecessary because the basic necessities of survival are so cheap (or, if you prefer, the people are so rich) as to be ubiquitous. Both charity and capitalism are useful; and in fact the key reason for the success of EA (before they went off the rails) was to introduce a form of capitalism into the machinery of charity, thus creating a hybrid approach that was the best of both worlds.
1b. Same as #1, but whenever you can, buy versions made by a company owned & operated in a poor region, especially complex, capital intensive goods & services with high skill required. If you have to take a hit in quality or price, consider that your donation.
In other words, if you want to support a poor region in undergoing capitalist development, support their capitalists. It's important that the company be operated in the poor region, circulating money locally via wages. It's even more important that the company be owned locally, so that profits also circulate locally instead of being siphoned off to a capital city or rich foreign country. It's most important that the purchases be high in the value chain, so that the revenue supports the whole ecosystem of producers in previous stages.
Of course the central point of the article was that charity still seems to do orders of magnitude more good per dollar. If #1b can compete on that measure, it's because it makes the donation orders of magnitude more sustainable, since you get goods you need.
"There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250. But you can get a yearly subscription to Instacart for $100, after which the service is free. So either customers are overwhelmingly being stupid, not buying the subscription, and paying much more than it should cost - or I’m missing something here and the numbers are wrong."
Iiuc, Instacart often charges a markup on grocery items in addition to its official fee.
It seems obvious to me that this is just a question of scale. Yes, the countries that have become nice places to live have done so through capitalism, but how much more money has capitalism been working with than philanthropy? US GDP is ~$25T, and US charitable giving is ~$500B. Most of that charitable giving is for things like teaching poor children to play the flute and mailing books to homeless people, so I would guess 'real' charity is ~$50B at most. It seems easy to argue that $1 to charity will do more good than $1 to capitalism, but also that capitalism has done more good overall because it's been much more successful at obtaining dollars.
Re "giving to capitalism," what about (4) Build a business based on fulfilling a need/desire that other people in society have? This seems to me to be the most obvious way that capitalism drives prosperity. Trillions (quadrillions?) of trades, every single day, each of which involves net wealth creation (otherwise presumably the trade wouldn't happen) is what makes capitalism "work." You could argue that this is encapsulated in your point (2), but investment in existing businesses is distinct from the creation of new businesses.
More succinctly, simply living your life in a capitalist society by engaging in mutually beneficial trades, at all levels, is the capitalist version of "charity." This is something everyone can do. Intensifying this would simply be either increasing the number or magnitude of trades. The more "charitable" you feel, the more you should let your counterparty accrue the benefits of each trade.
But Moloch. I haven't made peace with Moloch yet. The energy and spirit of money/capitalism colonizes mind and world. I notice sadness and mourning for what Wendell Berry called "the Peace of Wild Things." Perhaps I need stronger psychic defense mechanisms or perspective/framings when faced with narratives of mass extinctions, climate change, rainforest burning, microplastics, and floating oceanic garbage islands.
Moloch-capitalism makes everyone happier and sadder, safer and more insecure. How to abide Moloch/Mammon/Money?
But as is being said, Moloch is over charities now too.
But why assign any value to lives in the first place? Are the lives of those alive today worth any more than the countless lives and species destroyed by the relentless march of evolution? Even humanity will be made obsolete in due time. No one is forcing you to participate in this. Life will march on without you.
Thanks. Great questions. I think it is because I have children who cling to life, who have that egoic sense of self-centeredness that my culture instills in us so we can serve and be served by Moloch better, to run on his hedonic treadmill. My relationships with them, my group, family, and community - to regulate with them my brain thinks with and for them, maintains the conceptions of myopic "me" and "us" which are quite powerful, the beats and throbs that tend to manifest and perpetuate waves of human life and living. And Christian upbringing instills deep dreams of eternal life, of forever, deathlessness, and endlessness. I open my mouth or comment and these remnants are revealed. 🙏
This is why I hate to see Christianity go, even though I'm an atheist. At least it told you to love your neighbor and value all lives, even if these things were more honored in the breach than the observance. What do we have now? Some horrible woke ideology where your value is how oppressed people like you were in 1950? Some equally horrible alt-right ideology where your value is how not oppressed people like you were in 1950? The last ideologies they came up with were fascism and communism, and we know how those turned out. Ugh.
It seems like this discounts the value of instacart, with respect to jobs, while overstating the value of Dispensers For Safe Water.
The million dollar investment in water doesn't save 1500 lives by itself: those people still need food, shelter, medicine, etc.. By contrast, the jobs instacart creates give people a large fraction of what they need to procure all their survival needs (or all of what they need and then some).
Isn't the biggest difference between instacart and the water charity, that instacart is operating in a wealthy country and serving a luxury good to relatively wealthy customers, while the water charity is operating in a poor country? If you instead chose a company making an important necessity, like shelter or clothing, in a developing country, and compared it to, say, the Make a Wish foundation in the US, which would come out better in a similar comparison?
Actually, what does it even mean to "donate money to capitalism"? You derive your costs for instacart based on investment money spent on the company... but the whole point of an investment is to make a return. If you invested 1 million dollars in IC back in 2012, then you would have provided delivered meals for 2,000 people, *and* you would have 1 million dollars * the rate of return of the IC investment. But that's not really right either, because the latter is money that people paid you for the delivery service; you didn't give them food for free. Which gets at the whole point of investment (to be worse off *now* and better off *later*, so of course it looks like a bad idea, and similarly, you'd be warmer now if you burn all your clothes than if you wear them) and makes this whole comparison very confusing, in my opinion.
If you ask the question, "what is the present discounted value of 1 million dollars given to a water charity vs invested in a basket of startups?" If we take your number for the ROI of the latter as 7.5% per year, with 2% inflation, then in 10 years our 1 million dollars is worth the equivalent of about 1.7 million dollars today. If we then converted this back into a water charity donation, we would break even at a discount rate of about 5.4% per year. Or in other words, the investment is a better option if discount the value of future water at less than 5.4% per year, and a worse option if we discount more strongly than that. (I think all secondary benefits should be incorporated into the relevant rates of return and discount, but maybe I messed something up).
Scott, I think you slightly misunderstand the argument for working on spreading capitalism. It goes something like this:
1. If enough of us buy malaria nets, we could potentially prevent all malaria deaths in the nation of DR Congo, which would save ~80k lives/year.
2. But if the people saved by malaria nets still live in very poor conditions (albeit with clean water and maybe some micro-loans provided by charities), that's still a far shot from living as good as the median American.
3. We can very roughly compare the quality of people's lives by looking at GDP/capita. For the US that's $76k/year, for DR Congo it's $600/year or 150x lower.
4. Saving 80k people/year is very much noble but on a GDP/capita basis that's only equivalent to saving 80k/150 = 530 Americans/year.
5. If instead of malaria nets we fund projects that try to bring capitalism to the poorest nations, we have a chance to make a *huge* impact. DR Congo has a population of 111m, and if we manage to bring proper capitalism to the country, it might reasonably 3x the country's GDP/capita over the next two-three decades, which would in turn create 111m*1,200 = $130B/year of additional economic prosperity or be equivalent to saving $130B/80k = 1.6m Americans/year.
6. So how good of a chance of bringing capitalism to DR Congo must a project have in order to have a bigger value than eliminating malaria? Roughly 530/1.6m = 0.03%. Can any project reasonably achieve that? Very hard to say, I would definitely bet that the Belt and Road initiative had a much higher chance than that in the beginning.
7. Can we reasonably identify projects which a) Accept donations or investments and b) Have a chance of at least 0.03% of tripling DR Congo's GDP/capita? I don't know but I would arguably that might be something worthy of EA's time.
I really like this analysis. But maybe, with some clever math, you could compare happiness units instead of $? Like, 80k Congolese saved = avg life satisfaction rating of a Congolese times 80k. Then... idk 🤷♂️
> This kind of development aid has been roundly criticized and did especially badly in Russia.
The perspective I've heard is that Yeltsin had to implement radical capitalist reforms like this to secure the transition away from the soviet system. If he had embraced more gradual reforms, enough of the soviet state apparatus would persist to allow communists to return to power in the next election cycle.
In other words, economic prosperity was not the goal of shock therapy, the goal was to root out entrenched political opponents. Given that the communist party consistently remained popular in post-soviet Russia, this doesn't strike me as incorrect.
Also, hadn't we already implemented capitalist reforms in other post -Soviet states, like Poland, successfully? I thought the Russian case was more of an outlier where development arguably wasn't the core goal of the insiders running the program. (Though admittedly I have no expertise in this area, so I'm quite open to correction.)
> Also, hadn't we already implemented capitalist reforms in other post -Soviet states, like Poland, successfully?
Great question! I don't know the answer either.
As a quick guess, could this have something to do with Soviet Union extracting resources from its vassal countries? The capitalist reforms were good in long term, but bad in short term. In countries like Poland, the "bad in short term" was balanced by "no longer need to send resources to Russia", so the overall result was okay. But in Russia, the "bad in short term" was made even worse by "no longer receiving resources from Poland".
This may be a bit counter-intuitive, but the Soviet Union didn't actually extract resources from it's vassal countries (except for a short period directly after occupying territory post WWII). It was mostly sending resources (search for COMECON if you want to learn more of the history of this). It's just that the inefficiencies of the economic system imposed upon them was such that if was still a massive drag. However in general quality of life was higher in Warsaw Pact countries vs. the Soviet Union proper, and not just because they started from a higher base.
Even within the Soviet Union, resources and economic development was redistributed from the areas considered core (Russia, Ukraine, Belarus) to the edge republics (Central Asia, Baltic states). Post Soviet union the countries that had or were able to quickly set up better institutions, a stable and open political system, and good economic policies quickly made progress (not just in Europe, e.g. see Vietnam). However without resource and tech flows from the core Soviet Union many countries fared MUCH worse, e.g. the literal famine in North Korea, depopulation in Armenia and Georgia, and the sorry state of most -stans, e.g. Tajikistan (until this day) and Uzbekistan (until recently, they have a competent president finally).
I wanted to ask *why* this counter-intuitive setting, but Wikipedia already says "Stalin's precise motives in establishing Comecon were inscrutable". The cynical interpretation is that he wanted Moscow surrounded by a safe zone of poverty in order to prevent a possible uprising. (Poor people may have more motivation to rebel in theory, but fewer means to do so in practice.)
According to Wikipedia, Comecon hurt its most economical developed members (East Germany, Czechoslovakia, Poland, Hungary) by taking away their intellectual property rights (i.e. the main problem indeed was not resources).
I think that countries like Poland were also harmed by having bad trade imposed on them: they had to buy Soviet products even if cheaper and/or better products were available from the West, and had to sell their products to Soviets even if it would be otherwise possible to sell them more expensively to the West.
If it costs $1 million for a charity to provide 50,000 people with drinking water, it will also cost $1 million to provide them with drinking water the next time they need it. And the next time. And the next time. Before you know it you've spent a billion dollars on water and people are still thirsty. A functioning economy will provide them with drinking water *forever*. Invest a million dollars in something that will employ those people and let them pay for their own water from the proceeds.
Why be coy when you can name the actual company you can invest in which employs 50k water poor people for a million dollars?
If you want to know why the charity option appears at least superficially relevant, it's because there is an actual organization that can convert money into good outcomes.
Comparing an actual, real charity to an imaginary company where you can arbitrarily tune the utility to whatever looks the best would obviously come out in favor of the company. Hence: what do you believe would be concretely the most helpful and why do you believe it?
I'm not in principle against the idea that companies can do much better than charity, but there is a large space above "theoretical argument that provides no actionable advice", if you have a model that we can poke at and examine I would feel much more partial to this line of argument.
Shouldn’t the argument be that Instacart provides a service which increases economic activity and therefore taxable income at the company as well as for its employees and gig workers? Some economists somewhere said that each dollar in the economy changes hands 7 times in a year, so capitalism creating new economic activity like Instacart increases that velocity of dollars, which are taxed wherever yet are spent, which (in theory) goes to support the government services that the charities are trying to replace.
In other words, if they had tax revenues supporting competent governments, those governments would provide clean water and the charity wouldn’t be necessary
Blithely, capitalism gives wealth to people who deserve (in some very specific sense) it, and charity gives wealth to people who don't deserve it.
("Deserve", in this sense, means "capable of producing value for others, due to a combination of internal attributes and the surrounding environment". This may or may not match up with your personal definition of desert, in particular for those whose inability to produce value is caused by their environment rather than their own attributes.)
Developed countries don't need safe water dispensers. In order to develop, underdeveloped countries need to join the capitalist system. It's by no means clear how you can get them to do that, but it's something to think about. Meanwhile, the anti-capitalist mood affiliation that shows up in other comments does not do anyone any good.
I’ll always support Scott and the rationalists taking a silly argument seriously and deconstructing it. But let’s be real: the people saying “capitalism is the most effective charity” are just saying “yay capitalism” and are looking for a way to have their cake and eat it too (i.e. buy and spend however they want while being able to wave away drowning child type thought experiments).
There are two meanings of capitalism. One is descriptive. "What happens in Capitalism." Another is proscriptive. "What should happen in Capitalism." I'd argue that capitalism requires some measure of altruistic investment in order to function. An example of this would be something like LOVE (Let Oro Valley Excel) which was a group in Arizona which was unusually successful fighting some shady rent seeking on the part of Walmart. Basically, Walmart got a huge tax break on their property taxes, as they tend to lobby for wherever they go. The governing board that gave it to them swore it wasn't for a Big Box store. And then it turned out to be for Walmart. All but one of the board members were voted out.
I'm not sure how to quantify the value of this kind of behavior, which requires time and altruistic punishment, or to compare it with donations which save lives. I suspect that it has strong second-order effects in terms of promoting competition and preserving choice for workers and customers.
But if you can save lives that wouldn't otherwise be saved, it makes sense to save lives.
I'm curious about your use of the discount rate. I'm not an economist, but wouldn't we prefer some kind of discount rate that assumes 0% growth and 0% inflation? Having a lower value for future money due to a high growth rate makes sense in investment, but makes less sense in regards to charity.
"Return on investment. If you donate to charity, various good things happen. If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
I don't quite track the argument here.
To take an extreme example, If you have a dollar 200 years ago that you invest at a very conservative 4% interest rate investment then that dollar will be worth over a million dollars after 200 years. There's a chance, of course, of losing that dollar over that span of time. But I'm not confident that "act now" is always better than "invest now and act later." Probably, this comes down to a matter of trust, where there are considerable benefits related to spending one's charitable dollars as one chooses within the span of one's lifetime, which nets considerable personal utility for the individual.
Isn't charitable giving just letting governments abdicate their responsibility to administer a bountiful, equitable, and just society, and enabling free riders to exploit the compassionate/gullible? Of course it's your money, do with it as you will. Perhaps it is a good idea to bribe the downtrodden and otherwise unfortunate not to destroy civilization, such as it is, but I'd prefer to address the issues at their root rather than relying on "the kindness of strangers" to paper them over.
So, if charity provides lots of value per dollar but doesn't incentivize people to spend much, and the market provides far less value per dollar but incentivizes people very strongly, then it could both be the case that the market is expected to create more value overall, but also that choosing to spend on charity is better. Once you've made the choice to spend some amount, how incentivized you were to do so is no longer all that relevant.
Forgive me if someone else made the argument in the comments already, but the comparison at the margin is not between a million dollars to capitalism versus philanthropy. Rather it is between competing philanthropies.
Suppose we have a million dollars to allocate. Do we give it all to the clean water nonprofit or a pro-life pregnancy crisis center? Do we give some of it to the pro-life center and some to a pro-choice center? What about the adult literacy center down the block, or the at-risk youth program downtown?
There is no way, ex ante, to determine who should get the million, or a portion of it that meets a standard of rationalism or justice.
What capitalism does, however, is permit the emergent order of philanthropy. I'll give what I can when I can, you'll do likewise, and so will everyone else. And the system of profit and loss, the 'market pressures' incentivize the nonprofits to do the most good with the money they have. And indeed, because it not a choice between the pro-life pregnancy center and the pro-choice one, but between several of each, each with different managers, budgets, and quality of staff. In short, capitalism, or the market, allows philanthropy to thrive the same way for-profit firms thrive.
But capitalism does something else. It allows the wealthy and corporations to give. As major donors or corporate donors, they can give back to causes in their local or national communities. (This, of course, relies on a clear tax system that gives them the write-off.) Even a great many small nonprofit firms are supported by corporate giving.
>There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250
Instacart has a lot of other things they could make money from. This includes partnerships with grocery stores, advertising of specific products, providing data and analytics on spending and shopping habits, etc
It's not necessarily a false dichtomy, but I would model capitalism as a social structure of which purpose **can be** to enable charity by making the humans run around, building the pumps. Communism then is like a dildo that penetrates both ways, since it makes you to run in one wheel of charity in order to get resources from the others.
1755, a full 21 years before writing his classic book on growth theory, The Wealth of Nations:
"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."
In both Adamsmithia and Charitia there is demand for clean water. In Adamsmithia clean water is supplied by Instawater which supplies clean water to all, and makes $500M a year and is self-sustaining. In Charitia clean water is supplied by donations from donors from Adamshithia. This situation is self-sustaining. InstawaterCharitia is never funded or developed.
Love the Adam Smith quote. But that’s a pretty dark take. Like, if you let the population suffer the full effects of their dictator’s incompetence/malevolence, this might motivate them to apply pressure to the ruler for better governance, that is, “do better or get ready to be ousted.” But I think it’s too speculative. You can do so much good with charity. It’s a risky bet to let the people suffer in the hope that they could motivate their leaders to instantiate better policies.
Answering the question in footnote 1: the accounting for Instacart is that they report revenue from the transaction fees, not from the whole size of the order (I'm not an accountant, but I believe technically what's going on is that the grocer is selling to the customer and Instacart is a delivery/ads/other stuff company that intermediates, so it's analogous to Google reporting the $2 someone paid for an ad click and not the $10 of revenue they got from whatever they sold. This revenue number also excludes the payout to the shopper). Instacart's gross transaction value last quarter was $7.1bn, compared to $670m in revenue. So, round numbers, the amount people spend on Instacart is very roughly 10x the company's reported revenue. This is a moving target because the revenue take rate will change, but gets you directionally there.
I think it is helpful to make a distinction between the effects of dollars given at the individual level (lives saved, textbooks bought, meals distributed) and *systemic* solutions to large scale problems. Charity exists, as I understand it, to address the individual level of impact--but it is a very ineffective approach for addressing systemic issues. It just doesn't do that very well: not enough money is donated per year, there is very poor system wide coordination on spending priorities, and there is no public forum or governing structure to debate or determine what those spending priorities should be. What kind of social impact do we, as a global or national public, want charity to have? I know of no consensus on this, nor any method of producing such a consensus.
Capitalism (more accurately, pro-business economic policy) is, to my understanding, designed and intended to work maximally efficiently as the systemic level. Individual participants and businesses might lose money or suffer, but in the long run (years, decades, generations) the market is supposed to deliver sustainable economic growth and make modern civilization possible. As for public consensus, the market at least provides a forum by which people can vote with their dollar--any good or service which is seen as unnecessary or unwanted is eliminated.
Of course, "sustainable" is a term with many meanings and distinctions. The market provides what people want to those who can afford to pay for it, but that doesn't mean that it always serves the interests of society as a whole. The poor are left behind, and global warming is the poster child for the consequences of ignoring externalities.
Government is meant to provide for the common good, the public interest. It may not be as effective at that as we would like, but, well, "Democracy is the worst form of government except for all the alternatives", and so on. No one has come up with a better one yet.
So I think it depends on what your priorities are: fulfilling the economic needs of the majority of individuals (Capitalism), addressing social issues at a systemic level (Democracy), or satiating a need to provide assistance a small number of needy individuals (Charity).
I think it obvious that some balance is necessary. As for how one should invest one's charitable donations, this analysis seems to indicate that it's really just a matter of personal opinion: what needs, which people and how many of them to assist is probably best seen as a subjective opinion. Go with your gut. As long as you are contributing to a problem that neither the market nor public opinion is addressing, it's good.
1 million given to water dispenser will not stay with charity but trickle down to capatalism. Charity will need to buy water dispenser from a company. So, water dispenser company will get part of 1 million too which in turn could create jobs. Giving dollars to capital intensive project that saves lives and trickles money into the hands of people who need money will be good.
You can certainly find many instances where a charitable donation does more societal good than an investment or act of personal consumption. You can cherry pick so as to make any given claim on your next $100 seem absurd. Of course 200 mosquito nets > than a bottle of Krug.
But there is no arguing that washer / dryers, dishwashers, cipro, tractors, genetically modified crops, cars, iPhones and other byproducts of investment in new tech and the production of that new tech at scale, all financed via the selfish pursuit of profits (i.e., "capitalism"), have done far, far more good in the world, for both rich and poor, first and third world, than any charity has ever done, or that all charities combined have ever done or could ever do.
Which is why I've always been skeptical of EA wanting to move money and expertise away from the efficiency and discipline exerted by market forces and instead give it to projects that don't do much R&D, don't operate well at scale and are often mostly about moral preening. It's like diverting money from Microsoft or Amazon and giving it to the DEI department at the DMV.
Scott, you already made the argument that maybe we don't understand how to jumpstart development as well as we think we do, and I think that extends to development of capitalism. However, I'd like to extend this a little farther and make the claim that capitalism and democracy aren't even the first rungs on the ladder of development, which is why attempts to charitably jumpstart capitalism often don't work out.
Why do I suspect democracy isn't the first rung on the development ladder? While Japan had democracy forced upon them after WWII, other countries that also developed economically didn't see their democratic reforms until much later. For example, South Korea didn't see democratic reforms in that country until late in the 1980's. Meanwhile, they experienced multiple decades before then with annual per capita GDP growth well above 5% (https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&country=USA~KOR~JPN~PHL). The same story can be told about Taiwan, which didn't see democracy until the early 1990's. (Democracy/autocracy is easier to recognize. It's harder to point to a country as 'capitalist' vs. 'non-capitalist', but I'll get to that in a minute.)
We see autocratic regimes and think, "Why can't they just get rid of the dictator and go democratic already? What's the Special Sauce that allows this to happen?" But this ignores the underlying economic reality that most people in low-income countries live in a kind of feudalism, where landowners derive most of the profits from agriculture, even though that's often not the way those landowners actually make most of their money. Just because they own farmland, doesn't mean they're farmers. It's more of a passive income stream for them. So you might have an economy where a small percentage of the population is able to meaningfully engage in 'capitalism', because only a small percentage of the people actually own capital. Everyone else is subsistence farming, typically paying ~50% of their increase to the landowner.
What South Korea and Taiwan experienced right before their catchup period was a successful land reform movement. Effectively, the government forced large landowners to transfer their land titles to the farmers who actually work the land. (That's oversimplifying, of course.) Incidentally, Japan also had a major land reform movement right before they saw dramatic economic development. Even the US gave away massive amounts of land to individual farmers right before experiencing massive GDP growth.
Meanwhile, many countries tried land reform but couldn't make it stick politically (rich oligarchs tend to have lots of political sway - especially in an autocracy) and didn't see significant GDP growth. (Russia, the Philippines, Mexico, etc.)
Before you can 'encourage' capitalism in low-income countries, you have to find a way to dismantle feudalism so the majority of the population can meaningfully engage with the capitalist system you want to set up. Trying to skip this step is a futile effort.
You can try all day long. Let's say you come up with a plan to give chickens to all the farmers. You reason that the chicken will wander around and eat bugs, so they don't have to waste money on feed, plus it will lay eggs nearly every day. Shouldn't this be a permanent increase in standard of living for these people (so long as the poultry shall live)? Make enough of these small changes, and the farmers will eventually be prosperous! Except the farmer doesn't own his farmland. In many cases these farmers live in the nearby village and walk 3-5 km to work the fields every day. They don't have a farm for the chicken to roam in. They live in a tiny shack. What would you do if you lived in < 500 sqft and someone gave you a chicken? Dinner, I guess, but no permanent improvement to your standard of living.
Or say you set a target of 'farm mechanization', trying to copy what works so well in high-income countries. Again, this ignores the effective serfdom most of the world lives under. What good is a tractor to a landowner who works a desk job in the city and monitors his farm by paying for satellite updates? He doesn't want a tractor, or even to be a farmer. Meanwhile, the farmhands don't want to all get replaced by a machine.
I would argue that the reason we've failed to develop many low-income countries in a meaningful way is that we engage with them as though we can just gift them capitalism. But that will never work so long as they're living inside a feudalist system.
(Yes, I recognize that 'feudalism' isn't exactly the right term, but it's colloquially accepted as a shorthand for an oligarchic land ownership model so I'm using it that way.)
I'm surprised that the few comments I've read don't mention two things:
1. Difficulty of value capture (free rider problems, diffuse gains, etc.)
2. Market inefficiencies/failures
Market solutions do not work in these circumstances, so charity/government is superior.
Let's take the water example. If it were profitable for a capitalist to _capture_ the gains of the clean water, it would be done! The gains are diffuse and hard to capture, so a market solution doesn't work here.
Instacart is highly profitable. A charity to connect workers to deliver food would suck. A market solution is substantially better here.
(Another thing to note is that the vast majority of charity dollars goes to places like... Harvard. Might as well set your money on fire. The average dollar spent on "capitalism" is substantially more effective than the average dollar spent on charity even on your metric. You're comparing apples to oranges.)
Even the staunchest (non-insane) libertarians I know don't believe markets can solve literally every problem. The right tool needs to be used in the right situation.
What do you mean it's hard to capture the gains of clean water? It seems to me that lots of people successfully sell clean water or products that produce clean water. Of course, most of the gains go to the consumers, but that's no different from other products in highly competitive markets.
Many reasons why developed economy principles don't apply to developing economies:
1. Dispensers For Safe Water sells dispensers that are hard to gatekeep (i.e., property rights are difficult to enforce - it's easy to steal the clean water).
2. Gains to clean water occur over long periods of time and potential purchasers don't have the capital to purchase the clean water now (liquidity constraints).
3. It's unclear if the purchasers know how to value the clean water.
4. (less of an issue for Dispensers For Safe Water) coordination issues over centralized water supplies.
Even in developed economies, the _vast majority_ of water is done at the government level due to coordination problems. (Yes I'm aware you can purchase filters, etc., but the majority of people use their faucets)
Outside of the actual point, I think your 10 million "happy customers" is flawed, as it's just a single point in time. You need to think instead of the number of total customers, ie number of people who have gotten value from instacart since it's inception. If you don't, the comparison with "number of people saved by clean drinking water" doesn't make sense, it would need to be "today's number of people drinking clean water from our system."
Additionally, I was a gig worker, specifically for Instacart and Shipt, and I think it's fair to put all (or at least a fraction) of the 600,000 gig workers in the "gained benefit" column. (Or should I say, the total number of workers who gained benefit since it's inception)
I feel like this post misses the fundamental difference between expenditures and equity. If you invest in a company, you have the option to donate (or otherwise reallocate) your capital in the future. For example, if you invested $1 million in Instacart in 2012, you have the option today of selling your stock and donating the proceeds to GiveWell.
So the question of whether to invest in Instacart or donate to GiveWell more or less corresponds to the question of whether you'd rather build 100 wells this year or 107 wells next year. (Assuming 7% real returns relative to the cost of building wells.)
Seems like this list is missing the most obvious pro-capitalism form of charity, i.e.,“Give the money directly to someone who needs it more than you do, and then let them spend the money on whatever they personally want, since that’s the normal engine of capitalism and encourages companies to provide desirable things”
I think a "charitable" way to interpret it might be (not sure if it has been covered already) is that to have sprawling successful charities one needs a lot of capitalism to begin with, to make the money to donate to charities. Once there is enough money floating around, some will donate. If there is not enough, very few will.
> And Instacart has gotten better return on investment in the past few years than the local utility company…
Note that PG&E is not an example of "capitalism", or at least not one that you should be able to give with a straight face. Their policies must be approved by the government of California.
"I’m nervous about this because of China’s Belt and Road initiative, which did this at huge scale for infrastructure, but doesn’t seem to have done much good (and might have done some bad)."
If the US & Japan got rich through capitalism then indeed it would seem to be a priority for poorer countries to follow a similar path. Donating to the Charter Cities Institute might not accomplish much (how many charter cities have they actually made?) but Tyler Cowen donates money to entrepreneurs in places like Ethiopia rather often. It is actually something of a puzzle in economics that poorer countries, which have a shortage of capital, aren't receiving large influxes of capital for the higher marginal returns, and the common explanation is that political problems makes people suspect they won't receive such high returns from investment. So one is arguably providing more social benefit by investing in such places at risk to your personal returns, although it would still be better to incentivize the stationary bandits in such countries by investing in places with the least avaricious/most pro-growth bandits.
I should note that I donate to GiveWell recommended charities and just let my employer-designated 401K invest my money for me. I'm too lazy to be an optimally effective altruist.
I'm glad you blogged about this, but I think the actual problem is a lot simpler. Clean water, mosquito nets, and giving money directly to poor people all lead to guaranteed measurable improvements right now. Spending money and effort on a vague plan to somehow get non-capitalist countries to start being more capitalist is what we should theoretically be doing to fix the world in the long term, but it would probably go nowhere. I absolutely believe we should spend some money and effort doing that (I insert economic soliloquies into my YouTube videos and decorate my leather jacket collection with the principles of economics for this very reason), but I also accept that it's much more of a gamble as far as effectively spending our altruism goes.
Instacart belongs to a handful of San Francisco techbros. I don't know if any of them are Effective Altruists but they might be. If they are, shouldn't that (or even the possibility they might be} count in favor of capitalism? The standard EA claim being as I understand it that if instacart customers walked to the store they would either not donate the money saved to charity or give it to an animal shelter.
(Where "externalities" capture all the facets not accruing to the investors - be they positive or negative).
And this is why investors prefer capitalism over charity - they get another $10B ;)
(yes you do pay lip service to this in one of the latter sections, but the whole calculation still appears completely off)
(Also sounds like a classic problem of incentives - most people are mostly interested in the returns that accrue to them, not to the externalities, hence "privatize the gains, socialize the losses")
For centuries some people have been asking why a diamond is more valuable than water. Water is fundamental for life whereas a diamond is not. Nowadays some ask why porn stars get paid better than a schoolteacher. Basic education is more important than sexual entertainment. Today we ask, why we give money to Instacart instead of this wonderful charity?
Maybe the answer is silly. If Instacart disappears, is Dispensers For Safe Water going to bring the groceries I want to my door? If whateverpornvideos.com disappears, what charity is going to provide that sexual entertainment to people instead? Are charities better in that, arguably, more relevant sense?
If the metric to establish that charity beats capitalism, is that we have to frame life as just a set of very basic human needs that can only can only satisfied just to keep alive the greatest amount of people, in a very efficient manner, then you might be right. The problem is that even in that framing, capitalism and government also got there first.
Don't forget that NGOs also create jobs, to perform their activities, and you can create more jobs in poor countries, with the same money.
(some money monsters like the UN offer excessive salaries for basic jobs like chauffeuring their expats, which drains the local economy of qualified employees, but you weren't thinking about giving to the UN, were you?)
I think you missed what I'd consider to be the most obvious/intuitive way to "donate to capitalism": voting for politicians, funding campaigns, and other actions to increase the number and level of pro-capitalism policies passed in the world.
I expect most people who say things like "Why give to charity when capitalism is better?" are right-libertarians or pro-market Republicans. From their perspective, the marginal best altruistic uses of money may well be trying to get the more pro-market party in office (or voting/promoting the most pro-market candidates within each party).
To be clear, I'm not saying that donating to economically right-leaning political campaigns is a) net positive, b) more cost-effective than GiveWell top charities even if you have typical right-libertarian beliefs, or c) even worth putting a lot of research into.
I'm just saying that the most obvious way to promote capitalism with money probably involves politics ("money is speech" etc etc).
So the pro-capitalism argument can be rephrased as an emh thing - if you can cheaply create more wealth in Africa with public health investment, why don't investors just do that instead of investing in Instacart? I think there's three explanations for this (two pro and one anti charity):
First , it could be a value capture issue. Maybe you create a lot of productivity in Africa by investing in clean water, but Africa doesn't have the financial infrastructure to let you charge everyone 10% of the extra earnings they get from being healthy, so you have no personal incentive to do it. This is a problem directly solved by some people being altruistic and not doing things purely for profit.
Second, corruption - maybe extra investment in public health don't actually make the country richer, since there's inevitably going to be dictators who skim everything off beyond basic living standards. Your foreign investment just goes to displacing the minimum investment they otherwise would have had to make. In this case the charity really is useless or worse, going to empower terrible people (leaders of terrorist groups generally become incredibly wealthy through similar means).
Third, "value" might be fundamentally unsharable. If you make Kenyan workers twice as healthy, that might still be less total productivity gain than saving a silicon valley employee the time it takes to go grocery shopping, because most of the gains are just in that Kenyan workers feeling better, and even after that he doesn't have enough spare resources to pay you what it's worth. This one is mostly a pro-charity take (at least, assuming you value people's internal experiences and not just their economic productivity), but it can also mean economic growth isn't impacted much by charitable investment, which boosts the argument that it's net negative because it creates dependency.
Overall I find (1) here most convincing, but I do worry about (2), which is why I'm generally more supportive of long term public health projects than other ideas like givedirectly.
There isn't really a competition - the two address different issues. Capitalism has lifted masses of people out of poverty, and continues to do so. However, in any system, some people will fall through the cracks, and charity offers an opportunity to catch and help those people. That is the situation within a functioning society with capitalism.
The situation across international borders is different. Charity from wealthy countries, given to poor countries, nearly always results in unintended side-effects. IMHO it is counterproductive more often than helpful. Just as an example: food aid for Africa, where the free food drives local producers out of business, making the country even more dependent on food aid.
Rather than bet on a specific value proposition, why not invest in those who support them? It's a painfully inefficient market as money tends to flow toward to the most entrenched, not the most effective. Efforts to assess the ROI for business incubators/accelerators, counseling programs, etc. are tough to do and there is surprisingly little evidence of even a positive ROI. Applying top-down. linear models to what is an ecosystem may have worked somewhat in traditional economic development but falls way short here. Instead, why not take a systems approach to building entrepreneurial ecosystems** and support the ecosystem builders? (Who are chronically under-funded and facing hostility from the Haves... sometimes it feels like we're Uber/Lyft trying to grow where the taxis are controlled by the mafia, lol.) However, there's progress as we identify what works and doesn't (and limit/delimit those impacts). Perhaps burying the lede, there is now a nascent national group with the charter of "we help those who help the entrepreneurs". As part of that, we have identified some projects that will help these builders to visibly offer significant value to the ecosystem that the old school types cannot. Introducing high-quality entrepreneurship education to a less robust ecosystem can have a big impact long-term but does have measurable impact shorter-term. Improving the mentoring that entrepreneurs get is also powerful. Scott, I can blather on more - but to perhaps oversimplify. it seems that while sometimes you invest in the student and sometimes you want to invest in the school -and the latter is chronically underfunded (that the funding is captured by incumbents...) Thanks for the chance to share!
** ecosystem is actually a good term despite most of my cohorts are not biologists. "Builder" is not my term, I find it a bit arrogant :)
btw, it's still more on the academic side, but Nobel Laureate Elinor Ostrom studied ecosystems where a tragedy of the commons should have happened but didn't? What were the positive conditions? Understanding that there's social, economic, even political elements helps! Here list is here: https://en.wikipedia.org/wiki/Elinor_Ostrom Applies just as much to entrepreneurial ecosystems.
Like many commenters, I'm thinking "isn't microfinance (e.g. Kiva) the best of both worlds?"
Other commenters are saying microfinance isn't actually very good or effective. Could someone summarise the arguments against it?
I found this on Givewell https://blog.givewell.org/2009/12/11/estimating-the-cost-effectiveness-of-microfinance-charity/ and I don't think I understand it. It seems to be saying that microfinance is ineffective because if you take the total amount *currently* being spent on microfinance and divide it by the total number of people in the *potential* target recipient population, you end up with only $0.75 per person. That seems like such a stupid argument that I feel sure I must have misunderstood it, and it could be applied equally well to dismiss the effectiveness of malaria nets or deworming or any other "effective" intervention that's not yet maximally funded. It also seems to be focusing only on the "grants" part of microfinance and ignoring the part about loans which can be repaid and reinvested in other microentrepreneurs, which I thought was the more important part and the part that makes it more capitalism-like and hence relevant to this post.
Surely the relevant factor is how much of an impact microfinance makes on the subset of the population it's currently serving, plus the second-order impact on others in their communities, and how these compare with the impact of healthcare interventions; combined with how likely recipients are to repay their loans and free up the same capital to invest in further microenterprises, which isn't a factor in healthcare interventions.
If I put $1k into microfinance, then, supposing 50% of microfinance loans get repaid (figure plucked out of the air), then the amount of investable money will approach $2k over time. So the impact of one-off healthcare interventions would have to be more than twice that of providing local entrepreneurs with investment, in order for the healthcare interventions to be more effective. This is the sort of analysis I want to see, only with actual data.
(Also, the post seems to conclude "meh, it's a wash between microfinance and typical EA healthcare interventions" rather than "microfinance is notably worse". So it seems to be a matter of framing: why is this being shared as "microfinance isn't that effective really" rather than "microfinance is as good as the best EA-recommended interventions!")
Maybe a good way of thinking about this would be to separate initiatives on two axis, immediate consumption vs long-term investment, and centrally directed vs market mediated.
So a charity that hands out food, would be centrally directed consumption. Wall street investing in a dam would be market mediated investment.
Water filters are centrally directed, and seem more like consumption than investment to me, even though they sort of are "investing" in keeping people alive, human labour probably isn't the tightest bottle neck in the system. They definitely aren't where market mechanism would direct investment to maximise economic output.
If you want your altruism to promote immediate consumption it needs to be centrally directed because the market mechanism just allocates consumption to whoever has money.
For investment, market mediation might work, but it's unlikely to be directed to where it'd be most useful altruistically. Also, it's unclear how much altruism could affect the global rate of investment.
Historically there have been successful centrally planned programs to industrialise countries. That might be the most effective approach for development in places that altruist care especially about.
I don't know if GiveWell would endorse the scheme, but maybe if you resurrected a 1920s soviet agricultural planning officer, gave him jurisdiction over 1000 peasant plots and 10 million dollars to buy tractors, and bridge the temporary gap in food production whilst the system shifted to a new equilibrium, that might accelerate third world development above the rate global capitalism is currently managing.
I think there are several important considerations omitted from this discussion:
- Both a private company _and_ a charity can cause harm under the hood. A charity could be building water pumps in rural Africa, while also giving a cut of the money to a local warlord (because otherwise they would not be permitted to operate in that area, for example), thereby sustaining a group of people who may kill just as many as that charity saved. A private company could be producing a lot of value, while quietly polluting water for the nearby city of a million people. So it is very important to consider the operating conditions and local constraints of both charities and private companies, and if saving 2000 lives comes at the cost of causing deaths of even 2 people, I would personally not give my money to such a charity or company.
- The framing of choice between charity and private company may be ill-posed to begin with. If it were not, it would be possible to consider a society where only charities and no companies exist, or vice versa. However, it would be a clearly absurd, and likely not desirable scenario. A society run by a feudal aristocracy can have a number of highly effective charities but nonetheless an utterly garbage quality of life compared to a capitalist society with half the number of effective charities, for the simple reason that the aristocrats keep the lion's share of the economic value to themselves. So we cannot consider charities or companies outside of the socioeconomic context they exist in, and similarly we should consider situations where a charity or a company, besides saving lives, promotes a specific change to the socioeconomic context. I would not donate to a charity that promotes the institution of feudal aristocracy, for example, even if it were highly effective.
These are not abstract considerations. For this reason, I personally prefer considerations of transparency over just counting how many lives some organization can save. No point if you're only provided with the net profit and not the operating costs, so to speak.
I like the intent of this piece but you (like almost everyone) seem blind to one of the "unspeakable" problems of capitalism — artificial scarcity.
Startups generally, and even some very large companies in the industry-disruption category (e.g. Tesla,) earn 100% of their revenue from creating value. But the majority of large companies get a portion of their revenue through various "rent seeking" strategies. Some get the majority of their revenue this way. "Rent seeking" is a somewhat vague term but it describes very natural behavior to manipulate markets so that more money can be earned from less actual "work." One of the worst of these strategies is the creation of artificial scarcity. A good example is the diamond market, but the same is true of most basic commodities, (e.g. oil.)
If an honest appraisal of the entire global economy segregated the portion that is earned via rent-seeking from the portion due to actual value added, my guess is more than half would be in the former bailiwick. If anyone knows of such a study please share it.
Capitalism is a powerful engine for good. But it naturally also produces a huge amount of bad. I think this is the reason why most discussions of it miss the mark — they fail to admit the scale of the abuse in the system. Unchecked (i.e. with zero regulation) it necessarily results in a vast portion of the world living in poverty due to rent seeking strategies including artificial scarcity. Altering the ratio of good vs bad capitalism ought to be the goal, but so far, our most successful tools have been government regulations, which now often seem to be overmatched due to corporate capture of the regulation mechanisms.
Charity work includes attempts to address both the symptoms and the cause of poverty. In addressing symptoms, it will never be capable of even coming close to balancing out the negative impacts of artificial scarcity, since that is an artificial manipulation in the first place. It is "by design" and is necessary to support that rent seeking revenue. Since charity lacks the function of law enforcement, it will never be able to force companies to abandon rent seeking strategies. Only government, with the implicit threat of prison, can do that.
You’re comparing a marginal (marginal in an economic sense) company in the first world vs a marginal charity in the third world. Of course you’re going to find that investing in the third world is going to have more impact ! That’s what it means to be a developing country. That result has nothing to do with company vs charity ; it’s about first world vs third world.
On Job Creation: That the customers would have spent that money anyway is the broken window fallacy. This frees the time of the customer to do other things, either be more productive or have more non-work time for other activities. What's important is that the Instacart job is the best job that the worker could get (otherwise they get the better job). That means *they* have more money to spend, which creates better jobs for other people, and on and on. It's a positive feedback loop.
Replaceability: You just cheated here. You compared the *brand* of Instagram with the *function* of Dispensers For Safe Water. If DSW was discovered to be embezzling most of its funds and got shut down, another charity would come in to replace it. The brand isn't the thing you're talking about.
Permanence: The lives aren't saved forever. If we assume the other sources of water are, say, magically cursed to be instadeath water, you will immediately see that the lives are saved for only ten years.
And this is key element you missed, and the largest driver of *why* free-market systems are better than charity. A free-market system where the local people are free to generate and spend their wealth on their own would solve the deathwater problem permanently, by creating an incentive for people to create or deliver water that wasn't cursed. Everyone who solved that problem would be directly rewarded by the people who benefit from having the problem solved, and they get into the positive feedback loop measured above.
The rest of your argument hinges on the function of the service in question, rather than the mechanism by which it's delivered. So here's a more useful comparator: Jimmy Donaldson (Mr. Beast) makes a ton of money through his Youtube videos through stupid stunts and silly challenges for tons of money. But he also has an affiliated channel where he makes a ton of money, using the same skills and abilities in promotion and engagement where, instead of stupid stunts, he... does "charity" work. He then takes the money earned through those videos to make more videos about charity work. He doesn't ask for donations, the project is *self-funding* through its commercial endeavors. The results are openly the driver for more results, which are promoted here: https://www.youtube.com/@BeastPhilanthropy/videos
So why doesn't Africa do these? Because most of the governments are corrupt and steal any value the people produce, if the governments even exist at all, and it's not just bandit gangs raiding and pillaging. It's the lack of free markets that makes the continent poor, and where there are, to the extent there are, those countries are improving.
The great advantage of capitalism is that nearly completely useless stuff that doesn't benefit anyone gets filtered out. (Predatory scams, etc, will still get through, but obviously that's not the only kind of low-value project.) You can get even better value out of charities by caring even a little (i.e., checking GiveWell,) but this hasn't reached fixation.
Peter Lindert's analysis shows to my mind that state social spending is competitive with private investment for encouraging long-run growth; and also that as with charities and private investment it's made quite unequally. It's almost certainly the case that GiveWell charities beat out first world state social spending because of the higher marginal impact in developing countries (which also, not coincidentally, have poor state capacity.)
One can probably conceptualize this as a spectrum: market activity (including noncapitalist markets like worker cooperatives) applies a lot of selection pressure to effectiveness, but only maximizes for the benefit of the people with the opportunity to do it; public spending (or peer "charities" like fraternal orgs or neighborhood solidaristic groups) has selection pressure if (but only if) institution are relatively well-functioning via broadly selfish citizens wanting spending that benefits them, and benefits a wider variety of people but only within local borders; charity has completely different agents and beneficiaries and so the highest potential upside but also the potential for the laziest thinking.
One could imagine (however unlikely such a thing might be for humans, obviously) a social system called "charityism" where everyone directs their labor whatever resources they command towards what they good-faith think would do the most good. ("Property rights" over who decides how to direct a resource might be negotiated in advance by participants in projects to create or manage that resource, and the state might set up some rules and try to prevent violence between groups with very strong clashing visions of the good (say Alice wants to blast up a forested mountain to get the ores there for people and Bob thinks this is bad enough to use violence to stop her) but such disputes would take up a much smaller role than in our world.) I suspect that such a system would outperform (on any metric you like) any economic system humans could actually implement. When you do give to charity or otherwise act with the most good in mind you get to bring just a little bit of this sort-of-heaven down to earth.
I'm loving this post because Scott triggered a lot of incredibly cold and calculating readers. The comments are grimly enlightening. I sometimes forget just how ruthless free marketeers can get.
I can see two ways to ”promote capitalism” in ways that might work and be productive. The first is promoting institutions, as capitalism will arise and flower naturally under liberty and good institutions. The second would be to promote free trade, as there’s nothing better you can do for a poor country than involve it in an actually free trade system.
Of course, the question then arises how you would actually achieve this - in most corrupt countries, the leadership are the ultimate beneficiaries of the corruption, and lack of free trade mostly exists to protect some group of people whose support the people in power need.
It’s also easy to imagine any number of ways it’s preferable for a country to, you know, have a working economy rather than being dependent on charity. Resilience - this will be sustainable over time. Dignity - you’re not a beggar. Independence - you can spend on what you want, not on what foreigners think you should. You will also be a good example to others, and even contribute to the international economy.
I also always question the math of this “save a life”. Okay, so A now don’t die from dirty water, one life saved. Next, a mosquito net stops A from dying of malaria… but is this really two lives saved now? Saving the same person from death ten times is good and all, but it’s extending one person’s life, not saving ten lives.
I would argue that in some sense, charity is part of Capitalism. One of the core ideas of Capitalism is that everyone should have the freedom to spend their resources as they see fit, and in doing so, they will affect what is produced/accomplished at a societal level. Charity is just another option in the choice Capitalism gives you freedom to make. I don't really see how investing in Instacart (or whatever) is "more capitalist" than donating to Givewell, except it a total superficial aesthetic sense.
I think a problem here is the either-or aspect. Capitalism has its place, and so does charity. Economically speaking, both have a decreasing marginal utility, so at some point you should put resources toward the other one.
Also, poorly developed areas can benefit their residents more using fewer resources, but the overall economic impact is smaller. For example, if the GDP of a country is $1 million, and you double it to $2 million, that has less impact on the world than a country with GDP of $1 billion increasing 1% to $1.01 billion, even if both countries have the same population. From a charity perspective, the price may well be worth it to double the poorer country's GDP, but feeling good, making other people happy, and saving lives has no dollar value assigned, which kind of points out a limitation of economic theory.
If the charity is operating under a capitalist framework, isn't donating to that charity equivalent to donating to capitalism? IE: If your water dispensers are manufactured in the US, then donating to the water dispenser charity means the money ultimately stays inside the US, providing jobs and stimulating the US economy, and only the product itself is flowing out and improving material conditions elsewhere. The loss of resources is probably trivial compared to the goodwill it generates for capitalism in the destination countries.
Also, since many companies outsource labor to non-capitalist countries (see the volume of product produced in China, or things like oil), then donating to or buying product from those companies is also helping whatever non-capitalist framework those societies operate under, so it can't be as simple as picking the highest ROI company: you'd have to evaluate how much donating to them would contribute to negating capitalism worldwide.
Something I thought was perfect for "laying the pipes" for capitalism is an Indian program for ensuring digital identities to everyone with a bank account connected to it. This is a huge deal! India has nicely opened the solution up, as well.
One thing about poor countries is that there's often more resources than one thinks, but it's not institutionally secured - for instance, you can't borrow against your house if the only way you own it is through tradition or occupation, and this is economically stifling. Merely having a bank account and a legal identity can be a significant deal. Banking and insurance for the poor is very likely far more important than any charities - see for instance here, at the excellent 'Brain In A Vat' podcast: https://podcasts.apple.com/us/podcast/how-to-end-global-poverty-andy-kuper-rebroadcast/id1509951964?i=1000639600708 .
The fact that people seriously believe that investing in a first world company is going to produce more net benefit than direct charity to third world countries is bizarre to me. It requires such level of wishful ignorance about negative externalities of capitalism that it breaks my benefit of the doubt.
I also notice that Scott didn't mention these negative effects and just compared positive effects which is... not enough at all to understand the situation.
Here is an obvious example. Suppose there are hundreds small chocolate companies buying cocoa beans from Africa. Farmers compete with each other and the most competent become richer. And theoretically, they can use this wealth to educate their children and contribute to the development of their society. Meanwhile, people in the first world get their tasty chocolate and jobs at the companies, which compete with each other for the best offer to the farmers. So far so good. Everyone gets their fair share of gains of the trade, capitalism is working as intended and so on.
Suppose we want even more capitalism with all its benefits and thus a lot of money is invested into some of these chocolate companies. Now, these companies get more slack and a better bargaining position. They outcompete other chocolate companies and now we get an oligopoly of just several huge ones. They are also pushed to provide return on investment, which is achieved by cutting costs, offering worse prices to farmers in the third world. Investors are happy, they get their ROI and invest even more, thus perpetrating the cycle. Customers may even get better prices, thus they are happy too. But farmers in the third world are doomed to poverty now. They have to employ their children working on the farms instead of sending them to get education. Gains of the trade are significantly reallocated, much more of them going to the first world than third world, which needs them the most. No more spare wealth accumulates in the third world, and thus no more awesome effects of capitalism that we wanted - the opposite actually.
What do you mean? We get a bunch of affordable chocolate, and the farmers are no longer at risk of starving to death any time soon. Seems pretty awesome to me.
I mean that first equilibrium, with farmers getting wealthier and their children getting more opportunities is much better than the second with child labor and eternal poverty. That just investing money to get more capitalism often leads not to the kind of capitalism that is beneficial to everybody but to the kind of capitalism that take advantage of poorly developed countries and reallocating gains of trade to the first world, that these sweet ROI, which we treat as a separate advantage of capitalism, may actually be money underpayed to poor farmers.
One thing I do making donations to health charities with an eye to both saving the maximum number of QALYs per dollar but also to how the disease curing will effect the economies of the recipient countries. Preventing deaths is a large good, but preventing crippling diseases that cause people to be drains on the resources of their fellows in addition to the misery they suffer themselves get a bump in priority. And some charities like Iodine Global Network can potentially cause drastic positive externalities that could swamp the direct good they do
Not too sure where I stand on this, but to strongman the argument for “industrial capitalism” would essentially say that it is basically the biggest factor in improving peoples’ lives and reducing poverty in history. Prior to industrial capitalism, in 1700, if you got incredibly lucky and happened to be born in England, your life expectancy was 37 years, much as it had been in most times and places. The average monthly income was about $80 in present dollars worldwide, although because of vast inequality most would have earned a fraction of that. By historical standards the lives we live today (even in poor countries) are incredibly safe, secure, healthy and free.
It is hard to argue that industrial capitalism isn’t responsible for most or nearly all of this. The timing of the improvements (and the locations) closely mirror adoption of the rule of law, private property and enterprise, competition and financial mechanisms etc (in contrast charitable donations to improve the lives of the poor have existed in nearly all times places).
To take a recent example, in 1980, before reform and opening up, well over 90% of roughly 1bn Chinese people lived in extreme poverty (less than $2.15 dollars a day). Today that number is essentially 0. The UN hit its millenium development goals for poverty reduction five years early (whilst missing pretty much all of the others) not because lots of NGOs did lots of work on poverty reduction, but because China embraced industrial capitalism. Today there are many countries, which similar to China in 1980, have not embraced many tenets of industrial capitalism, and so the lives of most of the population are relatively short and grim. We should be desperately trying to expand the opportunity to use the wonderful life improvement machine that is industrial capitalism to these people.
Therefore strongman case for Scott’s number 3. option (charitable interventions with a capitalist flavour) is probably interventions that encourage the factors necessary for industrial capitalism where it doesn’t exist or does in weak forms. The biggest one is probably changing the mindset of the elites, as a shift to a properly open economy will likely see massive relative reductions in power for them (as the rule of law binds them and power/wealth flow to entrepreneurs/business people) and so generally they (arguably rationally) prevent it from happening.
What would this look like in practice? One example of such an intervention would be educational exchanges between China and the US (as well as other countries) particularly in the 1980s. At the time domestic support for reform and opening up was tepid (with the policy almost entirely collapsing in the early 90s). Educational exchanges helped cement support with Chinese students (much more likely to be tied into elite networks) seeing the benefits of the US model for themselves. Whilst I think Fulbright scholarships are funded by the US government, these sorts of interventions have a relatively low cost and could be done privately. If they increased the chances of reform and opening up succeeding by 0.01% they would be worth a ridiculous amount of QALYs.
Another would be the Ibrahim Prize. This offers $500k for ten years plus $200k a year for the rest of your life to any African leader who reduces corruption and respects democratic norms. If that pushes one leader away from refusing to step down after losing an election (knowing he will have a wealthy and pleasant retirement) again it would seem to be incredibly valuable. It could even go further: $500k is pretty low (and only goes to max one person per year) and it could also be offered to a much wider section of the elite. Once the rule of law and enterprise has taken off these sorts of prizes wouldn’t be needed, as the newly empowered mercantile class will have the wealth and power to defend themselves.
Whilst these interventions are incredibly complex to judge the results and don’t have the clear X number of lives saved metric that the giving well foundation can offer for clean water, in a similar way to often argued for AI risk reduction, the size of the opportunity/risk is so large it is probably worth the attempt.
Slightly separately a few comments on the article:
Comparing an investment in Instacart to a charitable donation is very apple and oranges. The VC investment that led to instacart should in the long run give a market rate of return (otherwise less investments would be made until it did). In a sense the investment that created instacart cost the investors nothing in opportunity costs, they received a market rate of return. A completely amoral rich person would probably put some of their money in VC, whilst likely wouldn’t be donating to charity.
I don’t particularly agree Instacart is a great example, it’s a company that derives rents from network effects rather than anything particularly innovative, the service provided is one of mostly transferring time from poor people to rich people, and the jobs created are relatively low value add and low paying. There are clearly companies that the world is significantly better off for having existed, such as Tesla or Tongwei Solar.
On a slightly pedantic note you can’t really put the cost of Instacart at $10bn (when total capital injected is $3bn) whilst also saying you prefer Instacart as an investment over utilities because of better returns. The $10bn figure is fine but assumes an efficient market (I.e. that investors are investing in VC rationally for market returns and so whilst only $3bn has gone in, you have to include all the other failed investments, and that overall VC investments are making a market rate of return). If you make this assumption it is odd to later assume that the risk adjusted returns of utility investments are much lower than VC.
On further pedantic note, the vast majority of Instacart’s $10bn value comes from investor expectations of rapid future growth. Instacart made a $71m loss in 21 and $70m profit in 22 (after stripping out a one off accounting change as now they are making a profit their past losses of nearly $1bn now have some tax benefit). Ignoring all loss earning previous years, at $70m in earnings, growing steadily, you would probably expect a 10-20x price/earnings ratio for a standard largish firm. Which would put Instacarts value at just over $1bn if we used a 15x multiple. The remaining $9bn is based on expectations of rapid future growth in both revenue and earnings. Therefore the cost of creating Instacart - as it is today - is much closer to $100,000 to give 2,000 people grocery delivery.
It seems to me you're forgetting the by far most important thing that's the advantage of capitalism over charity: scalability.
If you're bottom-line positive, you can make the same product until you hit diminishing return to scale. If you're revenue-negative, you have to get more donation money.
This is a 1000x+ scaling advantage. If it's generally possible in that system (laws, security, property rights etc.) to create revenue-positive businesses, you can create 1000s more of them.
Only from other positive-revenue businesses can charity money come in the first place. My impression is wealthy donors give about 1% of their money to charity (I could be totally off), which means you need a ratio of at min. 100 to 1 based on fixed human nature assumptions.
Not a battle-tested argument, happy to hear feedback.
This sounds right to me. Another intuition is that "capitalism" (price signals, work, education, buying and maintaining things) involves ~everyone in the process for most of their waking life (working or making decisions about resource use) while charity might be more targeted but involves a very small number of people and hours in the process, because the incentives aren't there.
You link above to your review of _How Asia Works_ (https://www.astralcodexten.com/p/book-review-how-asia-works), and it's interesting rereading that essay in the context of this one. One of the key things it talks about is land reform as a first step toward development, and that seems like something that capitalism can't possibly accomplish. Seizing land from big landlords and redistributing it to the rural poor runs exactly counter to the strong property rights that form one of the foundations of capitalism (foundational enough that the Index of Economic Freedom uses property rights as part of its country scores).
It makes me wonder whether anyone's investigated the possibility of charitable land reform, somewhat after the environmental model of buying land in the Amazon and making it a nature reserve. Rich Westerners could buy land from large landlords in undeveloped countries and redistribute it to poor farmers, helping to create that key basis for successful development to happen.
_How Asia Works_ is kind of negative about Landesa (landesa.org), but that was 2014, and I wonder whether they've become much more effective since then -- their website suggests that they've accomplished a lot (although nearly every charity's website says that, of course).
Still, Landesa seems to be focused on improving land *rights*, as opposed to direct land transfer, so it seems like a different approach from what I suggest above.
I find it frustrating that capitalism is always treated as this black box capitalism is what we do in the United States, period. I think capitalism is both good and inevitable, but that doesn't mean that the inequities in the way we do capitalism are also inevitable. My dad raised nine kids on one salary, we lived well. That's basically impossible today. What happened is that the fruits of the economy are no longer distributed the way they were in the 50s. The poor will always be with us, but if capitalism worked more effectively there would be a lot fewer of them
On your list for what it might mean to "give to capitalism" you should have "burn some money." Money is just the right to allocate resources. If you burn some money, you're saying "My personal needs are met, and I'm no expert in allocating resources for other people, so I'll forfeit my right and let the economy decide." In the short and medium run, letting the money sit in the bank has the same effect, with the added benefit that it provides personal security if you become needy later. This is what I mostly do with my money.
Could we consider capitalism to be the means of wealth creation that funds charity? If it weren't for capitalism, would we have the resources to create and fund international charities at all?
I don't think it's fair to compare Instacart against Dispensers For Safe Water because Instacart provides services to people in the First World and the charities that GiveWell endorses provide charity to people in the Third World.
Prices are very high in the First World, so you should compare Instacart with a charity that helps First World people. Alternatively, you could compare Dispensers For Safe Water with a company that is similar to Instacart but is in the Third World. Such a company will likely deliver more groceries to more people for way less money than $250 per year per customer.
The consequence of this is that if you want to encourage capitalism you should do it in poor countries that need capitalism the most, not in rich countries that already have capitalism.
> Return on investment. [...] I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
I think the factor is much higher than 2. Most people investing in Instacart have purely selfish motives, they only want the ROI, so the other positive effects are free! Since altruistic giving has a non-zero cost, it is infinitely less cost-effective.
The logical conclusion is that one should emulate Warren Buffett, and allocate capital purely to maximise ROI and re-allocate the gains. The argument must surely be naive since Buffett himself gives a lot away altruistically.
Along the same lines as your point 3 is charities that promote self-sustaining development in areas. My friend runs a charity in Haiti that basically funds a few schools, which are mostly taught by locals, as well as initiatives to help train the locals on better ways to produce food and other goods themselves. One of the key components is self-sufficiency, because, you are right, indefinite charity leads to suboptimal outcomes compared to letting the market work out what is efficient itself. However, sometimes capital injections to overcome extreme poverty or knowledge injections to leapfrog years of technical development can be extremely effective.
Your friend's charity sounds like a very worthy enterprise but when it comes to Haiti what they probably need is not self-sufficiency but a decent paying job in a (hopefully big) capitalist firm. I wrote a short article about mining in Haiti in particular:
One thing you don't mention is policy advocacy within developed countries.
Advocacy for increased immigration and fewer trade restrictions might actually be competitive with donation on "human welfare per dollar" grounds, though of course higher variance because you're looking at a *chance* of influencing policy rather than a near-certainty of providing {water, mosquito nets, cash, etc} to recipients.
One very important negative to charity is that it undermines local production of similar goods. When we give food to poor Africans, we destroy their local food production (who can't compete with free foreign goods) and make the next famine significantly worse, creating more death and misery and making it more necessary for foreigners to send food again, continuing the cycle. Long term, a country is better off with local producers of fresh water systems who can create and repair such systems with the added benefit of local jobs. You get all of the benefits of the charity (fresh water) while insulating the people from the negative effects and training locals in useful skills at the same time.
The thing about capitalism is that it's really about markets. You need a real market with prices that reflect real supply and demand for capitalism to work well. Charities are a type of subversion of the market, since they distort prices. We don't need investment (capital) nearly as much as we need markets (price signals). If you think of Capitalism as investments, then it's a mixed bag compared to charity. If you think of Capitalism as markets, then it clearly wins.
With functioning markets, people can invest in poor foreign countries and provide services for a known or at least estimated return. Belt and Road doesn't work, because it's not based on markets, it's a type of command economy. Heavy infrastructure investment can work for building a country up (it did in China), but it's not a real economy and creates distortions that can come back to bite later (as it is doing in China). There's no guarantee that heavy infrastructure investment will even help, which you can see in a lot of Eastern Europe in the 1990s but also places like Venezuela more recently where money was thrown at projects but didn't really do any long term good.
The capitalist way to better the lives of poor people is by buying their products. Work to eliminate restrictions on free trade which mostly benefit rich countries at the expense of poor. Tariffs, for example.
Reducing agricultural tariffs would help poorer countries which have little to export but agricultural products. The United States has relatively low agricultural tariffs, averaging around 25%, but they are not 0%. Launch an advertising campaign explaining how these tariffs hurt farmers in poor countries. Push back on the "Buy Local" mindset by illustrating how this affects poor farmers around the globe.
Somebody arguing that you should spend your additional dollar on goods or services you want instead of charity needs to argue why spending $100 on the for-profit company that makes the thing you personally want is better than spending $90 on the for-profit company that makes the thing the charity wants + the direct impact of the charity.
(I assumed 10% of the charity's donations are spent on things like their administrative staff, which is an overestimate for AMF.)
Regarding the confusion around Instacart's revenue
It's not necessarily the case that all of their customers are long term users paying the discounted rate. Some of their customers will be churn-y, paying a higher fee for a shorter time and then unsubscribing.
At any given moment in time, a snapshot of all current customers will include a percentage who are of this kind.
What about putting things like Microfinance loans in the funding capitalism frame?
There are numerous charities that do this in some capacity, it generally funds individuals that want to start/expand their small businesses in a way consistent with "funding capitalism" and it has ongoing benefits in that the loans are (generally) repaid and then reinvested.
First off, Instacart is a bad example, because you picked the typical marginal company in a developed capitalist society. To have a better one, go back to the 1860s and put seed money into the first companies developing the electric grid. That compares a lot better with charity since it's a marginal company at the beginning of capitalist developement. Or go back to 1300s europe and help a few capable individual set up commercial trade - you'd be contributing to the culture that eventually generated civil law, which is an amazing technological externality of trading wine and spice around.
But that would lead you to the wrong conclusion that you should invest in developing countries. This will work only some times. And that's because in some countries the government and whole social system is designed to explicitly oppose capitalist developement (I'd suggest "the dictator's handbook" as an introduction), while in others it's severely hindered (other useful introduction: "why nations fail"). So, apart from investing in the few remaining developing countries that are not already en route to developement, what can one do?
Investing to change the aforementioned countries' social institutions to remove obstacles to capitalism is unlikely to work (afaik there's no clear way to do it), and likely beyond the means of something smaller than a nation state.
If you can't bring capitalism to the people, bring the people to capitalism. Another way in which capitalism is hindered around the world is by restricting immigration. The potential of millions of people to add their marginal contribution to capitalism-induced well being is wasted by keeping them inside the borders of countries that don't want them to employ their talents. For each capable human you safely help or sponsor to successfully move from an undeveloped country towards a mature capitalist society, you are "donating" to capitalism the difference between their original expected income (let's say $1500 per year) and their expected "capitalist" income (median wage in the us should be around $40k per year), for every year they are alive, which compounds with every children they have in the country.
I think the above is a really good answer! This was my intuition too re: Instacart vs. Clean Water: that the low-hanging fruit in terms of basic human welfare has already been plucked in rich countries, so a lot of recently-successful instances of capitalism offer much more marginal or less tangible value.
Immigration is a good answer also. In addition to the direct impact of immigration giving people access to political systems that don't stand in their way as much, having a big middle class diaspora can be a force for political change, because to some extent the values and experiences and resources flow both ways.
However, I think the biggest case against charity is that you don't really know that clean drinking water, or QALYs, or whatever the metric is, is actually what the recipients *want* the most for their time on this planet, which is short even in the best case. For example, many people in both rich and poor countries choose having a motorcycle over the several [1] QALYs you lose by having a motorcycle, probably because it makes their life better more than it makes their life shorter. Or for more extreme examples, a soldier who volunteers in Ukraine, or an opposition candidate in Russia, or an anti-occupation activist in Palestine chooses to devastate almost any *external* measure of their *own* well-being, but it's hard to question their reasoning. Given the difference between human outcomes in accountable vs. unaccountable governments, their role in creating or protecting an accountable government could be extremely high impact. This is especially true in aggregate across all the people who make sacrifices because they care about society functioning well. And it's so easy to see how much we all owe to the people who over the decades and centuries before us were willing to stick their necks out to improve society.
In terms of the subjectivity of recipients, the impact of an apparently successful charitable intervention could actually be zero, or it could be a tiny fraction of the impact of a motorcycle, or a better president, or a US visa, etc. The cool thing about capitalism, or bottom-up politics and activism, is that it's tied to actual aggregate desire, so you know it's at least somewhat related to what people want.
And (as pointed out in the post) it's also internally self-perpetuating in a way that charity isn't.
I wonder if the answer is investing in companies based in areas without an economy. (Much of Africa, for instance.) One company that could survive would create jobs for the surrounding area, and they would start spending their money there, which would make it rich enough to create clean water and do all the other good things for their community that the U.S. is able to do.
A somewhat false dichotomy - without capitalism you won't have any sensible charity. There would be no surplus funds to make charity with available (there would be some surplus funds though, sadly captured by the ruling apparatchik class). Speaking as someone who regrettably, by the lottery of birthplace, had to spend half of his life without capitalism.
My rule of thumb is that capitalism is good at growing the pie but relatively bad at apportioning it. Capitalism is great at what it does, which is exchange between parties where each one has something the other wants and will pay for. But then there are market failures, especially things that no one wants to or can afford to pay for, like clean water for extremely poor people. Hence redistribution, regulation, and charity.
In practice, both capitalism and charity have varying degrees of success, but it seems clear to me that they are complements. There are good and bad companies, and there are good and bad charities. One category isn't really better or worse in our current world, although if I were in a thought experiment and had to pick I would take capitalism (or enlightened autocracy in theory, but this generally doesn't work out in practice) without charity rather than vice versa.
There's a lot more money looking for investment opportunities than there is in the charity world, so that would tend to favor charity from a supply and demand perspective. However, many of our challenging problems like housing supply or better healthcare can't really be solved just by charity. So it's one of those questions where the answer changes shape depending on which piece you're looking at.
> I’m going to summarize the deal that Capitalism offers by allowing Instacart to exist to “For $1 million, you can give 2,000 people a great deal on grocery delivery”.
I think the error is here. The real deal is “For $1 million, you can give 2,000 people a great deal on grocery delivery, plus shares of a company that are worth more than $1 million.”
I think this pretty much solves the issue? Surprised I haven’t seen more comments saying this directly.
Scott, have you validated that Dispensers for Safe Water's claim of $1M = safe water for 50K people for 10 years => 1500 lives saved is in fact true? Seems like you're working with hard numbers (admittedly with some assumptions) on the Instacart side, but with a press release on the Dispensers for Safe Water side...
For (3), you missed one interesting use of money, which is lobbying to make capitalism work more effectively in your first-world country of residence. As you've noted in the past, the amount of money spent on lobbying is both large on paper but tiny in comparison to the economic value it can influence. Of course, first-world markets work better than third-world ones so there is less low-hanging fruit. But they are also much larger and more receptive to lobbying, which more than offsets this in my view. You could also envision reforms, like lifting individual donation caps so that lobbying can be done more flexibly than via SuperPAC. This leads to uncomfortable conclusions, like the potential that the Koch brothers are spending their money more effectively than Peter Singer.
Also on approach (3), there's a great way to make investment in third world countries better, without sticking your neck out yourself. Make it easier for Wall Street to do it! Maybe you can't identify the right Kenyan Dam, and Wall Street doesn't have the power to do it because of various regulation such as the Foreign Corrupt Practices Act, PATRIOT Act, and AML Laws -- things that the Chinese Govt can skirt to operate more flexibly and create win-wins.
On approach (2) The "return on investment" is stipulated to help by like a factor of 2, but it's really more like a factor of infinity and explains ~all of the advantages of capitalism over charity. The compounding of advantage from investment dominates everything else in the long run. Also Instacart is a public company, and one of the worst possible examples of (2). Doing good via approach (2) looks more like YCombinator, funding novel / ambitious / risky new technology that could be big. The more inefficient the market, the more good there is to be done. Perhaps you wanted to count this benefit as "permanence", but I think it's cleanest to lump "permanence" and "ROI" together.
Maybe this is what you mean by "impact investing" but wouldn't the best option be to provide investment/seed money to a startup company which provides economically priced products for the poor?
In this way, you could create jobs, provide poor people with resources, and also possible get a return on your investment so that you can rinse and repeat.
Within capitalism, charity is a consumer good. You can’t compare capitalism to charity because it’s apples to oranges; capitalism rewards economic control, while charity is a way to fulfill the human need to help others. If you want to help people by encouraging capitalism, you can’t do it by purchasing instacart stock, as you pointed out clearly. Instead you’d donate to political charities or economic assistance organizations that promote the creation of freer markets, whether through regulation or direct assistance.
I think the way to square this is by interrogating what aspect of capitalism has led to the massive increase in well-being — the creation of technologies like electricity, computers, antibiotics, that spread widely and make everyone's life better. Capitalism is a blunt tool; it gives everyone an incentive to make money, and one way to make a whole lot of money is to create this kind of technology. It's this aspect of capitalism that has created ~all of the increase in material well-being since pre-industrial times. It cannot be replicated by charities.
> Some sense in which the US is rich and a good place to live, and each successful company contributes to this.
This is certainly true in aggregate, but I do not think that it is true on a company by company basis. Capitalists are only aligned to if externalities are captured in their incentive structure by some artificial means.
The mob running a protection racket might be a successful company (unless one has the regulatory framework to deal with it). A patent troll might be a successful company. An app vendor pushing free-to-play Skinner box games on kids might be financially successful. A ransomware enterprise might rake in big bucks. Does whoever have a monopoly on epi pens in the US provide ten times as much value per pen than their EU competitors? Are the companies which provide fossil fuels or try to invent AGI well incentivized to consider the overall effects of their endeavors on the global population?
I share Scott's opinion that capitalist companies are instrumental in making the US a decent place for living. But their objective is the shareholder value, not some abstract ideal of honest competition, which is a strategy of last resort for making money if you can not achieve a regulatory capture or monopoly status.
More generally, I would argue that effective charity basically fills the gaps left by the free market. People who can afford to spend 20$/person on safe water dispensers should just buy them, but for the ones who can't afford it, charity can pick up the slack.
(I also do not believe that anything which could possibly be provided on a for-profit basis should be provided in that basis. Scott providing most of his articles for free is fine. Free/open source software is fine. Natural monopolies (e.g. road infrastructure, water supply, or the early telephone network) can also be well provided by publicly owned utility companies on a cost covering basis.)
You actually almost CAN write a check to capitalism directly, though, by pushing for a Georgist land value tax and universal basic income. Moloch, relentless and shortsighted as a cat chasing a laser pointer, promotes the interests of whoever has the most property rights. Shift allocations away from exclusionary speculators, toward "an equal slice of the rent for every citizen," existing engines of capitalism will turn and cater to the formerly-desperately-poor, in direct proportion to their newly expanded ability to pay.
I am currently traveling/touring in Laos, and one of our guides, an english speaking university graduate, told me he want to go for work NGOs for the money, that is where the big money is at. Not at business, not at government, NGOs.
While this post addresses how individuals should spend their money, it does little to address how large organizations or movements should orient their goals or whether said movements are good or bad. In this context, the claim that capitalism is better than charity can be seen as an argument against the effective altruist movement, while not an argument about individual spending decisions.
For this argument to follow it is necessary to observe several facts: the effective altruism movement is not merely about donating your money to the most efficient cause. It is also about participating in a given social structure, researching the efficacy of charities, and selecting a career path. These things are not essential, but to me, they are far from non-central. Second, money donated to effective altruist organizations goes in part to employ people to determine the most effective use of this money.
Thus, I take the argument capitalism is more effective than charity to mean that a) EA organizations frequently direct people away from careers with high returns or direct them away from social enterprises according to capitalism by altering preferences. People who go on to start charities may have started successful tech companies instead, and as a result, redirect value. Likewise, they may enable people to launder their reputation by encouraging people to look away from business fundamentals and best practices, and pay attention to their altruistic pursuits instead. b) EA organizations generate insufficient social value to offset these losses, because capitalist institutions matter more than charity implying that charitable donations will have only muted effects in areas without capitalist institutions, and as a social movement, EA would be more successful if it lobbied for capitalist institutions.
Now personally, I suspect both of these arguments are false, but I think it is worth considering them. For example, I certainly think it is possible that EA causes individuals to place too high of value on AI safety, and thus discourages them from taking other roles. Likewise, I think EA doesn't adequately consider it's own ability to impact and steer social institutions.
TL;DR—Capitalism being better than charity could be a critique of the EA movement rather than individual decisions. This critique is substantive if EA made the wrong individuals less sensitive to market returns, and this decreased aggregate value. Alternatively, if EA could lobby for more capitalist institutions effectively, than this may have a more positive impact than charity.
Wait, how is the answer not just "the charity I'm giving to operates within capitalism and by spending my money will contribute to economy in exactly the same way and amount I would if I spent it on other, presumably non-charitable things, all I'm doing is acting on my preference for someone to have safe clean water".
(That's of course granting the assumption that capitalism is a net good in the first place, which I do not share.)
the best part about Capitalism is that you can spend the wealth you generate by producing stuff other people want on the stuff you want.
so like, if you want to reduce malaria in various places, you can pay for a bunch of other people to make mosquito nets, and someone else to ship them, and someone else to distribute them, and....
Instacart charges fees even if you have the subscription. They're just no delivery fees, but they tack on service fees, and additionally mark up prices.
Before you can donate to charity, someone must have made a profit. That's the only place charity can come from. Someone has to have made the money first.
Plus, it's not just a transfer from one area to another: growth compounds. Do you want to grow the pie or redistribute it? It become just a math problem to figure out how long it takes for the recipients of wealth transfers (say, "the poor") to be worse off than they would have been if the transfers had been used to increase wealth instead. Poverty is the #1 killer of humans, and prosperity is the thing that extends life (and is strongly correlated with happiness too).
Charity is putting the money where it will do the least good, with the lowest return. Growing the pie is where the return is highest, and it compounds forever.
Also, there are basic questions about the motivation for charity. Is living a guilt-driven life a good thing? Ayn Rand would call it living for others, rather than yourself.
I think some of the dissonance in the results of: capitalism vs charity and instacart vs clean water are thermostatic effects.
In a country (world) where capitalism has been a driving and successful force for centuries, it makes some sense that at the margin adding more capitalism has a smaller effect. Charity has less direct self reinforcement mechanisms, and coupled with the nature of new charitable causes coming up (AIDS in the 80s), you’d expect pretty high marginal impact available more regularly.
I also think the example is a little contrived, I wonder what you would think about instacart vs whatever the median charitable gift is — a tithe to a church or something.
One could also come up with an extreme example for instacart, how do you calculate the expected value of investing in the instacart series A round? That might compete a lot more closely versus now that it is a mature company with a huge market cap.
Capitalism produces a large output because it gets a large input.
The amount of money/resources that humanity overall puts into capitalistic systems is large, compared to the amount that goes to charity.
>It would seem that capitalism is better than charity. The countries that became permanently rich, like America and Japan, did it with capitalism. This seems better than temporarily alleviating poverty by donating food or clothing.
There are just not enough charitable dollars to give that many people that level of wealth.
I'm assuming your thought is, "How many anyone-utils can I buy for $X with investment, purchasing, charity and charity-investment?" You'll get a much bigger number for charity, which isn't surprising because that's what charity is designed for.
Capitalism produces more utils in total because capitalism is [compares US GDP to a random unchecked google result for total US charitable donations for a lazy statistic] about 50 times larger. Part of that is because capitalism has a way to grow itself which charity can't, part of it is because people will inevitably be more drawn to participate in capitalism than to give to charity.
If you had a hypothetical charity-based economy, it would romp home. This could be modelled as everyone's individual utility function being replaced with a total human utility function.* I can't really comprehend what it would look like (even the most extreme anarcho-communists don't go anything like this far; this is Kingdom of Heaven stuff),** but I'm not sure you'd have anything resembling a functioning market. Anything you would normally pay someone to do they'd already be doing anything as their goals would be completely aligned with yours.
That's obviously absurd though, which is why charity is always an ancillary project of another system. Increasing the amount of charity on the margin seems to be inevitably the right call for any individual-scale donation though.
The remaining 2% is the principle-agent problem involved in charities, which is largely solved by direct cash transfers. These also have a second-order effect of stimulating local economies, as the water-pump shop owners of rural Africa can go and invest their money in mosquito-net shops which employ more people who can buy more water pumps.
*Technically, people would each have a slightly different utility function, as it would be the amalgamated utility function of everyone who wasn't them.
This is a great point and I’m surprised most of the comments aren’t along a similar vein. It would be extremely weird for capitalism to beat (the best) charities, because capitalist investment rewards positive returns for the investor’s utility function, while charity rewards returns for ALL utility, including the investor’s*! It’s strictly more flexible!
Arguably, GiveWell already IS capitalism over charity. It’s just that GiveWell is an investing agent which feels the pleasure and pain of all of humanity, rather than one given human.
*Of course you get utility from donating to charity (e.g. feeling good about yourself), but turning this discussion to psychological egoism would be a waste.
I see the distinction of charity vs. capitalism as incorrect; our concept of charity exists only in the context of a capitalistic system. There's plenty of charity in pre-modern systems, but it's largely bound up in kinship relationships. A modern charity is where the benefits flow to the recipients regardless of their social relationship to the ultimate givel. Indeed, I've seen the Economist state that you can't fully industrialize without a state-supported welfare system that enables people to shop their skills to the best-paying employer without fearing that getting laid off will cause them to starve to death.
There were local charity systems in the US pre-New Deal, usually operated by churches. (They seem to still be significant in the US South.) And the industrialists of the late 1800s often endowed charities; my suspicion is to have a safety net to encourage workers to move to the company town.
But I think that our idea of charity goes back several centuries in "Western" culture due to the destruction of the old clan-based social system by the Western Church, and was one of the factors which encouraged the development of industrialization in the West.
What percentage of GDP do you suppose those charities represented in aggregate?
I think I disagree with your premise. I find it implausible that capitalistic risk taking is meaningfully subsidized by institutional charity. Perhaps we're no longer clan-based the way we used to be, but family still remains overwhelmingly the most important safety net. No prospective entrepreneur ever thinks to himself "well if my startup fails I'll always have welfare." It's 100% some version of "well I can always move home." Welfare is for people who flat-out just can't do anything. Those people categorically aren't entrepreneurs.
Industrialists donated to charity for the same reason they do today. Status-seeking virtue signaling and cynical political considerations. You want your hand-to-mouth workers to think you're a good person.
Seriously missing how capitalism works here. You don’t “give” $100000 to instacart, you. BUY it. You still have it, unlike your donation. On average, it costs you LESS THAN NOTHING to assist Instacart. You are comparing giving with investing for the same nominal amount but that makes no sense.
The underlying problem is intellectuals that universalize and moralize individual choices. All you need to say is "I don't want to give to charity." you don't need to say "my not giving to charity is better than your giving!" because charity is an individual choice.
The intellectual kind of frames too many choices that way. You don't just like wine in moderation, it must be a health benefit. Having/not having kids is about the future of man; it can't just be one man's hope or fear. When you do that the unspoken thing is that these really aren't choices, they are moral duties or commands.
otherwise its silly; the economic system you are under creates money you choose to give alms with. They are not competitors any more than a basketball court is with basketball players.
I think you got this exactly backwards, Scott is giving to charity, and wants to figure out if there is an altruistically positive pro capitalism case for not donating.
I don't think you can argue that, because you'd be arguing against altruism altogether. You make a preference universal and moral, you need to destroy it to be free of it while claiming the destruction is a good thing. Capitalism is not altruistic; it is not designed to be. The absence of an action cannot be better than the action by the actions own standards.
and no. Scott just had twins. it's normal to be worried about altruism just because now you have two precious lives to care for. Intellectuals always seem to need to make their choices everyone's choice. its ok to not want to give but its very dangerous to argue that not giving is the highest form of giving.
I'd like verify your analysis here. Could you link me to where Givewell documents that $X will chlorinate water for Y people? I scanned all of the posts they had about water quality interventions and couldn't actually find it. Probably I'm just blind. I'm skeptical of your figures because the 3 charities listed on Givewell's "Top Charities" page all have costs of $4000, $5000, and $5500 to save a life. If water treatment was nearly an order of magnitude better then I would expect it to be listed there.
In your point on ROI you say
" I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
Could you make your math explicit here? I'd like to know exactly what effects you included. Also, isn't a factor of 2 actually kind of important? Being able to do twice the amount of good in the world is a big deal, especially since that surplus compounds over time.
I'd also like to question whether it's appropriate to compare a randomly-chosen investment option to the single most cost-effective charity that a dedicated team of analysts could find. Isn't the fair comparison to look at the returns of the best available investment option that a dedicated team of financial analysts could find? Warren Buffett makes his investment advice freely available to everyone and Berkshire Hathaway has averaged something like 20% returns since 1970.
If they’re competing, than neither one can be good.
Could you explain what you mean here?
Why do I have to choose between philanthropy and exploitation? Economic modeling is an alternative to brute market logic and irrational expenditure.
Have you read the article?
You’re asking if I dotted all my I’s and crossed my Ts before deigning to speak near you?
Deigning to speak near anyone, I'd say.
Most people here would expect the comments to a blog post to have at least read the article and hopefully demonstrate understanding of it before commenting.
You could have just said No instead of this passive aggressive response.
But ‘no’ is not true; why did you need to heckle me?
Alternative yes, but a massively inferior one.
WhT?
Economic modeling introduces more waste and inferior results. It doesn't work because the model will never have enough information.
I disagree. It’s formally closer to math than language, but approximates the latter in effect.
Nika's use of the word "exploitation" indicates an irrational opposition to capitalism, so you're unlikely to have a productive discussion.
If economic modelling had any predictive power every economist would be rich from trading the market.
The ones I’ve met are happily married.
This isn't an economic claim. It's an ideological claim.
Actually it’s an aesthetic claim, and the drawing of economic figures as “models” intersects with the history of philosophy at that point.
"Do something like donating to charity, but the donation should go to charities that promote capitalism somehow, or be an investment in companies doing charitable things (impact investing)"
One interpretation of this is that donating to the Grameen Bank is better than donating to the Heifer International.
Yea ... this is the understanding I was raised with ... Grameen or Opportunity Intl , or Kiva, or various other microfinance operations are better than direct donations: https://en.wikipedia.org/wiki/Microfinance
My latest opinion on this is more uncertain, I just don't know. But it fits what this post is asking/talking about
My impression is that microcredit programs like Grameen have been found to (surprisingly!) not be very helpful. See eg https://voxdev.org/topic/methods-measurement/understanding-average-effect-microcredit
While scale has many benefits, I've found it a useful heuristic that (virtually) nothing is net "very helpful" at scale, for a number of related reasons: (1) scale requires disregarding complexity and flattening problems, (2) scale disrupts the balance of adjacent systems, (3) pretty much everything that has to do with people has diminishing returns, (4) costs of managing systems tends to grow geometrically in relation to effect, (5) scale tends toward single points of failure.
Case in point: Capitalism. It is by far the best system for optimizing growth of money, which is a good proxy for productivity. Unfortunately, money is not the great proxy for value that is was meant to be. So capitalism is more efficient than effective in solving problems we care about.
Capitalism at scale looks like it works really well, because even when it fails at creating the outcomes we want, it produces money. But we have values (compassion, empathy, caution, fairness, etc.) that aren't measured well by money or captured by capitalism, any more than they are captured by evolution by natural selection. (This is why there is room for goverment, regulation, and policing. But most people, particularly here, understand how government fails when it scales.)
Obvious costs of capitalism failing at scale are climate change and other environmental disasters, global poverty and starvation in the midst of an obesity epidemic, wars over resources, exploitative business practices, algorithms that cause people to self harm, halucinating AIs being released on an unprepared public, countries being dependent on China for PPE during a pandemic, or on Russia for energy during a winter war, etc. etc.
Which is why we need charity to plug the gaps. But if we rely too heavily on charity, especially if we rely on a few large organizations or a few, sexy solutions (microcredit), that will also scale and fail along all too predictable fault lines. (Some organizations will have too much bureaucracy, some will promote learned helplessness, some will go all in on malaria nets while kids are starving, some will undermine otherwise viable businesses, some will simply be inneffective, etc. etc.)
All this is to make three points:
• Microcredit is probably amazing to help certain entreprenerial types get out of poverty; less effective at helping everyone else.
• It can't be capitalism vs charity (or governmantal aid). They have to work together, and what that looks like depends on the problem you're trying to solve.
• Our obsession with scaling up (at the cost of balance and diversity) is probably our most poorly recognized and underrated problem
Thank you for this comment, which I found exceptionally thought-provoking. I hadn't quite seen through this lens before, which strikes me as related to but distinct from the points that _Seeing Like a State_ makes.
*Blush…* (Unmodified "thought-provoking" is already high praise. Adding the "exceptionally" may have done irreparable damage to my modesty.)
I haven't read Seeing Like a State, but have put it at the top of my virtual stack of books to read. Thanks for the nudge. I'm thinking a lot about issues like this these days, and am actively looking for fresh and/or challenging perspectives on the shape of society, so please share if you have other recommendations.
(I'm currently reading The Dawn of Everything, which is eye-opening in that regard. I recommend checking it out, if you like thought-provoking.)
That's a very good comment. Thanks.
Good observation about scale. The Industrial Revolution taught the West that scaling was the most important thing, but you're right that it causes us to lose precision and details that matter. I understand that the Middle East relies on personal connections for funding, rather than mass scale through things like credit scores, and that it works much better for poorer and less formal economies. The US also uses such systems, but we consistently underrate their importance and try to scale. Babysitting being a prime example, where for generations family helped take care of children but we're attempting to replace that network with paid businesses. Rather than recognizing the value of interpersonal relations in childcare, we ignore that value and therefore overvalue the paid institutionalized versions. This creates significant inefficiencies and also a society where strangers raise our kids in large creches with other strangers instead of by family with similar values where we're also building family relationships.
That’s interesting. Yes, I think we have lost many valuable things in our culture because we’re trying to run everything through our single, imperfect society-making machine.
As anotyer example of what we’ve lost: The book I referenced in another reply (The Dawn of Everything) contains interesting examples of how the meaning “private property” has been different from society to society. In some cultures, the owner has a responsibility to care for the property and pass it on to the next generation or just to others; in others, ownership means you’re free to destroy your property if you feel like it. In some cultures individuals can own tools, but must share the land; in others they can own land but must share the harvest; in others, certain rights to use a resource naturally follows with the ownership of a sacred artifact or heirloom, etc. I’m not saying either is better or worse, but it’s interesting that these different ways of seeing or understanding something so foundational are so far removed from our culture, that even the perspectives seem foreign to us, and they aren’t even real options, except to people who more or less drop out of society. Something is definitely lost there.
Regarding scale, you might want to take a look at the champagne-fountain model here:
https://thelastpsychiatrist.com/2007/07/the_most_important_article_on.html
The model is, essentially, that there's varying amounts of different types of need, and that when resources are applied en masse, they fulfill certain types of need first. So even though we initially see a linearly-rising result from applying resources, that line goes horizontal after all that type of need is fulfilled, and any additional resources go toward fulfilling different types of needs, which might not have any (good) effect on the line of the results you care about. They might even have deadly side-effects.
Edit: I forgot to mention, you can see this in action when it comes to charities that shelter the homeless. There's a lot of programs that have requirements about being sober, employed, and not engaging in criminal or anti-social behavior. And these programs tend to have a lot of success at small levels, and then appear to fail at large levels. The reason is that about half of homeless people (40-60%?) are only, literally, homeless, but are otherwise completely functional members of society, and if provided with shelter or cash and a bit of support, can get back on their feet and go on with their lives. But it's the other half who have the problems with drug use, mental illness, and chronic anti-social behavior, and they can't or won't fit in to those programs, and they're the ones who cause the visible problems that get everyone worked up about the "homeless problem". So it's not that the interventions I mentioned are bad, or misguided: they're very very useful for the people they target, and can in fact help prevent the first type of homeless from becoming the second type of homeless. But they can't solve the whole problem, while at the same time being incredibly politically appealing to the point of making interventions aimed at the second type politically unfeasible.
Yes, I have noticed this too. I found your medication and homeless examples interesting, but agree that it’s a mental model that generalizes to lots of areas. And it makes me regret that I left a lot of nuance, tangential concepts and rabbit holes unexplored in my original reply, but it was already long enough.
Understanding minimum effective dose is one of those things that make both the champagne fountain model and solving for scale & balance interesting.
Steve Greenhut has an essay, which cites a study in Ottawa, where researchers provided full services to one group of homeless, and nothing to a control group of homeless.
Take a guess on which group had a better outcome, lower mortality, less substance abuse, etc.
What is the objective; better outcome for the homeless, or feel-better about yourself for doing something.
Interesting.
Though I’ll admit: just the idea that someone thinks there’s such a thing as “full services” that can be defined, packed and delivered to a group in an experiment (whether those are your words or theirs) makes me immediately suspicious.
Hm, was that this essay, citing this book?
https://spectator.org/the-washington-post-blames-conservatives-for-housing-first-disaster/
https://www.encounterbooks.com/books/no-way-home/
https://www.amazon.com/No-Way-Home-Homelessness-Intelligence-ebook/dp/B08CHKHKLC
I can believe that, depending on the exact nature of the interventions and the selection criteria used. Sometimes shelters can impose restrictions that make it almost impossible to hold down a job, or try to lock their residents into restrictive models of life ("full services" is a bit suspicious there). And even cash infusions can backfire, if you give them to someone with a drug problem.
Well, I'd be very interested in reading those nuances and tangential concepts and rabbit holes, if you ever get around to writing them up in a better place than the middle of a comment thread. And mostly I was just trying to toss you my own disorganized thoughts along those lines, to see what you'd make of them. :-)
There's some indication that Scott might open this year's book review contest into a general essay contest, and I really think that this could make a good contender. There's a lot of naive thinking around scaling and effectiveness, and it would be great to have a solid exploration of the concepts.
Hopefully I’ll get around to writing them down sooner rather than later, and when I do, I’ll post a link here. It might help to know I’m writing for at least one reader. That’s not always the case. 😉
Isn't it just that it is much easier to help the first type and we basically don't know how to help the second? What are those interventions that would help the second kind of homeless that are made politically infeasible by interventions that help the first type? How does that happen?
It's true that we don't know how to help the 2nd type. Part of the problem is that not many people realize that there are 2 types (well, 3 in the categorization I adopted, but the 3rd type is small). And part of that is because there are political incentives to think of all of them as one type or another. And of course, it's not like the types are completely discrete and uniform. It's a slow slide into despair, from what I can tell.
For the interventions, this is all my personal opinion, but I think when politicians are faced with a choice between helping "deserving poor" and "undeserving poor", they pretty much always pick the first type. And it doesn't help that the first type are a lot easier to help, so the programs can be cheaper. And therefore what politicians see is that if you gate your aid behind a lot of common-sense requirements which all civilized people can follow, you get good results and it's cheap, but if you don't, you don't and it isn't. And this feeds into a view that the only difference between the first and second type is that the first type "wants to get better" and the second type "are unwilling to change". (Which has a tiny bit of truth to it, but IMO not enough to be useful at scale.)
From what I understand, the type of program that "works best" for the second type is a one-way bus ticket to somewhere else. Presto, no more problem! And frankly, the climate in San Francisco (and to a lesser degree Seattle, Portland, and even L.A.) is much nicer than in pretty much anywhere else in the country, if you're going to live outside year-round without any gear. Try doing that in Minnesota or Arizona, or the humid mosquito-filled summers of the east coast.
I personally think there's a higher-level-view than this, where Capitalism is ALL that matters, *because* it's the only thing that actually scales.
As you point out, Capitalism is what actually creates new productivity and economic growth. In the long run, this is the biggest factor that matters, in a way that dominates everything else, and the one that has the ability to raise *everyone* out of poverty. 600M Chinese people were raised from $5 a day poverty to a per-capita GDP of ~$13k over the last few decades based solely on capitalism and economic growth.
In Hans Rosling's Factfulness, he points out that very recently, Sweden itself had a developing world standard of living, with high mortality, stunted statures, and everything else - the thing that brought Sweden to it's current prosperity was economic growth.
Yes, capitalism as an engine of economic growth comes with some problems. You list a few, most of which are commons problems or Molochian coordination problems, but I think these types of problems would happen under Communism or other economic schemas too, and aren't unique to capitalism. You need regulation under whatever economic schema you're in to mitigate problems like this.
But the ONLY thing that we've empirically seen that is capable of moving the needle on a macro scale, for the hundreds of millions to billions of people whose lot we need to improve, is capitalism in a non-high-corruption framework.
Given any choice on intervention at scale, capitalism is what you should reach for basically every time, no matter how much you like fairness, empathy, whatever, because it's the only thing that WORKS at scale.
What would a scale-level intervention that moved the needle on "empathy" or "compassion" even look like? Mass involuntary genetic change? Brainwashing?
But capitalism at scale can definitely move GDP-per-capita, giving people higher incomes, better living standards, and more choices in life. And nothing else will come even close, not charity, not "empathy" or "compassion" interventions, or anything else.
I mean, if you asked developing world people whether they'd want a 3x higher income or more "compassion," which do you honestly think they would choose??
The alternative isn’t another all-encompassing system, but a diversity of systems playing off each other, checking each other, creating balances – pretty much what nature does in every area.
Oh, and don’t get me wrong: I’m not suggesting that humanity is somehow operating outside of this system. Every species and every moving part of nature will cause an imbalance of given half a chance, and we’re morally no worse than any other creature in that regard. Humanity, with its technology and capitalism, just has a much bigger impact, and is more robust to checks that would have worked on other species (pandemics, famines and such) – and so we’re more like a meteoric impact than an anomalous algae bloom.
But if you think capitalism is all that matters, you’re not thinking anywhere near big enough. It barely registers in the big picture; even if we limit ourselves to looking at how humans organize themselves, it’s just a blip at the tail end of the human era, and a function of the scale of humanity.
Oh… And Sweden was hardly a capitalist society when it had its economic growth. It balanced capitalism with a very good helping of socialism (and some other stuff).
"But if you think capitalism is all that matters, you’re not thinking anywhere near big enough. It barely registers in the big picture; even if we limit ourselves to looking at how humans organize themselves, it’s just a blip at the tail end of the human era, and a function of the scale of humanity."
Curious what you mean here - if we look at any sort of population per unit of time measure, the vast majority of population density happened under capitalism (with or without socialist or social safety nets as an adjunct).
The only reason we're only 8% of all of humanity that's ever lived is an artifact that humanity goes back ~250k years. We had ~500M people alive in 1700, ~1B in 1800, and ~8B today, this graph showing population from 10k bc to today shows the absolutely massive population density-per-unit-time spike pretty well:
https://ourworldindata.org/grapher/population
We literally couldn't have our world today without capitalism - there's neither the space nor the resources for us to live in scattered groups of Dunbar's number like the humans in deep time.
I imagine that's a big part of your point, re our meteoric impact now and lack of checks and feedback systems that would mitigate our unintended damages.
But what do you perceive as any realistic alternative in the big future picture? If we survive as a technological, high-standard-of-living species, capitalism is going to be pretty much it until we become post-scarcity and spacefaring or have ASI-mediated economics.
I think there’s more than one thing going on here:
First, I’m not sure we’re working with the same meaning of the word capitalism. That may be my fault, since my meaning has a double bottom, so to speak.
I once heard a distinction that has stayed with me as important, even if it’s not the whole story. I’m going to mangle it, but it went something like this: “A important difference between a market economy and capitalism, is that the free market abhors a monopoly, whereas the capitalist loves one.” (If you or anyone recognizes it, I’d love to know where it’s from.)
For a while, I tried to only use the word capitalism in a way that got at this distinction, but that made conversations unnecessarily hard, so I reverted to often using it more like most Americans do. (I think it’s more common for that word to carry negative connotations in Europe.)
Free markets are a really powerful tool, and one of humanity’s best inventions. This is what most people like (some almost worship) about capitalism, so I’m happy to use the word that way in casual conversation. The free market creates a man-made version of evolution by natural selection. It’s as though we have tamed one of the most powerful mechanisms in nature.
However, we don’t want social Darwinism, either, which seems to be what happens if we let go of the reins at any significant scale.
Unchecked capitalism tends toward monoculture and totalitarianism, much like Marxist-Leninist communism or Islamism (but for different reasons suggested in previous posts). Even if you wanted to set up an alternative today – whether an alternative to Apple or Amazon or and alternative society where capitalism isn’t a significant algorithm in the operating system – existing capitalism constrains you in innumerable little ways, by everything from how to source your resources, to policies and laws, and what our culture tells us “freedom” or “private property” even means.
Just to avoid having to make this point over and over, I sometimes, lazily, use the word “capitalism” both to signify the failure mode of market economy, and in the broader, colloquial sense of “the system that brought us free markets in the first place.” That’s on me.
Note, however, that markets exist inside lots of other systems: feudal, tribal, communist, etc. You can call that local examples of capitalism, but it doesn’t quite qualify, IMO, when it is so thoroughly checked by other forces. It’s a bit like referring to families as communist, or calling a company a dictatorship. Yes, sure, but no.
And so, you ask about what alternatives I imagine. Well, I certainly don’t want to get rid of markets entirely, but expect they will be part of any good alternative. However, they will not necessarily be ”all that matters”, since I can think of so many other things that matter, and that should be in the mix.
The second point where I think we misunderstand each other (sorry to be so long-winded): I don’t think we agree on what success looks like. I’m not quite sure I understand what your measure of success is. Are you suggesting that our current state of the world (some combination of technological advancement and high population numbers) is a sign that we have succeeded? I don’t necessarily agree with that.
To be fair, I don’t exactly know what my own measure of success is either. Or rather, I think it has to be a moving target to avoid falling into the utopian trap. Part pendulum swinging back and forth, part cloud that is ephemeral and impossible to grasp, part long march continually progressing toward something “better” (= “the journey is the destination”). It’s more of a constellation of values than just growth and movement for growth and movement’s own sake.
There’s a lot of controversy over how good life was in pre-history, (i.e. to the other 92% to go with your numbers), but I’m not convinced we are better off in every way. And I can imagine scenarios, even versions of “capitalism” (in the sense of the current US paradigm), where we had brought more of the good stuff with us into today, or bring more good stuff into the future.
Just to take one alternative scenario: You brought up Sweden earlier. Back in the 60s, 70s, 80s, the Scandinavian countries were far more socialist than they are today: State monopolies on most infrastructure (phone, rail, tv, radio), energy production owned by local government, large and powerful labor unions, huge farmer-owned cooperatives controlling agricultural output, heavily regulated markets, even an extremely watered-down version of Lutheranism as state religion (that anyone was free to leave if they just filed the right forms). Economic growth was lagging that of the U.S., but as a kid who travelled back and forth between the two, I’d say that middle-class Americans (like some of my recent ancestors) would recognize and enjoy the standard of living even if they might miss some conveniences. They were largely free (if sometimes cumbersome) societies, and they were much more like the US than the places behind the iron curtain (some of
which I also got to visit shortly before the wall came down).
I think many would agree that any success The Nordic Model is known for today is firmly rooted in that past. (Though there are other factors, too.)
A wave of globalization, economic liberalization, and privatization (+ the infamous end of history) in the 80s and 90s led to more alignment with the U.S. economy, rapid economic growth, and created more material wealth faster, but also contributed to increased disparity between rich and poor, more aggressive profit-seeking by newly privatized companies, cuts in subsidies forced by GATT/WTO/EU, etc. etc. While it may have been inevitable considering the geopolitical situation we were in, it is not obvious to me that the gains in growth and productivity were necessarily and definitely worth the trade-offs.
As a counter-factual, it’s not all that hard to picture a US that took a direction more like Scandinavia in the recent past (and so would have beat a different path for the rest of the world): Labor unions without Hoffa and the mob; allowing the Kennedys, MLK, Malcolm X, and other civil rights leaders to live and thrive; a political system with fewer winner-take-all dynamics and somewhat decreased importance of money in politics …
Something like that might have put the U.S. on a path to fewer billionaires, but a larger middle class and more robust working class. Sure, maybe some negative outcomes, like slower growth and lower GDP, but also positive outcomes, (some nth order, some 1st order because our priorities are different) like e.g. lower suicide rates, less extreme poverty, and less opioid use.
So, I definitely agree that we couldn’t have had our world today without our current manifestation of capitalism, but if the goal was to create the world as it is today, we couldn’t have done anything differently. We have to imagine a different world that is better on the metrics we collectively care about. And while some of those metrics can be reached through capitalism (in the sense of free market economy), not all of them can, so I argue we need much more than just capitalism in the mix. Not something instead of capitalism, but something in addition to it.
My biggest complaint would be that that article doesn't really seem to compare it against the alternative. Which, at that scale, I would say is just giving someone a 100 lb. sack of rice. I imagine a loan (combined with some advice and a network) is better than a sack of rice if it creates the encouragement needed for someone to be more forward-thinking and invest in her future. Though in some circumstances the rice could do it too.
But also, we like to see people try to make something of themselves rather than live in dependency. Offering someone a subsidized loan, combined with advice and a network, is a lot more palatable to many donors than just offering a handout.
All that said, it's a drop in the bucket and mostly a scheme for a marginal and localized poverty alleviation. Bangladesh has undergone an economic mini-miracle in the decades since Grameen Bank started, and my understanding is that Grameen Bank had very little, if anything, to do with it. Instead, it was a matter of large-scale investment in its garment industry and supporting infrastructure.
If you give someone a sack of rice, you are significantly disincentivizing them from learning to grow rice themselves. If you help them make connections to be able to grow rice, without giving them the rice, then they are more likely to grow it. They still need it, and can't eat the connections, so the incentive remains for them to follow through and plant/grow/harvest.
Yep, that was basically my point. If done well, the loan probably works better. If done poorly, the rice is probably better -- it's simpler, harder to screw up, less overhead. And in some cases, maybe a large sack of rice is all you need to build a little personal capital and be able to take the risk of launching a small entrepreneurial endeavor.
In both cases, countries don't escape poverty from $30 loans or gifts. But a few individuals might.
I wasn't pushing for Grameen vs Heifer. I was using those two as examples of the distinction that I think the 'capitalism is better charity' are drawing. I know people who favor each. I don't know of anyone who favors spending money on things you want anyway and scoring this as charity.
Microcredit seems questionable at best.
"The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. In addition, it can produce unintended rent-seeking entrepreneurship.[4] There is no evidence that microcredit has empowered women.[5] In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued."
https://en.wikipedia.org/wiki/Impact_of_microcredit
Capitalism can't beat charity, which is why it must have taxation. And the desire of the top-most capitalistic winners to avoid taxation is, in my opinion, just evidence of this.
I do think you're saying "couldn't we just vote with our dollars" and while we can, if those dollars are funneled into an investment / holding for a rich person the effort is moot. These winners still get the dollars to tip the vote however they wish.
IMO the only way capitalism works is if the money moves around, and currently we have a lot of people keeping the money in big puddles. A stream only works when it's flowing. Same with capitalism. Again, IMO and IANAD(octor or economist).
Money is free to produce. Back in the day you just needed a printing press. These days it's just an entry in a database.
We can have arbitrary amounts of money in stagnant pools, and still have enough to flow around.
Though I have no clue what those stagnat pools would be.
Mechanisms like inflation targeting take care of any stagnant pools automatically: if money ain't spent, it doesn't contribute to pricing pressure, so the central bank will automatically 'print' more to keep inflation on target (eg about 2% per year). If some of those stagnant pools start to move, the central bank prints less, or even takes money out of circulation to hit their target.
(They typically bring money into circulation and take it out, by buying assets with newly created money or respectively selling those assets again and shelving the money received.)
Money is an obligation from someone else, a debt. If you have money, other people are obligated to do things for you. It makes no real difference what form it is, whether it is government notes, precious metals, Bitcoin, or shells. Giving someone money only transfers the debt-owning to someone else.
Sure, but because we can print new money cheaply, we can distort that simple understanding. If there's $100 million in debt, and we print $2 billion more, we did not create any new debts that need to be repaid. We just inflated the money supply.
If we print new money, we have to give it to someone for it to be actual money. Otherwise it's a stack of fancy paper (cloth, technically). So we didn't inflate the money supply. We're just ready if we want to give it away in exchange for goods and services.
If they print lots more money and then spend it, people will start to think they want more money for the same items or doing the same work, which leads to inflation. But that makes a dollar worth what the collective public thinks it's worth.
So the government produces debt from nothing, an obligation that other people pay them in goods and services in exchange for this piece of cloth? Sure they can hold onto it, but as soon as they try to use it (the only purpose in printing it) inflation is the result. Due to complexities in the economy this doesn't always work out 1:1 and not immediately, but there's no other way to look at it.
I think calling money a debt obligation is a poor framing that does not produce much useful understanding.
On the contrary, I think it is a useful insight. People often think that throwing money at a problem will make it go away or make things better, or that spending money on something shouldn't be done because it should be spent on other things instead (such as the massive spending on the space program). If you think of money as a debt others owe you, how fast will you hand that to someone else?
When we send money to other countries, that means we're actually promising to do other things for them. That could be a good thing, but it isn't guaranteed. When we send aid, we ought to know what aid we're actually sending.
As I understand it, it doesn't create new debt, it just changes the denomination of the existing debt. If you double the money supply, the value of a unit of money is halved. Meaning that everyone who stored value in money (cash or loans) loses half the value of what they stored.
That is, if I have something I'm willing to sell for 1e-10 of the money supply, my asking price just doubled.
Which isn't to say that there isn't a basically-uniformly-positive effect of printing money when the money supply is too small for the economy. But after it reaches that point, the effect stops.
This is a poor analogy of what actually happens. M2 (the money supply) is a good predictor of inflation. This is because it is a tool that the Fed uses to fight and encourage inflation. However, the relationship is not innate. If the money was given to an entity who decided to keep it in the bank and never spend it then it would have no impact on inflation. Also, the relationship is not close to 1:1. You can see in the graph on the page I am linking (St Luis Fed), that in by the end of 2021 M2 had grown by 25% over the prior year. But inflation was unchanged (due to lag). Eventually, inflation caught up but only to 7% (year on year) or so. This particular example is muddied by the abrupt tightening but if you look at the longer term, from 2007 to 2020, M2 essentially doubled but the total inflation across that period was closer to 25% than doubling.
https://www.stlouisfed.org/on-the-economy/2023/oct/m2-growth-inflation-recent-years
https://tradingeconomics.com/united-states/money-supply-m2
I'm horribly unsophisticated in my macroeconomic understanding, yes. :-/ In some tiny bit of defense, I think I was responding to someone with at least as bad an understanding as myself, and I think my own understanding isn't quite as bad as it may have appeared.
But here's a question or two about your example, in case you feel like providing a bit of free education.
Do you mean "bank", or "under the mattress"? Because in my understanding, if it's put in a bank-bank, then that bank will not only be able to lend it out (invest it), but thanks to fractional-reserve banking, be able to lend out more than that amount of money. Which seems like it would have an effect on the money supply, and thus inflation?
And, OK, the important concept is not the money "existing" (whatever that means in a world with electronic debt ledgers), but something more like "being in circulation in the economy". But still, if you learned that I had one quadrillion USD under my mattress, what kind of economic actions would you take based on that information? I'd argue that a lot of them would look quite similar to standard inflationary hedges. And more generally, that the potential to take action can in certain senses be equivalent to the action, kind of like the "fleet in being" doctrine.
And yeah, time lag is definitely a thing (which I have very low understanding of in an economic context), but that's what sophisticated predictions can take advantage of, right? Surely if I knew that inflation were coming, I'd account for that in my asking price, along with my predictions of how long it would take, and my time constraints on selling. (Or I'd try, anyway.)
And I did mention that increasing the money supply doesn't always cause inflation if the economy is growing, but I confess I don't really **understand** how that works in a complicated modern economy, just in some simple toy examples.
> M2 (the money supply) is a good predictor of inflation. This is because it is a tool that the Fed uses to fight and encourage inflation. However, the relationship is not innate. If the money was given to an entity who decided to keep it in the bank and never spend it then it would have no impact on inflation.
The fourth sentence is true, but it's not support for the third, and the third is false.
If you tag-team someone between an endocrinologist who doses them with growth hormones and a surgeon who removes bits of their legs to keep their height fixed, you will have neutralized the relationship between growth hormones and height. But that won't be evidence that there is no innate relationship between them.
Lack of 'stagnant pools' is what makes Capitalism work. Stagnant pools are what happens in low trust societies like Southeast Asia (Vietnam, Cambodia, Laos, Myanmar, India, etc. People store their personal wealth in gold, jewels, or hard cash in boxes under the floor. That money doesn't go to work, as Warren Buffett says, 'it just sits there.' In a low trust society, you're happy to have it just sitting there, because you don't trust the infrastructure. However in high trust societies such as Europe and North America, we invest that personal wealth in the markets, or a family business. That personal wealth—albeit at some small risk—has the opportunity to grow. Most workers in these high trust areas have some form of retirement savings account which invests in well, the Capitalist System, and these workers see long term good financial results from their investment, and the wealth of the low trust societies 'just sits there.'
All that wealth invested, earning money, going to the high paid employees, who spend it on stuff, maybe new kitchen countertops. This goes to making jobs for stone cutters, cabinet builders, wood cutters, wood millers, and then the guys who tear out your old kitchen, and install the new kitchen. Of course there's the new stove, sink, faucets, so there's a plumber involved, many people got work from the kitchen refurbishment. Then the high paid employee goes and invests in a startup, which goes on to grow the economy, this stuff never stops. Which leads to the situation, where in the US, an uneducated burger flipper makes US$20/hr, whilst in Malaysia, the Electrical Engineer with a Masters makes US$10/hr.
https://web.mit.edu/krugman/www/vulgar.html
People "hoarding" money is not a real problem in countries with central banks, because central banks are capable of producing as much money as needed. In fact, the Federal Reserve overshooting and creating too much money (combined with excessive fiscal stimulus) was the main cause of the inflation problems we've been having the past two years.
Also, investment is good, because it increases labor productivity, which increases real wages.
>In fact, the Federal Reserve overshooting and creating too much money (combined with excessive fiscal stimulus) was the main cause of the inflation problems we've been having the past two years.
As far as I understand it, this is false. It was mostly supply side limitations from supply chain + commodity price changes tied to the Ukraine war as I understand it.
> They find that many forecasters, including those at the Federal Reserve, anticipated that inflationary pressures arising from the large fiscal packages in the U.S. would appear primarily in the labor market, as increased demand for workers put upward pressure on wages and, ultimately, prices. In fact, most of the rise in inflation in 2021 and 2022 was driven by developments that directly raised prices rather than wages, including sharp increases in global commodity prices and sectoral price spikes driven by a combination of pandemic-induced kinks in supply chains and a huge shift in demand during the pandemic to goods from services. Fiscal policy contributed to the inflation, but primarily through its effects on consumer demand for commodities and goods in limited supply rather than through the labor market.
https://www.brookings.edu/articles/what-caused-the-u-s-pandemic-era-inflation
"IMO the only way capitalism works is if the money moves around, and currently we have a lot of people keeping the money in big puddles. "
This form of argument seems problematic to me, but could you elaborate on it?
If you literally take dollars and put them under your mattress then it's not a loss to anyone else. It just increases the value of all the other currency in circulation. Frequently, this kind of argument (pooled currency vs moving currency) is used to criticize investment and favor consumption. But the growth rate is driven by investment, not consumption. The capacity to produce an item with one hour of labor when it previously required two hours of labor is the thing which allows people to have more material goods than in the past, and the quantity of investment dollars is the limiting factor on this. For example: it's been said that fusion is not 30 years away, it is 500 Billion dollars away. It we accept this equation the implication is that there are some very important projects which have not happened yet due to an insufficient quantity of investment capital.
I suspect he isn't talking about hoarders, but growing wealth disparity. Very wealthy people spend less of their wealth proportionally on consumer goods and services, and more on investments that add little to the standard of living of economically more average people.
"I suspect he isn't talking about hoarders, but growing wealth disparity."
I do too. But that's precisely the flawed argument I'm trying to address. I could at least understand someone complaining about a disparity of consumption. I could understand why someone would complain about a rich guy buying a yacht while some poor guy barely has a car to get to work. But... I keep getting people making the opposite argument that some people are investing too much and not buying yachts like they should. It's weird. Every investment also includes consumption, so it doesn't even make logical sense.
Disparate political influence? Sure. But that's a political argument, not an economic one.
Investments add remarkably to the standard of living of average people. All the improvements in chip technology, in available drugs, all the environmental improvements that allow us to have air conditioning without CFCs and have at least a quarter of our energy potentially and economically come from wind and solar power required investment. A shortage of investment in housing means not enough people are able to purchase homes or rent them and the price goes up. We have over 8 billion people on the planet, a decreased amount of arable land, very roughly the same amount of fresh water as 50 years ago, overfished oceans, and yet global hunger is *still* on the decrease. How can people argue that investments don't improve the standard of living of the average person? Are they still using IE 3.0 to search Archie on their 500MB Hard drive desktop with a 267 MHz Celeron processor?
Clearly some investments add remarkably to the standard of living of average people, such as in semiconductor design or manufacturing. As far as I can tell, investment in something like a health insurance company doesn't add anything to the mean/median/minimum standard of living, since health insurance companies operate primarily as rent-seekers (though I don't think marginal investment would make things worse?). Investment in something like Lokni, who make water dispensers that only work if you install an app on your phone, makes the world worse IMO, because they displace water dispensers that aren't horrible dystopian nightmares.
We can suppose that all of these have a similar return on investment (if not, I'm sure someone could pick better examples than I have), so rich people investing would (if they only aim to maximize their wealth) have no preference, even though some are clearly better for the mean/median/minimum standard of living than others. In principle, I think ordinary people buying more luxurious groceries would be a more efficient allocation of resources than, say, Lokni existing, despite how a rich person would allocate money.
I don't really know what to conclude from this, but I think this observation is probably part of a steelman of Victor's argument.
A distinction probably needs to be drawn between companies that are net consumers of capital and those that are net payers of capital. Most large, successful companies (i.e. all of those that dominate the US economy) are net payers -- they have little need for outside equity because they can easily fund any attractive investments with their own profits, and they can then pay any excess profits to investors in the form of buybacks and dividends.
The vast majority of the sorts of productivity-enhancing investments we're talking about are INTERNAL to companies. They are not funded by outside investors.
The secondary markets (i.e. the stock markets) are mostly -- if not quite entirely -- a game of deciding how capital's share of GDP is allocated among investors. They generally only have a very indirect effect on where capital actually flows for use by businesses.
"The secondary markets (i.e. the stock markets) are mostly -- if not quite entirely -- a game of deciding how capital's share of GDP is allocated among investors."
This is a notion that I find almost impossible to explain adequately, but because people make predictions and have expectations, their expectations regarding secondary markets can have a powerful influence on primary investment.
The result is that cause and effect can sometimes work, imperfectly, backwards in time. A farmer who buys a lamb raises it with the expectation of selling a grown sheep in two years. Eliminate the market for sheep, and farmers will stop buying lambs.
Similarly, funding of primary investing frequently hinges on an expectation of selling into a secondary market. Eliminate the secondary market, and you'll get less primary investment.
(This is always a hard concept to convey, and if you have any advice on how I might do it more clearly I'm open to hearing it. )
I don't know enough to say whether investment in something like a health insurance company would be beneficial since normal competitive markets are not at play there. A health insurance company that treats its customers badly may not be sufficiently punished by the market to disincent bad behavior. However I'm (sincerely) not sure I understand how health insurance is rent seeking, specifically.
"Investment in something like Lokni, who make water dispensers that only work if you install an app on your phone, makes the world worse IMO, because they displace water dispensers that aren't horrible dystopian nightmares."
Wouldn't we conclude that people would be less likely to purchase such items unless they were, say, sold with a lower initial cost. In which case the lower initial cost would be the benefit?
I don't know anything about Lokni or what their strategy is, but when companies that genuinely don't serve their customers persist, there's usually some explanation for the anomaly. I feel like something is important missing from the Lokni example.
But lets say, for the sake of argument that investing in some particular set of companies does not improve the world because of rent seeking or some other matter and may actively harm it. Are those companies representative? Are they average? If investment is critical to some net benefit I believe that's the relevant question.
I'm always careful of steelmanning arguments like Victors, because I'm not certain that they're straightforward and in good faith. Is his argument, for example, that investment genuinely does not matter? Or is his argument that if we admit that investment does matter that such an admission might be used as justification to lower capital gains taxes and Victor does not want that to happen? Actively claiming the second is true absent firmer evidence, of course, risks strawmanning Victor's argument, which I don't want to do. The suggestion is just one possible example of how people's arguments may not correspond with their motivations. But as to what a person's true motivations are, I can rarely be certain.
> However I'm (sincerely) not sure I understand how health insurance is rent seeking, specifically.
I believe that health insurance, in practice, tends to lead to rent seeking, though you have to really get down in the weeds to really see it - I'm not confident enough in my knowledge to make more specific claims, though I think generic drug pricing (and savings programs like GoodRX and PBMs) is an example of this. It's also tough because, in the United States specifically, medicare being poorly structured distorts a bunch of stuff, and more generally, patents distort markets as well, so I don't know how much is specifically related to those and how much is a general thing about health insurance. But the United States, for example, has a very inefficient healthcare system, and the profits from health insurance companies must becoming from somewhere. I'm not 100% confident in my claim that health insurance leads to rent seeking, though.
We could talk all day about exactly which companies specifically make the standard of living better or worse, but the general claim - that some investments will be profitable but make the standard of living worse - seems pretty obvious: it would be quite an extraordinary claim to say that no profitable investment ever makes the standard of living worse. A more interesting question, to me, is how much better one can do, if aiming to improve the standard of living, than just investing blindly in whatever's the most profitable (within one's own risk tolerance).
>A shortage of investment in housing means not enough people are able to purchase homes or rent them and the price goes up.
It's important to distinguish between actual construction, and buying land for speculative purposes. https://gameofrent.com/
>How can people argue that investments don't improve the standard of living of the average person?
Buying the exclusive right to produce EpiPens and then jacking up the price is a costly yet profitable investment which straightforwardly makes standard of living worse. Same applies to practically the entire intellectual property market.
Okay, lets start with Epipens. I'll agree that the FDA lagged by a year or two in approving alternative epinephrine autoinjectors, ostensibly for dosing issues. I will agree that Mylan, who acquired the patents for autoinjectors in 2007, hiked the price. Conventional syringes of epinephrine were always available, but are a bit more risky to administer.
In an absolute worst case scenario, which is not at all common, patents delay the benefits of investment by 20 years. Patents do not eliminate the benefits of investment. So this example is essentially cherry picking. We can point to particular investments that are harmful. Yes.*1
But in short: Mylan's price hike for epipens is cherry picking regarding the lack of benefit of investment in general. We can say "here is a specific investment which is not helpful to the public." But it does not follow that the average investment is harmful or that the net effect is harmful. On the time frame of decades, investment will continue to be positively linked to technological progress.
*1 Though pricing in the Pharma sector is, to put it simply, weird. It involves a lot of one area subsidizing another. It's not possible to sell near cost and still absorb the cost of various failed and very expensive trials. I'm not arguing that the way the US does things currently is good. I am saying that the matter is complex and it's not clear at a glance what portion of overpriced epipens went to executive perks (certainly some), what portion went to corporate profits (by necessity a higher portion than in other industries, given the long time horizons and opportunity costs for investment), what portion effectively subsidized the EU and the rest of the world, and what portion went to the development of other useful medicines.
Obfuscated pricing in the pharma sector seems like too severe a problem to attribute to inherent difficulty or ordinary incompetence. Whoever's currently profiting by making that situation worse needs to have their incentives realigned.
> But it does not follow that the average investment is harmful or that the net effect is harmful.
Making any claim about averages would require far more data. I'm just pointing out that there do exist net-harmful investments, so it cannot be trivially assumed that the aggregate effect of all investments is net beneficial when externalities are taken into account - and, therefore, when pursuing wider benefits, it's very much necessary to assess potential investment on its specific merits and repercussions, rather than simply figuring that everything's good so long as numbers go up.
If there exist investments like Mylan's investment in the patent for epipens, which we suppose both make the standard of living (or whatever other way we define it) worse and are also profitable, then it follows that investment based entirely on maximizing wealth is a less efficient way to allocate capital (aiming for the improving the standard of living, or whatever other way we define it) than a perfect allocation strategy.
Is charity a more efficient allocation strategy? Could one, in practice, devise a more efficient allocation strategy? I'm not sure. But certainly, I think it would probably be worthwhile to try to understand if such a strategy could be, in practice, devised. (I'm hesitant to say that EA should pursue this, because I feel negatively about EA, but this does seem like the sort of thing that EA could choose to pursue.) But the claim that capitalism is, in principle, the most efficient possible way to allocate capital is clearly false (though I know most people here aren't making that argument specifically).
"But... I keep getting people making the opposite argument that some people are investing too much and not buying yachts like they should. It's weird."
What you're getting here is classical economics, which sees increasing GDP as the goal of economic policy. People spending more = increased economic production, while people saving money (whether in the form of savings accounts or securities) as a loss of capital flow. It's better to buy a yacht, which provides employment, than invest in securitized mortgages, which doesn't. It's a distorted view in many ways, but is still useful for certain kinds of economic analysis.
"Every investment also includes consumption, so it doesn't even make logical sense." Not true, at least they do not all result in equal amounts of consumption. securitized mortgages provide a living to securities brokers, but that does little good for anyone else.
The ratio of stock market investment to US GDP has been going up over the course of many decades. More money is traded on the stock market than the GDP itself (although it has been trending down more recently): https://fred.stlouisfed.org/series/DDDM02USA156NWDB
One reason given for this trend is that the ROI of corporate and wealthy investors is higher when they buy each other's debt than it is for making a selling goods and services to consumers. Some question if this is an efficient use of national wealth, or at least if this is the best approach for raising the standard of living for the average person.
To be clear, "investment" isn't the problem, it's they amount and type of investment. They aren't all the same.
The good thing about capitalism is that it encourages people to do things that are helpful to other people, because other people pay you to do them. However, that only works for other people who have money - hence why huge wealth disparity is a problem.
If that still doesn't make sense, consider providing clean water to Africa now, vs after the Hypothetical Fairy grants each African person $100,000 USD. Now it's a thing charities do, but if Africans could pay for it, oh how businesses would scramble.
But that's mostly about absolute consumption, not wealth disparity. If you could give every person in a population $50 in real dollars (not subject to inflation) or give every person $100 but one person gets $100 million, which is better? Sure, in the second scenario the rich person may be better able to access the best doctors. But in the second scenario more people will have fresh water also.
You are talking about giving people real wealth; I am talking about giving them currency. The Hypothetical Fairy is just putting numbers in a spreadsheet. If you can magic in some actual wealth directly (i.e. goods and services that people want), then the more, the merrier. Perhaps "wealth disparity" is not such a good name for the problem, and "buying power disparity" would be better.
(I don't think anyone has misread it this way yet, but I'm not actually advocating wealth redistribution. I'm just using it as an example to demonstrate a quirk of capitalism in a way that is hopefully intuitive.)
It's good for the rest of society, if rich people consume less. Consumption takes resources, and resources are finite. (At least during any specific year. That's what GDP is.)
What do you mean by investing?
There's investing in the sense of giving your money to other people, so they can give you more money back later. (Either because it's a fixed income investment like a loan or a bond; or because you buy stocks, there the return is more variable. But it's still other people that are supposed to give you more money later.)
There's also investing in the sense of producing capital goods and using them to increase productivity.
The first form of investment is often done so that other people can engage in the second form of investment. But not always. Eg if I give you 100 dollars for a loan and you use it to buy dinner, and pay me back 110 dollars in a year, then we have done the first sense, but not the second sense of investment.
You can have the second sense without the first, when you are Robinson Crusoe. Or in general, when you use your own resources to increase your productive capacity.
If rich people invest in the first sense, that doesn't have much of a first order impact on anyone's standard of living. It's (close to) a zero sum game where people just shuffle money around.
Investing in the second sense can create or destroy resources. If you are successful, it enhances productivity and creates resources.
If you invest badly (think Theranos, or any failed startup, or whatever the Soviets did with most of their economy), then that destroys resources and is indirectly bad for the standards of living for average people, too.
Using this terminology, how would that square with your notion that rich people spend on investments that add little to the standard of living of average people?
"It's good for the rest of society, if rich people consume less. Consumption takes resources, and resources are finite."
This is wrong. Consumption rewards the development of resources, which results in their development. This is literally the model Tesla used - they focused on the luxury car market because a lot of the value in the market is signaling that the buyer has the excess cash to afford the high margins of luxury brands. Tesla took that margin and invested it into additional production until they reached a point where they had enough production capacity to produce more mainstream vehicles with lower margins in a self-sustaining way. Consumption by the wealthy *increased* the actual available resources to humanity.
No. If the wealthy had taken the money they spent on luxury cars and just stuffed it under a mattress, the clever engineers that spent their time coming up with better Teslas would have done something else instead. They wouldn't have just vanished off the face of the earth. Maybe they would have worked at Google, and improved web search a bit, or at General Motors or at Goldman Sachs etc.
Now there might be second order effects, perhaps it was good for society that those engineers worked at Tesla and happened to improve electric cars. But perhaps some of them would have worked at a nuclear fusion startup instead, and made commercial nuclear fusion a reality. We don't know.
(And in our world they didn't work for the nuclear fusion startup, because Tesla managed to outbid them slightly.)
You know software engineers, mechanical engineers, electrical engineers, and train engineers aren't all interchangeable, right?
More importantly, we now have viable electric cars (for a certain value of viable), an entire new industry, which we didn't have before. That's a much larger improvement to humanity than a marginally improved Google ad algorithm, better investments for billionaires, or being present at a failed and failing welfare case.
This argument could be made about any job doing anything, but if all jobs were eliminated the world would hardly be better. When you say "outbid them slightly", that's another way of saying that Tesla made the best offer, and all other offers were worse. Maybe only worse by a tiny bit, but still, worse. If that marginal improvement in the world gets shaved off, and then the next, and then the next, eventually there would be nothing left.
Certainly this must depend on what kind of resources we are talking about. If rich people all buy huge houses in one area, then other people will not be able to live there. Land is a finite resource.
If rich people buy Tesla cars, better cars will be invented which in the end might help everyone. Innovation is not a finite resource.
If rich people spend all their money on having the best doctors treat them for imagined illnesses.. well probably more people will become doctors. But the new doctors would probably have less average talent (we can assume that the first people who chose to become doctors / scientist / artists etc will be the people with most talent or drive for that profession). In total this might therefore lead to worse medical treatment for other people. Human talent is a resource with dimnishing return on investment.
Land is one of the few exceptions to the rule, but the idea that if rich people bought all the services of the best doctors medical treatment would suffer is ridiculous because unless you exclude "No doctors available". A mediocre doctor is better than nothing.
Also, I completely reject the idea that the best are the first. There's no basis for that at all.
Any given rich patient can only have so many doctors working on them directly. Instead, more people would become support staff providing secondary services to the best-paid doctors, such as inventing better tools for them to use - some of which could then be easily mass produced to benefit others. Not to say that would necessarily be the most efficient approach, but there have definitely been positive externalities from that sort of thing in the past.
"It's good for the rest of society, if rich people consume less. Consumption takes resources, and resources are finite."
Trying to parse what you meant by this, and am having trouble. Consuming things means paying an employer money for goods or services their employees produced, which adds to their income and creates new jobs. Any economic textbook will tell you that that is how capitalism works: spending = GDP. When the wealthy consume less, they tie up wealth in forms that do not lead to increased incomes or new jobs, at least not as directly. Ideally, they should buy stocks and bonds that allow entrepreneurs to start or expand a business, but see my answer to Ryan W--more and more, this doesn't happen, and money gets tied up in less productive investments instead (though recent trends may indicate a partial reversal).
Your examples are illustrative. Though the real problem are investors buying securitized debt, or useless things like gold or crypto, it is in fact quite common for very wealthy people to subsidize their lifestyle on credit, which they never have to pay back. I can explain at length, but beware, that way lies madness. Look at Donald Trump's lifestyle. "When you owe the bank $100,000, the bank owns you; when you owe $100 million, you own the bank."
See:
https://www.gq.com/story/why-rich-guys-get-richer-off-debt
https://www.marketwatch.com/story/extra-credit-how-debt-can-mean-a-tax-advantage-for-some-and-jail-time-for-others-11626383631
Huh, what's the problem with buying securitized debt? It's just an investment as any other.
And how is buying gold worse than any other form of consumption? If I buy a bar of gold and stick it under my mattress, the labour and resources that went into producing that bar from the ground are gone. But how is that different from paying people to put up a play, or to make a cheesecake that I then eat? How is it worse than those examples of consumption? You pay people to produce gold. In your words: 'Spending = GPD'. No matter whether you spend on gold or hamburgers.
(And if instead of putting the gold permanently under my mattress after five years, I sell it on later; then economically we didn't really lose anything, at most five years of opportunity costs of other uses of that gold bar.)
I also don't get your complaining about rich people using credit. If the creditors are stupid enough, that's their problem, not mine. And I don't get at all how you complain about lack of consumption being a problem at the same time as complaining that rich people consume more than they deserve? Because never having to pay your debts is exactly that. (I have to admit that I found that GQ article endlessly confusing and rambling.)
The whole buy-borrow-die strategy is just a tax dodge that eg Americans engage in because their tax system is so asinine. My adopted home of Singapore avoids this whole can of worms by following economic orthodoxy and just not charging a capital gains tax. Why would you want a sin tax on something that's good for the economy?
But in any case, the strategy is not a problem for the economy. It just, very imperfectly, approximates the more ideal economic situation of not having a capital gains tax.
If you want to feel some more outrage, you can also read how ETFs avoid paying capital gains taxes that mutual funds have to pay: https://www.investopedia.com/news/etf-open-secret-theyre-tax-loophole/
So the question I am trying to address here isn't whether or not the investment is a good idea for the *individual investor*, which, insofar as securitized debt, crypto and so forth, it may very well be (or not, I wouldn't know). The question is whether or not having a large proportion of our national wealth tied up in such investments is good for the overall economy, as opposed to investments that produce goods and services for consumers.
The way the stock market should ideally work is that a business owner offers shares in the company in exchange for capital needed to start or expand a production line or and entire business. This money then goes into purchasing facilities, technology and hiring employees. All of this has positive a secondary effect on economic growth. But securitized debt? Remember, this is money that has already been loaned out--in the case of mortgages, the houses are bought, and the owners are just making payments now. No additional goods or services are produced, it's just investors trading securities among each other.
The economic justification for these kinds of exchanges is that it creates an incentive to banks to provide these loans in the first place--in many cases they would rather have a lump sum of money by selling the debt than by waiting for all the payments to be made. However, if this is too profitable, it can distort the market incentives--risky mortgages start getting handed out not because the new owners are able to pay off the loan, but because the resale value is so high. In the early to mid 2000's this is what happened, a bubble in subprime mortgages eventually collapsed, causing the 2008 financial crisis.
So investment doesn't = "bad", but it may not always = "good" either. The devil is in the details.
Yeah, the US tax code sucks (sigh). I will have to research the Singapore model to see if it offers us a better example of how to go about it.
Putting dollars under your mattress does not impact the value of the dollars in circulation directly. It only impacts them through the path of what you would otherwise have spent them on. If you would have spent it on an overseas vacation then the impact is primarily felt overseas with very minimal trickle down effects back home.
Money invested in equities is not being hoarded - it’s being put to use. Imagine you invest your life savings into your startup, it makes 7% per year, and you live off this. Easy to see how that’s being used.
A passive investor plopping their money into the S&P 500 and making 7% per year is just as active a use of money. The mechanism of “action” however is a lot harder to see - it’s from raising the price of equity in companies, so that they can then sell equity or debt at better rates and put that money to use. Imagine everyone bought Apple stock and NO ONE was willing to sell. If Apple wanted to sell one share to go build a new iPhone factory, they could get an astronomical price on it and go to work.
The total downstream effect is measurable in the return. Saving money is pro social. The same argument applies for corporate bonds, and even government bonds (although that is even more diffuse to analyze, but just imagine the government as one big inefficient company)
As an extreme form, if you literally destroy some money, that's essentially a donation to the central bank.
An inflation targeting central bank will automatically 'print' more money to keep purchasing power on track. That 'printing' of money takes the shape of purchasing assets with newly created money. Creating new money is sort-of free for the central bank (the constraint is keeping inflation in check).
How is the desire to avoid taxation evidence of anything about charity? Capitalists also desire to avoid depreciation of their capital goods or natural disaster, so what does that prove?
There was a problem with a lot of money staying in one place when the Federal Reserve was paying interest on excess reserves while the natural rate of interest one could earn on investment was relatively low, but now that inflation & interest rates have picked up that's less of an issue.
Interest on excess reserves are indeed a bit silly, but that's not really a problem of 'money staying in one place'.
But you are right, that when the central bank pays a higher interest rate on excess reserves than investments in the market, that's not a good sign.
It's also not profit maximizing for the central bank. It's essentially handing out free interest payments for nothing in return.
(Central banks like the ECB or the Fed regularly earn surpluses and send them to their respective governments. Governments like getting money for their general budget.
The analysis is a bit complicated because the central banks can essentially 'print money'. But if you take inflation targeting as a constraint, the amount of money they can just conjure out of thin air is limited. And anything extra they can earn works just like regular profit in any old organisation.)
I feel this is a separate question, but yes, capitalism with taxation for spending is clearly a better method than charity.
I would rather get to decide which charities get my money than get taxed so the money goes to charities the government decides.
I'd be happy to give up that control if it means everyone else also has to, and are also made to participate.
Also, the government ideally won't be donating to charities internally at least, and instead run a coherent system, which seems far preferable.
Forcing charity diminishes the value to the giver. I think your viewpoint illustrates a fundamental difference between liberals and conservatives: liberals want good things for everyone even if some need to be forced to do the right thing, whereas conservatives want everyone to determine themselves what the right thing is.
I have, however, a compromise. We could have some amount of income taxed for purposes of charity, but that amount would be offset by voluntary charitable donations as a direct credit. Still, some conservatives wouldn't like being forced into charitable contributions, so this compromise still leans left.
I think it boils down to a disagreement about consequentialism: one side prioritizes the consequences to the recipient, the other to the donor.
It's bad for society when we continually walk by people dying in the street, but also bad for society when people are compelled to perform performative acts of loving-kindness at gunpoint (to frame it in a maximally libertarian way). I'd be more happy with the second way if any of the attempted solutions to the first problem actually seemed to work.
Ian, capitalism works just as well as does charity because both have a democratic structure whereby people who have money vote for what they believe is important through the medium of a wallet. A charitable donor may vote only a handful of times a year while the capitalist donor, or consumer, votes many times every day. Coca-Cola, Walmart, McDonalds, they all became evil capitalist giants because they got billions of votes and they keep on getting those votes every day. It is really not a crime to give consumers what they want, and if the people who give the world what it wants become rich in the process, that's not a crime either. The Waltons, Bill Gates, Jeff Bezos, Sergey Brin, the late Steve Jobs, they all created trillions in value of which they happened to retain a couple of per cent. Someone who became rich selling alcohol may not match everyone's idea of morality but, the tribe has spoken. We must be very careful that our visions of a better world are not motivated by base envy.
As the resident Objectivist bore, I'll just note that Scott's completely right here.
The real criticism is that we have a society that thinks charity is superior to production. But you cannot give away anything that hasn't been produced. And capitalism is the only system that allows production, so it is the only system in which charity can flourish.
That's not true at all.
Families produce plenty of stuff. East Germany and the Soviet Union produced plenty of stuff.
Capitalism is more efficient and productive at scale. But it's far from the only mechanism to produce stuff.
CCCP/GDR was: state-monopolistic capitalism. The worst capitalism there is. In combination with very non-free markets: much less in useful! stuff. Lots of steel, sure. - Not sure families without capital-goods "produce" "plenty of stuff". My family "produces" next to nothing of value outside a capitalist context. 20 kilo apples, 2 kg berrys / year. Any family in Niger produces much more than mine, I am sure. Strangely, THEY are dirt-poor.
I have heard the 'state-capitalism' moniker before, but I don't think it's very useful here.
If you want to bend definition of capitalism enough to make some form of the label apply to East Germany and the Soviet Union, then you will have bend it beyond the point where we can exclude 'charities' from 'capitalism'.
I agree that family production is generally less efficient, especially at scale, than production in capitalism. But the comment I replied to proclaimed that capitalism was the only system that allows production. So even an inefficient alternative producer serves as a counter example.
"Ineffecient" fits much better than "producing plenty". Glad we agree. The "moniker" is actually popular among Left (Lenin: "Stamokap" - https://de.wikipedia.org/wiki/Staatsmonopolistischer_Kapitalismus ) and critics of CCCP. And describes the economic reality rather well: Capital (ie: machines, factories, energy) as a main factor of production + ONE owner: the state. Voila. - Fine definition, no matter what is the relation of charities to capitalism - Scott's question.
Which could be re-framed as: "NPOs or POs - what's better for living standards of the poorest billion". Great question. I like both, but assume POs will have delivered more. Though I see no way for me to "help" those. Buying "Fair trade"? Nope.
My wording was perhaps sloppy. 'Plenty' was just to say that in an absolute sense they produced a lot.
The state capitalism moniker is just a silly as Marxism in general.
In what sense is capital even the main factor of production? You still need land and labour.
And eg the Soviet Union was arguably a petro state. I guess that falls under generalised land as a factor of production.
East Germany didn't have much (at least comparatively) in terms of natural resources. Incidentally, they are also the example of real existing socialism with the most success ever, if you eg measure it in terms of prosperity achieved. (They did much worse than West Germany, of course. Which isn't even the most successful example of capitalism.)
I think Scott's question should be: how can Scott get the best impact in terms of eg QALYs saved for his effective altruism dollars? Should he eg give to charity, or invest the money and continuously reinvest all returns indefinitely?
His whole essay shows some tension between knowing that capitalism works, but also trying to figure out how to make it work for his charitable dollars.
Peace and prosperity to you, too. - I wrote "a main" factor not "the main", I hope. The USSR invested billions into modern machinery (and qualification of its people to use those), and they did produce much, much more than pre-industrial Russia (steel, weapons, brutalist architecture ...). At what point "capital" becomes "the main factor" of production, is an exciting question. ...
I agree with your summary of Scott's S.A. (mis-spelled as: ess-ay), and I see no easy solution - if one is not a savvy businessman: Boris Becker's ex-manager Ion Țiriac, also known as the "Brașov Bulldozer" or "Count Dracula" did probably much more to improve the lot of Romanians by his profitable investments there than the do-gooders who collected donations to improve the appalling orphanages there. (Disclosure: we donate)
As of April 2022, Forbes ranked him as the third-richest person in Romania with a net worth of $1.6 billion. https://en.wikipedia.org/wiki/Ion_%C8%9Airiac
> In what sense is capital even the main factor of production? You still need land and labour.
It's tools. There's always been land, and always been labor, but the increase in the capability of our tools is what's let humans create the modern world. But the tools have gotten more resource-intense as well. So the question is, "who controls the tools"?
It's literally just a thing Trotskyites et al say to express that they think the Soviet Union is/was bad but are still in favor of a command economy organized by a one party state.
You can go to any former eastern bloc country and see it wasn't a market economy and property rights for land effectively didn't exist. You can also read someone like Alec Nove or James C. Scott to get a deeper understanding of how different it really was.
It wasn't all failures but the successes were more relevant to the world of the late 19th and early 20th century while the failures were specifically failures in consumer goods and the conversion of military technology into applications for the consumer economy.
"state capitalism" is how socialists pretend the horrifying tyrannies of the twentieth century had nothing to do with them.
*plenty of bad stuff that had no actual market value and could only be sustained because of trade restriction imposed by East Germany and Soviet governments. When markets opened it became clear, that their "stuff" was bullshit and all firms making it went bankrupt, as they could not compete with better quality products from the free world.
Yes, all agreed.
My point is merely that production _exists_ outside of capitalism. Contrary to what the the original comment claimed.
Have you looked at the level of existence in the former East Block? The starvation, the lines for the meanest goods, the grinding poverty?
Are you talking about how they are doing now, or how they were doing back in the day?
I grew up in East Germany. It wasn't pretty, but we didn't have any starvation. You had queues for exotics like bananas or Levi's jeans. But not for the 'meanest goods' like potatos or bread.
Much of the former Eastern Block is in the EU now and doing reasonably well.
I prefer capitalism, even the watered down version that west Germany has to offer. But we shouldn't delude ourselves about the real situation in the East Block.
Well put, if overstated. Production obviously does occur in other systems--just not as much and also not as well-tailored to what people actually need/want.
Charity as I understand it is intended to fill in the gaps left by the market. As such, it isn't superior or inferior to production, but a needed supplement. One can also argue that tax supported government programs are even more effective at filling in market gaps than charities are, but that's a different issue.
It might very well be true that government programs are better than some charities. But every time I've heard the argument made, it involves quite a lot of cost shifting. There are costs to, say, collecting taxes. Those costs are borne both by both the government and by private individuals. But in determining the cost of a particular government program the cost of revenue collection is typically not considered.
It seems probable that the argument for the effectiveness of a government program could be made persuasively without hiding some of the costs relative to the larger and more bureaucratic charities like UNICEF which are notoriously inefficient. But the argument for government solutions is rarely made while considering all relevant costs. And the most problematic charities tend to be cherry picked for comparison.
The budget of the IRS is about 80 billion; meanwhile they collect several trillion dollars. Seems to me that the overhead costs are pretty marginal, something like 3% or so. Back when I was a professional fundraiser for non-profit organizations, the accepted fee was about 15% of the amount raised, depending on the client. But this may be an apples to oranges comparison--no nonprofit has the economy of scale the government can take advantage of. If you want to help a niche population, then you have to accept higher overhead costs.
. They're a specific good, allow you to make things you can't through business. Anything from running a museum to keeping parkland going.
Agreed.
"And capitalism is the only system that allows production"
I'm pretty pro-lassiez faire capitalism as things go, but this sounds like overselling things a little. There was still "production" and even a little growth under feudalism, say, or the USSR.
I'm not sure this addresses the argument for "If you give people in Africa medicine that boosts their health they'll be able to be more productive". Even if you (not unreasonably) assume the barrier to productivity in western countries is culture, there's a much stronger argument that in sub saharan Africa it's bottlenecked on public health and improving it will enable them to be more productive.
Culture would presumably also bottleneck SSA, and at a much lower (plausibly subsistence+epsilon) level of per-capita productivity.
It's your money. Work out what you want to use it for.
If your compassion is moved by the sickness of Africans, go for it! If you think you'd rather try and untangle the mess of regulations, do that. And so on
But what if the charity is just paying for the production for good things like mosquito nets or vaccines, which will then be distributed to people who can not normally afford them?
I don't understand why you wrote this. You don't seem like you disagree with the one you're replying to.
Same. Sounds good to me
I genuinely don't follow. Sounds like a fine job to me.
"Capitalism is the only system that allows production." I respect that Objectivism has gone all in on metaphysics and will soon be eligible for religious tax exemptions. The most generous interpretation is that this is a religious truth claim which is non-falsifiable. A less generous interpretation is that you have a lot of trouble making friends and are drawn to ideas which provoke strong negative reactions because they're so extreme yet so trivial to falsify.
Still I hope you do things like walk through (private!) nature preserves, praising ant colonies and mycelium networks for practicing capitalism while condemning nursing mothers for encouraging parasitism.
Do you need anymore straw? Seems like you might out. Also, you might need some more condescension; you're reusing old stuff
One can usually assume a certain contex. For instance, when speaking of "production" in this context, it should be clear we are referring to human production, specifically of the goods that enable and enhance human life. Goods produced by applying human intelligence to the world. So your comments about mycelia are bad faith of the first order. As to the suggestion that I or any Objectivist condemns nursing mothers - that's just a lie and an insult.
And this is fairly easily observable: every case where we directly contrast two competing societies, one less and one more capitalist, the results are unequivocal. East and West Germany. North and South Korea. Old Hong Kong Vs Mainland China. China under Mao Vs China under Deng Xiaoping. And so on.
I wanted to make a similar point that capitalism enables high performance charities. Pre industrial revolution, the richest country in the world could not have delivered clean water to 50000 ppl for ten years by assigning 15 or so median workers to the problem for about a year (1mio usd).
It still doesnt answer the marginal dollar question though.
But there are 3 paths available:
Invest in "capitalism" in the poor country (to improve worker productivity there)but maybe there are limited ways to do that effectively.
Invest in capitalism locally to make future charity better (the avenue here is still worker productivity, so should be investment not consumption oriented.
Consume capitalism by deploying high impact charity
I am going to cut that Gordian knot:
It's your money. You work out what you value & what you think would serve your values best.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Source?? This is shockingly good.
Yeah, that's 1.5 lives per $1k, it's over half an order of magnitude better than Against Malaria Foundation.
Some earlier discussion on clean water here:
https://forum.effectivealtruism.org/posts/hFPbe2ZwmB9athsXT/clean-water-the-incredible-30-mortality-reducer-we-can-
https://blog.givewell.org/2022/04/06/water-quality-overview/
"Before 2020, based on the available evidence, we didn’t believe that water quality interventions had a large enough effect on mortality to make them a competitive target for funding. We’ve since seen new evidence that has led us to significantly increase our estimate of the mortality reduction in young children that’s attributable to these interventions: a 14% reduction in mortality from any cause,[1] up from around 3%.
"Though we have remaining uncertainties about these numbers, we’ve substantially updated our view of the promisingness of water treatment. Where we previously found that Evidence Action’s Dispensers for Safe Water program was about as cost-effective as unconditional cash transfers, we now believe it’s about four to eight times as cost-effective, depending on the location. That was a primary factor in our decision to recommend a grant of up to $64.7 million to Dispensers for Safe Water in January 2022."
Wow, that's amazing. News to me!
Why isn’t this being solved by capitalism right now? People in the third world are poor, but are they so poor that they can’t afford to pay $2 per person-year for clean water? Wouldn’t it be more effective (and more profitable) to hire a traveling salesman to visit every rural village in Africa to sell miniature water chlorinators? Is the issue that African villagers are too stupid to understand the importance of clean water? Maybe they don’t understand how chlorination works, but then why would they even bother to use the free water-chlorinators?
Dividing the cost by the years of benefit and the (average) number of people per household is a cute way to disguise the fact that you are probably asking a poor person to make a three-digit payment upfront. And even then, it is not just a question of "is it literally impossible for them to afford this", but rather "why would they give up a bunch of other stuff for a while to save up for a water purifier, when regular water is 'good enough'?" Even if they believe the statistics of the people trying to take their money, there is only around a 1% chance that the purchase will actually matter over the course of the next decade.
>Maybe they don’t understand how chlorination works, but then why would they even bother to use the free water-chlorinators?
Worth using for $XXX.XX and worth using for $FREE are different things.
Re footnote 1, google "how does instacart make money"
Of course they don't rely just on the fees charged customers. But I was sad when I saw that people also search for "how does instacart make there money".
I'll save you a search, they mark up the prices. Anecdotally, I had some baby formula Instacarted yesterday and it cost me $15 a bottle instead of the usual $11.
Even without marking up prices, they still get to count grocery sales as revenue. If you pay Instacart $5 for a bunch of bananas and Instacart pays the grocery store $5 for the same bunch of bananas (i.e. they don't mark up the price at all), Instacart still gets $5 of revenue. Their COGS (cost of goods sold) is also $5 but that's separate.
This is wrong. You don't buy bananas from Instacart, you buy them from the grocery store. Instacart is a delivery service.
Take a look at Instacart's Q3 shareholder letter, page 9. You can see that in Q3 they had $7.5B of Gross Transaction Value (the total amount their customers spent on groceries) while their own Transaction Revenue was $542M.
OK, thanks for the correction
Honestly surprised by the lukewarm thoughts on strategy 3. I haven't done a tenth of the charity research Scott has, but I remember reading about efforts like the Gates foundation basically acting like a super generous bank for small farms in developing countries. Offering loans with good terms, and making a commitment to buy grain at a certain price to protect the burgeoning market from price shocks. That sounds like a good way to set up a much needed industry in the absence of credible local banks and other institutions. Is there some bit of research that indicates this isn't very effective?
Anecdotally, I remember getting my micro finance bubble burst by research showing its ineffectiveness. But I have no sources and this has inspired me to re-dig for the truth
Most likely what's happening here is that this data just isn't public. Not that there is evidence against, but that there's no evidence for on the level of malaria nets. A lot of existing interventions are probably way better than malaria nets! It's not like the world would end if there are no more malaria net charities, but there are probably load bearing institutions where its absence would lead to the end of the world (trivially civil war "ends the world").
EA existing doesn't mean that all non EA interventions don't work, just that EA interventions are the most evidence backed interventions on the margin.
I think it's worth keeping in mind that "effective" in the GHD context is basically "donate to AMF", which is a super high bar. So "isn't very effective" can still simultaneously mean "far more effective than the usual charities non-impact maximizers give to" and "< 10% as effective per dollar as donating to AMF".
I don't know about supporting capitalist charities (and I don't think I feel quite as bullish on capitalism for various reasons) but I think a different strategy to consider is 'investing' in (or donating to) charities that also operate in the market economy. Nonprofits make up 6% or so of GDP and there are many interesting nonprofits that have sustainable revenue, allowing them to re-invest in more work 'for good.'
Profits go to investors. If you are investing to do good, you can just reinvests the profits yourself. No difference. Or at least no first order difference.
If you pick an accumulating stock fund, they will do that reinvesting for you automatically.
Of course, like all sensible things, accumulating funds are banned in the US, so Americans have to reinvests their dividends manually (or make their broker handle that aspect).
Hmm, there is a pretty huge difference. A nonprofit is designed to serve a greater-good purpose. A for-profit could certainly donate profits but is unlikely to retain that model, and is typically not specifically committed to doing good-for-the-world things. A nonprofit can also incorporate different revenue streams as well as sales.
Also there are now hybrid entities which have been established in law in most US states. They are for-profits whose obligation to shareholders is explicitly balanced with pursuing and measuring a public purpose. In some states they are called "L3Cs"; in others, "B corps"; in some parts of the civic sector these entities are referred to as "slow money". (Because investors have agreed to expect lower rates of return than in the open investment markets.)
These hybrid entities can with some limitations also seek and accept grants restricted to specific pieces of work. Though few grantmaking foundations are yet comfortable making such grants, that fraction does seem to be slowly increasing. (An inherent barrier to entry for grants is that philanthropic money must be rigorously segregated from investor funds, with fairly dire consequences for failure on that point.)
The 501(c)3 that I run is currently working directly with a national "slow-money" for-profit that is pursuing a specific initiative which fits well with one of our organizational priorities. Thus far I have been positively impressed with the B-corp, and have begun recommending it to subject-matter peers as a project partner to consider. If all goes smoothly we will be together putting something pretty exciting into the ground by the end of 2024, which my board of directors is quite fired up about from a mission perspective, and which our mid-sized nonprofit would struggle to pull off on its own anywhere near as quickly. (But we are freer to play some parts in the process than they are, and it's our concept that we had already penciled out, which are reasons they sought us out.)
For-profit companies are allowed to have goals other than profit.
Have a look at what Google, Facebook or Bosch (say they) do. They are certainly not maximizing profits (at least not in the short run).
A for-profit company is also allowed to incorporate revenue streams that are not sales. (Or what revenue streams are you talking about?)
In the United States, publicly owned companies can theoretically forgo higher profits for the sake of the public good. In practice, however, this is very risky, because if you aren't maximizing shareholder value, shareholders can sue and win.
Have shareholders sued Meta or Google for that? Zuckerberg explicitly wrote an open letter when Facebook went public explaining that he's not gonna maximise profit.
Management has to act as a fiduciary for shareholders, but they don't have to put profits above everything.
See also how most companies donate to charities. Every dollar donated is a dollar less in profit (modulo taxes). According to your theory any company that donated anything should get sued left and right.
Obviously that doesn't happen. So you might have to revise that theory.
Agree with most of what you said, but my impression of corporate philanthropy is that it's advertising with a tax break.
The value of capitalism isn't the "second order effects" so much as the cascading-indefinitely effects. It's the "give a man to fish" vs. "teach a man to fish" principle. While I in no way wish to denigrate the value of saving lives with better water... once you do that, then what? You have people who are alive, and still in the same situation they were in before.
The value of capitalism is that it elevates entire civilizations to a higher state of living. There's a reason why stuff like water dispensers to save lives are going to developing countries with no market economy: *in capitalist nations, there is no need for such things in the first place.* The equivalent work was baked into our basic infrastructure long ago.
Seems to me that one of the best places to invest, then, would be in research to figure out why the "charities that send economists (or other professionals) to developing countries and advise them on how to do more capitalism" were ineffective and how to do it better.
I think Scott agrees with your observation that capitalism obviously works in practice.
The real question in the essay is: why? Our author investigats first and second order effects and finds them lacking. But your suggestion that higher order effects are important might be a good one.
We also had other suggestions in the comments about production (though I don't necessarily buy that one, charities can also produce societal wealth), and I made some suggestion that Scott should take leverage into account when comparing charity to investment.
I like your thinking. I wish third-world despots could be paid off to adopt liberal economic orders.
Yeah, thinking about it bribing these people to accept market liberalism is probably one of the best uses of money we can get, as long as we can ensure the bribes are bigger than the amounts they would be able to embezzle (shouldn't be too hard for poor countries).
I don’t know. Some leaders of poor countries can be quite wealthy. And you’d probably have to pay off the leader’s underlings to keep them from murdering him for the cash or extorting it from him. Also there’s always the perverse incentives problem of paying people NOT to be bad--it encourages new entrants to the bad behavior club, as it were.
Pay everyone who isn't doing the bad thing, regardless of whether they're threatening it. This works because people don't think far enough ahead to create the bad-thing-movement just so they can exit it once you oppose it.
Brilliant! Just pay every adult male on earth $1 billion for not being a dictator and withhold payment to current dictators. But seriously, is there a way to incorporate that insight into designing a program of paying off dictators to institute good econ policies?
Are you suggesting that we bribe people to stop taking bribes?
😂
That's exactly what the Mo Ibrahim Foundation tries to do with the Ibrahim Prize! https://en.m.wikipedia.org/wiki/Ibrahim_Prize
It's good in theory but probably needs to be bigger :)
I find myself skeptical that paying someone not to commit an economic crime is going to be effective.
I think the statement "alive but in the same situation as before" is incorrect. Do you think that the economy would basically be the same if the US suddenly got Ugandan child mortality rates? Do you think human capital accumulation can continue at the same rate if American children end up as sick as subsaharan Africa children? Both of these seem fairly implausible.
I agree that "just" saving lives does not result in a first world country. But it's not clear to me that lower mortality isn't a precondition to developing an an advanced, self sustaining economy.
The infant mortality rate in the UK in 1900 was 15% according to https://www.statista.com/statistics/281501/infant-mortality-rate-in-the-united-kingdom/, and the infant mortality rate in Uganda is 3% according to https://www.statista.com/statistics/807832/infant-mortality-in-uganda. So it seems highly unlikely that poor childhood health is what's holding Uganda back from prospering like the UK did.
I agree that I overstated the case for child mortality being a dependency of a modern economy, but I don't think it's quite as bad as the numbers you are citing suggest.
There's a reason why I specified child, not infant mortality, which is that dead children are far more expensive than dead babies among almost every relevant axis.
When you take child and not infant mortality into account, from statista: https://www.statista.com/statistics/1041714/united-kingdom-all-time-child-mortality-rate/ shows 225 deaths per 1k births, or around 7.5% child mortality once you subtract out infant mortality. This is indeed comparable to the current Ugandan under 5 child mortality rates of around 7% from 1996-2000(from https://dhsprogram.com/pubs/pdf/FR128/08Chapter8.pdf) , but 1. Uganda grew around 3-4% in GDP in the last 5 or so years (https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=UG) and eyeballing https://ourworldindata.org/grapher/total-gdp-in-the-uk-since-1270?time=1718..latest for 1900 it looks like gdp growth was around 4% a year for Britain. So I don't think it's fair to say that 1900.Britain has drastically outperformed Uganda. 2. Uganda was starting from the same infant mortality baseline 50 years before, and on top of that had gigantic reductions in child mortality, which means that a present day 3% infant mortality rate implies far less about total human capital accumulation over the last 20 years. 3. You are implicitly using the glory of 2000s UK when citing the 1900 number, without Uganda having the benefit of having a 2100s (edit was 3000s because I was dumb) version of itself. Economic strength comes from compounding gains of 1-2% extra annual GDP growth per year, and thus the time spent at increased productivity also matters a lot for total economic gain.
Obviously Britain gets a lot of credit for having much better institutions and for starting the Industrial Revolution, this is not in doubt. I'm interpreting the parent post as if it's saying that people being alive in and of itself does not constitute human capital that participates in the economy, which seems to place the GDP value of a life saved at approximately 0%. I'm personally waffling on how much economic value a life saved actually provides, but I don't think the arguments presented thus far for the other side is unambiguous, and it's definitely much less actionable.
I was actually thinking of the glory of the industrial revolution (that's why I chose to use the UK for the comparison) rather than whatever glory the UK has had lately. But I didn't find comparable mortality numbers that far back (didn't look too hard tbh), so I just kinda assumed they probably weren't better off then than in 1900, which your link confirms.
Is there a reason you're looking at GDP rather than GDP/capita? Those tell rather different stories for Uganda, with a GDP/capita ATH in 1969 that was only surpassed in 2004 (!), while GDP looks less dramatic.
I'm using GDP because saying "you're in the same situation as before" implies that total economic capacity is the same, rather than "whatever agglomeration effects that lead to the Industrial Revolution are the same as before". For sure you want to have good institutions, norms and technology drive up the gdp/capita number to make you way better off, so I do think the fundamental intuition behind the original post isn't wrong, but all of the above are composed from people! If you treat the drivers of economic productivity as completely separate from total productivity, of course you'll end up assuming that increasing total productivity won't help.
Economic productivity cannot be decoupled from the raw number of humans for every situation. We talk about gdp/capita because for most places it's easier to institute net productivity increasing policies than to change the fertility rate or population. In the case of the world's poorest nations, we don't actually know what economic interventions would currently help, but we do know what life saving tech exists. It doesn't make sense to me to say "well I guess if this person is a 1x Ugandan instead of a 1.05x Ugandan, they are better off dead." Especially since, if agglomeration effects start kicking in later the additional person also benefits from the society wide productivity increase.
Wait, this doesn't parse. Compared to today, the United Kingdom was a hellhole in 1900. Things have improved a lot in the past 124 years. We'd have to see Uganda in 2148 to see what impact their (comparatively) lower infant mortality rate will have. Uganda's prosperity gains in the next 124 years could DWARF British gains from 1900-2024. Who knows? That's so far in the future it's totally up in the air. But until we get there, or at least until we get halfway there, you have little basis for your argument about Ugandan childhood health.
I'm pretty sure he was contemplating shorter time frames, like UK in 1890 vs. 1900 vs. 1910, compared to, say, Uganda in 2014 vs. 2024 vs. 2034.
That's ONE way to interpret his comment. Besides, England was still a hellhole for the vast majority of its citizens in 1910, too. Even by the standards of the time. It's my understanding that living conditions for the average American were far better at that time. I wish he would chime and explain his comment, it was kind of cryptic. Too confusing to be "wrong," really.
That seems off to me. What measures do you have in mind for the 1890 - 1910 period?
> There's a reason why stuff like water dispensers to save lives are going to developing countries with no market economy: in capitalist nations, there is no need for such things in the first place.
You’re perfectly correct. Not only that, but if the capitalism wasn’t there, the water dispensers would cost way more than $1 million per 500k people-years of clean water, and also that $1 million wouldn’t be available for charity.
The only way to measure the indefinite cascading of effects is to actually look at the final effects of capitalism, not to try to add the low-order contribution of an individual company, representative or not. GiveWell’s estimate of lives saved was not done by following the first- and second-order effects of each cup of water on a randomly-picked average person, it was done by looking at the final effects of an intervention on a lot of people (hopefully).
So a while back I listened to Magatte Wade on Lex Fridman. https://www.youtube.com/watch?v=Q6tDV3BhrcM And the sense I got was that the big problem is corruption in the government. There is just too much friction in trying to get any business up and running. I don't know how we can make this any better. But maybe an idea is to invest in people... which is a little like what Scott is doing with his grants.
Fair enough. So this gets me wondering. Massively corrupt third-world governments are a big, obvious problem. It's one of those "everyone knows" issues. It raises the question, were the failed economist/consultant types somehow unaware of this? If not, why did their approach for trying to deal with it fail, and how can it be done better in the future? Or *can* it be done better in the future? If not, what alternatives exist?
Oh, so the answer might be to find those governments/countries with less corruption (Wade mentions a few.) And look for investments there, and if that helps one country thrive, then the nearby countries will have to take notice. This is a long term type answer.
The obvious way in which personal market spending could do more total good than charity but charitable spending could do more good on average would be if charitable spending were much less than market spending. As charitable donations make up only 2% of US GDP, the conclusions here aren't at all surprising.
Comparing capitalism to charity seems like comparing chocolate to Mozart? They're not comparable. One is an economic system, the other is a personal choice. Capitalism applies to a society - you live in a capitalist system, or a non-capitalist system, and your personal ability to choose which system to operate under is pretty limited (short of moving to another country). As for charity, you can choose whether to give, and how much (and, of course, where), independently of the choices of anyone around you.
So I don't really understand how "does capitalism beat charity?" is even a well-formed question. To put it more sharply: on *what metric* are we asking whether capitalism beats charity?
People keep saying I shouldn't donate to charity because capitalism is better, so I guess the metric is "ability to do good per unit donation".
Insofar as we're talking about third world charity, the concern isn't that charity is incapable of providing good things; it's the idea that external charity from much richer sources crowds out the economic activity which will allow those societies to sustainably build themselves up. Aid acts as another type of extractive resource which allows locals to prosper by maintaining access to the aid-source, rather than by providing goods/services to their fellows. It also actively incentivizes the development of corrupt clientelist political institutions.
An interesting hypothesis, that is probably true of some types of charity. But is it true of all types of charity? That's an empirical question that can be tested. And preliminary evidence is pretty decisive that it isn't true of some forms of direct aid. For poor people in third world countries, direct cash transfers increase economic productivity, they do not decrease it.
https://www.givedirectly.org/2023-ubi-results/
I would hesitate before generalizing from one sociopolitical context - Kenya isn't even really a poor country; it's had pretty decent growth since the 90's and has been solidly "lower middle income" for the last decade. Moreover, it appears to have a pretty solid social fabric - apparently a 2017 ban on single-use plastic has been widely complied with, something I would not expect to see in other "poor country" contexts.
However, direct grants to individuals, under close administration by the donor agency, seems less likely to be seized and re-routed to the benefit of corrupt local elites the way many other types of aid are. However, that's something to be carefully monitored - there are other historical examples where sudden public windfalls to individuals only yielded massive speculation (e.g. the attempted privatization of soviet-bloc countries by distributing newly-printed shares to the public...which were quickly liquidated by most people and resulted in consolidation of ownership by speculator/oligarchs).
Well, ok, then let’s full fund Kenya and based on that success also fund similar exploratory experiments elsewhere to see if it generalizes (this is what GD is doing in fact).
“It might not generalize” doesn’t seem in any way an argument against their plan.
And indeed, “kleptocrats might steal their wealth” is also an argument against engaging in commerce with a developing country too. The concern generalizes pretty strongly; see China disappearing Jack Ma and others. Any philanthropic capitalists that said “let’s invest in China to help it grow” just lost their shirts in terms of impact.
Does this argument apply to donations to AMF?
A question probably better directed to Angus Deaton, whose work I'm generally parroting, than me. I would expect that it partly does - benefits provided by outsiders and capable of seizure/redirection by local elites to favored clients would seem to at least in part crowd out development of actually functional local institutions - but I'm not an expert here.
Scott, may an anonymous commenter offer brash advice? These people, why say such utterly confusing things, should be - in this specific instance - ignored. The “I shouldn't donate to charity because capitalism is better” thing is so… confusing, it’s not even wrong. Just ignore.
To be clear, these people may otherwise be great/caring/etc. They are just very confused about this one thing.
If you're donating to charity that drills water wells in Uganda then if you're wrong, you can't possibly be wrong by much. So this isn't one of those issues that, it seems to me, should drain much mental energy unless you enjoy the mental exercise.
I’m about as big a fan of capitalism as there is out there, and I agree with you that there is no feasible way to effectively “donate” to capitalism. The people telling you not to donate to charity seem very confused to me.
Also as a big capitalism fan - kinda seems weird to want to donate to it, feel like you should only give it money if it's giving you something in return and you should take what the literal market will bear!
Except for the rare cases where people do charity by spending their own time under their own initiatives doing labor for a charitable end, not through some institution, all charity is done by means of purchasing ("donating") a product (whatever its for) from a firm (a charity).
It certainly doesnt have to be that way, it just happens to be that way. Charity is one of the goods sold by capitalism, because capitalism will sell anything people will buy, and lots of people want to buy charity.
> there is no feasible way to effectively “donate” to capitalism
The closest would probably be lobbying to make markets freer. Lobbying against rent seeking etc.
But due to political realities this may actually be very expensive, because you're fighting against people lobbying for rent seeking profits for themselves.
You need to be a bit creative.
Eg if you help someone move from Germany to Singapore, you have made the average human live in freer market; but you didn't have to change neither Singapore no Germany.
It seems literally very possible to "donate" to capitalism in the sense of doing capitalism-promoting activities, even if it's much less effective (under most lights) than effective charities.
For example, most people who bring up "capitalism beats charity" probably thinksthe government is a worse allocator of capital on the margin than capitalism. So tax evasion (or its legal cousin, tax avoidance) will be a (small) donation to capitalism. You might be more leveraged if you figure out tools to allow other people to evade taxes.
You can also fund neoliberal (in the traditional Hayekian) thought, and/or politicians who advocate for reduced taxes and less regulations.
If, instead, you are a state capacity capitalist who think the existing government structures are a necessary precondition to capitalism, presumably you don't believe the government exactly the right size. So you can take activities like donating to the US government (https://www.fiscal.treasury.gov/public/gifts-to-government.html), paying politicians to advocate for bigger but more capitalism-friendly policies, etc.
Wasn’t the premise of Effective Altruism that charities are poor capital allocators?
And isn’t part of EA’s infatuation with prediction markets the discrete price signals and falsifiable outcomes?
Whatever expected value calculus is being done by poor capital allocators (charities) probably isn’t going to be as effective as self interested people reacting to market prices.
Those people are rather silly, for the reasons outlined by Steve (for full disclosure, I am a huge fan of capitalism).
Capitalism is obviously superior to charity for producing a self-sustaining, positive feedback loop of development that raise standard of living in a society. But it's an economic system that takes places at the level of entire societies. You, as an individual living in a different society, can't really contribute to that outside of moving to the country and working to develop capitalism there. In contrast, donating to a charity with a specific mission is something you as an individual can do.
So I reject the dichotomy and the supposed tension between capitalism and charity inherent in this framing.
True free market capitalism requires open borders. Free movement of goods and peoples.
Letting Africans freely work in richer countries would probably reduce inequality way more than donations.
However this is politically impossible so I guess you'll have to stick to donations.
You are right about the 'true' form. But fortunately, freedom in markets works piecemeal, too.
Slightly freer markets are slightly better. It's not all or nothing.
You can try to make changes at the margin.
Either by directly trying to make (small) political changes. Or via technology: the zoom-ification of software development during the pandemic acted a lot like slightly freer movement of people would have. Even as an individual you can help make things like remote work more viable.
I don't think that "giving to capitalism" is the same as using Instacart (or any other commercial entity). In the case of Instacart, you are trying to meet your own needs, and any good that comes of it is the result of second or third order effects. In contrast, with charity you are trying to think about others' needs and help them be fulfilled.
A better proxy for "giving to capitalism" would be giving others the wherewithal to participate in the market economy for themselves. After all, capitalism is about creating *capital.* So how would that look in practice? Probably at least one answer would be teaching people skills that they could use to better themselves. This creates human capital in terms of their potential productive output, which they can then use to create other types of capital. This is more than the classic "teaching a person to fish" - it is teaching the person to catch and sell fish so that they don't just have fish, they have the ability to sustainably get all the clean water they need for themselves and their families.
To provide a concrete example, the Python Software Foundation (yes, technically a 501(c)(3) charity, but stay with me) has been funding Python education in Africa for fifteen years or so. Some of those people have been able to use that training to start selling services that have potentially permanently raised them and their families out of poverty. This is an effect that is orders of magnitude greater than could be gained through the charitable donation of a consumable item. Not only is it much larger in effect for that person, but it is also potentially indefinitely self-sustaining (as you point out).
Even if the training was provided on a for-profit basis, it would have the same effect. The business plan would need to be carefully constructed, but done correctly, this kind of endeavor would also be self-sustaining. You wouldn't be dependent on people's feelings of charity to keep it going. This is basically the idea behind almost all professional schooling: by creating human capital, you are making a person more productive so that they can pay back in the future more than it cost to create the human capital in the first place.
You could say that I am just repeating the arguments for microcredit, but that narrows the argument too much. Microcredit isn't a universal solution, but in some cases it has been very successful. Similarly, education isn't a universal solution, but in some cases it is very successful. We shouldn't be surprised that not every person can be equally served by the same "good." After all, that is part of the genius of capitalism - different people can perceive different needs and different ways to fill them, and in general the people who need the goods will be able to get them at the lowest marginal cost.
Is there anyone who has put together a strong argument that you "shouldn't donate to charity because capitalism is better, so I guess the metric is "ability to do good per unit donation?" I don't even understand the anti-charity argument.
Under capitalism, the expectation is that you and Bill Gates are going to earn money by doing things that other people value, and you are going to allocate that money to things you value. If you both value saving the lives of people by charitable donations, then I don't see how that's different from you spending your money on fancy watches and yachts.
There are some weaker form arguments, in particular that (a) people are undervaluing the value of promoting capitalism because it's harder to measure than bed nets and water purifiers; (b) it might be a net loss if you were to quit your medical practice and go work for a water purifier company, but it sounds like you sympathize with those arguments to a degree, so it's possible there isn't much disagreement after all.
The term "capitalism" was originally used to refer to what capitalists do rather than to anything government does. So in that sense, one would have to choose between directing one's funds toward capitalism (i.e. investment) or toward charity.
Framed this way (should I direct a given dollar to investment or charity), and taking Scott's metric of "ability to do good per unit donation"... it seems to me that "does capitalism beat charity?" is now perhaps a well-formed question, but far too low-resolution to support a meaningful answer, like "does wine beat music"? You'd need to engage in the details of the specific investment or charity. For instance:
- Suppose you identify an early-stage startup that is pioneering a new zero-emissions process for producing cement, and due to your special expertise you're able to determine that their approach is extremely promising. Investing here does a lot of good per dollar.
- Investing in an online sports betting app with aggressive marketing and gamification almost certainly does net harm per dollar (https://www.slowboring.com/p/the-sports-gambling-industry-needs).
- Similarly, there are forms of charity that do enormous good per dollar, and others where the impact is low or possibly even negative.
Perhaps there is some argument to be made that investing, as a general rule, does more good per dollar than donating to charity. But it's hard to say much about that, unless someone actually puts forth such an argument. I'm skeptical that a good argument can be made, but who knows. I do think that such an argument would need to articulate a model for evaluating "good per dollar" that could be used to evaluate specific investment or donation opportunities, and at that point, comparing the general category of investment with the general category of donations might not be the best or most important use of that model.
Say investing in a global index fund has expected returns of 7% per year. Then one might argue that it is better to give $1070 to charity a year from now than to give $1000 now. And that's without taking into account the positive externalities of the investment (which are difficult to measure but seem huge considering how rich many societies have become over the last few centuries).
Yes, but charity can also have compounding effects and positive externalities. All of the potential actions we're discussing have myriad first-, second-, and Nth-order effects. You can't pluck out one knock-on effect of investment (the fact that it yields returns), disregard all other knock-on effects of investments and donations, and conclude that investment is broadly "better".
Returns aren't a knock-on effect. They're the primary effect.
Kind of? The primary effect of investing in supplies for a factory is that the factory can operate. Returns occur if the resulting product is sold at a net profit. The primary effect in *building* a factory is that there is a factory; again, returns only occur if products are eventually sold at a net profit.
If some charitable act saves a life, the person whose life was saved might go on to contribute to GDP. Or if you help bring electricity to a village, economic activity in that village might increase. Are those effects "more secondary" than the return on an investment? If so, is that distinction somehow helpful to our analysis? It seems to me that the interesting question is the net impact, taking into account all of the downstream effects, regardless of whether those effects are "primary" or not. (Which of course can be complex and difficult to model, but that doesn't mean they should be ignored, it just means we should be humble in our analysis.)
I suspect the "right answer" is to provide capital to the malaria pharma company or well builder which are just below the point where they would be profitable enough to get investment.
I have no idea how it would be possible to evaluate that.
Instacart is making a whole lot more money off you via markups and commissions charged to stores than just the $100/yr you pay to make it "free"
This fails to engage with the actual argument of the social enterprise movement. The argument is that there is an irrational aversion to profitable activity among people who seek to do social good. Largely, in my opinion, due to ideological anti-capitalism. It is not that maximizing returns is the best use of money at all times or that we need to go around preaching the gospel of capitalism.
To give you a simple example, Foodhini is a for profit company that takes various refugees and has them make their regional cuisines then sells them in an Instacart or Uber Eats like model. It's a profitable company but it also does significant work to help these people get on their feet. Whether that's services to make sure the work is legal or helping them set up restaurants (which in turn profits Foodhini in various ways).
The argument is this is better than just giving them money or funding classes to help them integrate and that you should direct money toward this type of cause rather than charities that rely on constantly receiving a stream of donations. The model of constantly asking for money or grants to sustain the charitable activity is (according to the argument) supposed to be a last resort, not a first resort.
If that's not third world enough for you there's companies that help deploy limited resources to repair potholes in Central Asian roads (which the government is happy to pay for because it saves money), a company that makes water purifiers that it sells in Africa (while donating a significant number to poorer villages), a company that provides cheap industrial milling into certified gluten free flour for poor farmers, and so on. You also have non-profits that are 'profitable' in the sense they make enough money from standard business to operate like Ten Thousand Villages.
These are often not strictly the most profitable thing that people could be doing with their time but they both serve a social good AND they're profitable and therefore self-sustaining, able to raise investment, and don't need to spend nearly as much time asking for funds. That's the argument.
To be honest, I haven't heard a good counterargument. Which is one of the main reasons I'm backing this horse instead of EA.
I think the strongest argument against things like Ten Thousand Villages and fair trade movements generally is that they create economic rents for the artisans lucky enough to participate, which distorts the economy and is ultimately counterproductive for producing the conditions of abundance. Better to just buy the best value goods, and then donate whatever would have been the markup for comparable fair trade goods to GiveDirectly.
I think you've misunderstood what Ten Thousand Villages does vs the regulatory fair trade movement.
There is no distortion if American consumers decide they want to buy artisanal goods from Vietnam because of the quality or novelty or their private morality. Not anymore than liking French cheese or refusing to buy Chic Fil A. Of course, the preference for French cheese also creates advantages for French cheesemakers lucky enough to participate in the export market at the expense of cheesemakers who are not competitive abroad. But that's just normal economic competition.
Put another way, how is the economic benefits from getting into a Ten Thousand Villages store meaningfully different from the economic benefits of getting onto Amazon?
This is separate from the regulatory Fair Trade movement which seeks to use regulation to artificially boost prices of goods in the third world which creates distortion for people who can get political certifications. This creates rents for both the certifying body and the people who possess the certificate. The failure of African mining certifications is another example. But that criticism has more legs there because, unlike with Ten Thousand Villages, the certifying bodies have different incentives. But since Ten Thousand Villages is effectively a marketplace connecting craftspeople and consumers there's no similar dysfunction. Ten Thousand Villages doesn't issue certificates, it retails the goods in the west and profits only if they sell. Everyone directly bears the effects of their choices as in normal markets.
Manufacturing also doesn't have the resource curse issues that something like a preference for buying sulfur or diamonds does. Quite the opposite, China, Korea, etc all climbed the economic ladder through such manufacturing preferences. Often starting with consumers.
Then let me try to clarify.
Certainly there is nothing objectional about wanting artisanal Vietnamese goods because of their quality or novelty. Inasmuch as Ten Thousand Villages offers the best value proposition, I recommend buying them there.
I believe that most people buying goods from TTV do so because they both like the goods themselves, and out of a charitable impulse to help others. I believe these people would, at the margin, do better by the metrics of both "quality of goods obtained" and "degree of help provided to others" if they separated these two purchases in the way I have suggested.
You say that "Ten Thousand Villages is effectively a marketplace connecting craftspeople and consumers" and ask how it is meaningfully different from Amazon. The difference is that literally anyone can sell pretty much whatever they like on Amazon, and these sellers compete with each other to provide the lowest possible prices (i.e., to be as efficient as possible in producing their goods). By contrast, a select few artisans are permitted to sell their goods in TTV stores, after first establishing a relationship with TTV and determining a price floor. If my neighbor weaves 20 baskets a day to sell at TTV, and I can produce 40 comparable baskets a day, I don't have the opportunity to undercut her on TTV.
Thanks for the clarification. But now that I understand your position better I am more convinced that your argument is wrong.
Firstly, you emphasize that Amazon has a less selective process for getting onboard than TTV. This is true but also irrelevant. If you define that as distortion then every bar that only lets in certain kinds of wine is "distorting" the market. It's perfectly normal for firms to pursue a variety of strategies for their suppliers.
Since you're emphasizing selectivity: what's the difference between TTV and Costco which is also selective and only lets in people who meet their standards both for quality of goods and for other things? You don't have a right to be stocked on Costco's shelves either. (You don't really have a right to be on Amazon either. They don't allow vendors on all the time.) And you DO have an opportunity to undercut the basketweaver in the general market.
Secondly, you say they would be better off buying a cheaper, higher quality good and donating the difference to charity. By this I take you to be claiming the amount of value produced for the consumer by the purchase plus the value of the donation to the producer would be higher than the value created by the transaction.
But this presupposes a cheaper, better good exists from the perspective of purchasers. It also presupposes that there is an inherent quality tradeoff. Neither is necessarily true and both are unlikely to be true because TTV is a market firm. If customers didn't feel its goods were worthwhile it would die out like any other firm. Nor does having some social good mission make it different from most firms which give lots to charity and blast it from the rooftops.
What your argument really boils down to is a pure efficacy argument. In effect, you are claiming that earning money from exports is less effective than receiving money in charity/aid. You haven't actually made that case though.
You would have to argue that a one time grant of, on average, $200 per person does better than boosting manufacturing and giving people jobs that pay an order of magnitude more than that every year more or less forever. (Very few of these artisans only sell to TTV.) This is a dubious proposition. If you want to argue it I'd be interested to hear. But my counterexample would be literally every country that's industrialized over the past century. They have literally all done it through trade and boosting manufacturing (or, in a few cases, services). None have done so through aid, even block grants like GiveDirectly.
On the contrary, I'd argue that GiveDirectly would have done better to direct its donations into productive investments in poorer countries. Developing nations generally have weaker investment than consumption and tend to start growing when investment increases relative to consumption. Which exporting does by boosting invesmtent to satisfy foreign demand, changing the investment/consumption ratio within the country. Again, is the universal growth story of every successful middle income country.
And yes, your one purchase (or even all of TTV) isn't going to do that on its own. But it does move the needle. Vietnam's artisan villages or Bangladesh's moves into higher end cloth or Uganda's coffee branding have all helped even if the countries aren't wealthy yet. Because of wealth disparity even a single relatively small industry can make a huge difference.
" this presupposes a cheaper, better good exists from the perspective of purchasers. It also presupposes that there is an inherent quality tradeoff"
Please read the second and third sentences of my reply where I explicitly contemplate that TTV offers the best value.
"You are claiming that earning money from exports is less effective than receiving money in charity/aid." Absolutely not. I am claiming that earning money from protected fair trade exports that pay above-market prices is less effective than earning money from ruthlessly competitive free trade exports, plus getting the rest of the money via direct aid.
If you do not claim that people are buying partly due to something beyond simply getting the best value then your second paragraph is a weird digression and you don't actually come to a conclusion.
Also, TTV is in no way "protected fair trade exports." Again, you seem to think TTV is the government or a cartel or something? It's not. There's no protection. You can go and start a basket selling firm or export goods from wherever they do quite easily.
What aid does is boost consumption which, from a humanitarian point of view, is great. From a development point of view it needs to be done very carefully to not be counterproductive and, even if done correctly, doesn't really boost development.
"If my neighbor weaves 20 baskets a day to sell at TTV, and I can produce 40 comparable baskets a day, I don't have the opportunity to undercut her on TTV."
OK, can you unpack that a a bit more? You're making it sound like TTV is some sort of cartel, like you have to have special pull to get your goods sold via TTV. Is this so?
In your hypothetical example, what's stopping you from contacting a TTV representative and telling them, "Look, you sell my neighbor's baskets for $40 each, but I can weave twice as many baskets per day, and hence can sell them for $20 apiece!"
TTV then has a choice. They can tell you:
a) "Sure thing, go ahead and sell your baskets with us for $20 each! This will likely drive your neighbor out of business, too bad, so sad, that's the market working as it should!"
b) "Look, we want to make enough money to stay in business, but we also want to support a variety of artisans. You can sell your baskets with us, but you must charge $40 each, otherwise you would drive your neighbor out of business, and we don't want that. These are the terms, take them or leave them."
c) "No, we don't want to sell more than one type of good (basket) from one part of the world. Your neighbor is our designated basket provider from [your part of the world], we don't want anyone else, too bad so sad, bye."
What am I missing?
I don't have any insight into TTVs practices beyond what they describe on their website. It's entirely possible that TTV answers with a), in which case the market distorting effects will hopefully not be large. But since TTV explicitly describes creating a safety net of dependable income for their makers, I suspect that truth is somewhere on the spectrum closer to c). And if "fair trade" means anything, surely it means that sellers are receive above-market-value prices for their goods - i.e., greater than what they would expect from ordinary ("unfair?") trade.
I think, if I understand correctly, that I agree with this take.
If we presume the goal is the best possible outcome for the people in question, there are 3 different kinds of interventions that are relevant in this context:
1. Interventions which attempt to bring about, expand, or preserve, capitalistic institutions in a place with people we want to help
2. Interventions which directly give resources to people we want to help
3. Interventions which improve the profitability of value-adding enterprises in places with people we want to help
People claiming 1. is better than 2. I think dont have much good data to back it up. Interventions of type 1. are really, really hard, theres no straightforward approach that will definitely work, and the results are pretty much impossible to measure. If you can do it, fantastic - you might end up with postwar japan. But overall these interventions dont have a fantastic track record purely in terms of QALYs/Dollar
However, if I am understanding you right - I think EA types undervalue interventions of type 3 relative to type 2, due to a psychological flinch away from interventions that feel less like charity or feel like engaging in commerce etc. Thats not to say type 3 interventions strictly are better - but I think they often may be, as they have the massive benefit of being partially or totally self-sustaining.
Type 2 interventions are great but work so long as you continue funneling resources into them (but not always - a lot of EA is just basically resource transfers, but a lot of it is also raising the infrastructure or health or education waterline, and these are nearly type 3 interventions)
Whereas Type 3 interventions ideally assist them in bootstrapping their own economy and society more quickly.
So I think "remember to set up self sustaining value adding enterprises when you can, these youre flinching away from them more than you should be!" is an accurate and important thing to remind the EAs of.
Yes, this is more or less correct. Something social enterprise does is try to distinguish projects between 2 and 3.
For example, there's no profitable way to fight childhood malnutrition in the short term because of time pressure. You can't wait to affect food prices or something. You just have to give them food now or they get stunted permanently. And there's no good way to make a profit off it that isn't morally horrible. But this is inherently unsustainable. You stop supplying food and the malnutrition returns.
On the other hand, boosting income and productivity through giving subsistence farmers access to crop insurance subsidized by industrial mills that then make a profit from fees and selling flour is both sustainable and long run better for the entire region. Eventually malnutrition goes away on its own as incomes rise. This is, in general, better than just giving food. It both has more positive externalities and is cheaper in a QALYs/dollar sense.
So the argument is Type 3 is better than Type 2 and should be the default. But where Type 3 doesn't work you should do Type 2.
The problem is this is the opposite of what we see in reality. People default to Type 2 and often consider Type 3 to not even really be helpful or 'real' charity. This is because (at least in my opinion) people care about charity more as a status game and being engaged in a flour milling operation in Africa is low status while going to Africa and distributing food is high status.
I agree with the last paragraph, with some reservations that Type 3 is always or by default better than Type 2.
Im only confident at the moment that the current equilibrium has too little Type 3 and too much Type 2 (and I think for the same reasons as you), but I guess what Im saying is the messaging should be "You should actually check!! The type 3s are often better!" no "Stop doing Type 2 you selfish status seeking dunce! Type 3s are better!"
Splitting hairs tbh tho
Hey, if you've got advice for selling this to the EA types I'll take it. They've directed something like a few billion dollars which could have, in my opinion, gone to better use. If I really believe this stuff then I have a moral duty to be making the strongest case I can.
To my instincts the right messaging is something like
"Helping developing and third world economies bootstrap their own value adding industries is just as important as helping provide the immediate means of survival. The causes of their misfortune are often systemic, problems that in our own societys history required good institutions and productive enterprises to solve. If you only hand out resources they will quickly be in the same predicament as soon as your funds run dry - which recent experience should warn you could happen at a moments notice."
It's actually worse than that - having a readily available and free alternative actively destroys the local economy that may exist, rather than just failing to build a new economy. Nobody spends time and money growing food when there's free alternatives available. In the end they're worse off than before getting the charity.
ETA: I'm not against charity, but think we need to be a lot more thoughtful in how and why we do what we do with it. We need a lot more Type 3 and to be very selective in the Type 2.
Do any of the horses you back let me do more good per dollar than donating to AMF / MC? I'm being absolutely serious -- I care virtually ~nil for the "charity vs capitalism" debate, I just want less suffering and more welfare for my (limited) donations (since I'm from a middle-income country). AMF / MC are hard to beat not just due to cost-effectiveness, but robust evidence along the whole theory of change chain, so I'd like the second part as well.
Most of the AMF calculations are, to be honest, kind of made up. (I'm less familiar with MC.) The way it works is you have fairly rigorous estimates of the amount AMF distributes nets. They add a somewhat more dubious percentage of reduction of malaria this creates. And then they value how much not getting malaria is worth in what's basically made up numbers. This then creates a "return on investment" that has no actual third party verification. For example, they've made no attempt to empirically measure the GDP growth they claim will happen as far as I'm aware.
Their numbers honestly make a lot more sense if you're putting a moral premium on charity and preventing disease. Which is perfectly defensible on moral grounds. I too want to prevent disease. But at that point it's just using bad math to justify moral intuitions, something unfortunately common among utilitarians.
The actual numbers they claim is a 1:12 annual return delivered in perpetuity. (They might be using sloppy language but this is what their claims imply by using GDP, ROI, etc language.) I don't think this is right. If nothing else presumably the benefit goes away after the net is destroyed which takes, on average, less than a year. (https://malariajournal.biomedcentral.com/articles/10.1186/s12936-018-2391-5) I do mean on average of course: 35% survive more than a year. They're effectively suffering extremely rapid capital depreciation, with almost all nets gone within 3 years. This means the return on your $1 is, over the course of 3 years, $17. After that it basically goes to $0. It's slightly less due to discount rates but let's ignore that.
Okay, let's compare that with setting up a McDonalds. That costs $2.3 million and generates $2.7 million in revenue per year on average. Further, McDonalds produce another $1.4 million in GDP in addition to its own contributions for a total of $4.1 million. Unlike AMF these numbers are subject to market discipline and so as objective as you're going to get.
But the McDonalds will not be gone after three years. The franchise agreement lasts 20 and most franchises make it to that point. So your $1 will produce, arbitrarily stopping after 20 years, about $35.5. Assuming 100% of profits and franchise fees are not spent in the host country (unlikely) and you're still left with $32. In other words, AMF underperforms opening a McDonalds on a long term timescale. (And measuring in GDP is AMF's choice. They do this in their own documents.) In fact they even underperform opening a McDonalds in California and donating the profits to bed nets.
Now, of course, I'm not saying the most virtuous thing you can do is open a McDonalds. But you don't have to open a literal McDonalds. You can open flour mills or road construction companies or even a system of corner stores in some poor parts of Mexico that help people transfer money with lower remittance fees. These are all profitable businesses that contribute more to GDP than AMF does over time. And if you then want to take some of those profits and donate them to causes that can't be commercialized, like food to the starving or bed nets to the poor, all the better. That just boosts the amount of good you're doing even further.
The "smart" counter has to do with bringing back in discount rates. Because growth tends to be higher in poorer economies the discount rate tends to be high such that profits far in the future are heavily discounted. This can swing things closer since the AMF gives more up front. Though over the long run, unless you really pump up the discount rate, business still usually wins. But I also think this is a bad use of discount rate. The compounding growth of business is how poor economies get out of poverty. And the volatility of the discount rate in poor countries makes that analysis qualitatively different, in my view, than it is in more stable, rich economies.
At any rate, there's nothing per se wrong with wanting to stop disease. I have no issue with people living their morality. But if you really want to do the most good for people in the third world socially minded enterprise, not charity, is what gets them there. It's also the story behind nearly every successful national journey out of poverty. China didn't give its people bed nets, it set up factories.
GW mainly evaluates AMF on health benefits, which are really rigorously calculated (ie based on RCTs), and give a cost per life saved. What about those?
Calculated in what sense? AMF and GW both use economic calculations and they're not rigorous because they don't have a good way to give a price to human life. Especially with how quickly that ends up in Singer territory.
If you just want to optimize for short term saving lives then bed nets might be the best answer. In the mid to long term, though, rising incomes and infrastructure has better outcomes on virtually all health metrics. Richer countries are generally healthier. This is not really in dispute except at the very high end where we're comparing, say, America and Denmark.
If bed nets existed in a constellation of charities with significant weight toward that then I'd feel much less exercised about the whole thing. I don't think MSF or AMF are bad organizations. I just think it gets too much funding relative to other initiatives. (Or ideally they'd both get more funding, I guess.)
Again, the core argument is not "there should be no charities." It's that "an aversion to business and profit is leading to an inefficient allocation of resources."
Could you sketch what you think a better alternative would look like? Let's say that operating a McDonalds or flour mill would contribute more to long term wellbeing than mosquito nets. What would we do with that information?
Move to poor countries to start businesses? Wouldn't that lower our own productivity, on average?
Invest in businesses in poor countries? How might an individual do that, and what would it look like if scaled?
Would any trade of goods and services with poorer countries count? If so, wouldn't operating the supply chain to e.g. distribute mosquito nets in sub-Saharan Africa qualify?
[Now I see your comments above referencing a couple of initiatives, but the questions mostly still apply about those in particular, and what scaling / contributing would look like within that paradigm.]
Thanks.
> Could you sketch what you think a better alternative would look like? Let's say that operating a McDonalds or flour mill would contribute more to long term wellbeing than mosquito nets. What would we do with that information?
Rebalance the money you set aside for helping others from straight up charity and toward impact investing. If you want extra credit commit to donate the proceeds from such investments at some point. Ideally to the places the returns were generated in.
> Move to poor countries to start businesses? Wouldn't that lower our own productivity, on average?
Depends on your skill set. Some people it would, others it wouldn't. The attitude's a bit similar to EA in this regard. Some people should do the work and some people should earn to give (though they do not use that term).
You also don't always have to move there. The company that makes that helps road maintenance/repair for Central Asian roads is run out of America because it's primarily a series of drones, sensors, and software products. They can't get to Central Asia now because of the Ukraine War but they're still operating in those areas. They did some work on demining in Kyrgyzstan that's actually potentially going to get applied in Ukraine from what I hear.
> Invest in businesses in poor countries? How might an individual do that, and what would it look like if scaled?
The same way you do anywhere. People imagine that putting your money abroad is orders of magnitude harder than New York. It's somewhat harder but not that much harder. And you can scale very easily. The mechanisms for such investments are well developed because, as I've repeated several times now, they're profitable. There are also numerous funds and organizations that do this specifically if you want to delegate. Which is usually best unless you want to develop expertise.
> Would any trade of goods and services with poorer countries count? If so, wouldn't operating the supply chain to e.g. distribute mosquito nets in sub-Saharan Africa qualify?
Sorry, I think I misunderstood. Distributing charity does not qualify as trade and it doesn't qualify as economically productive activity either. Operating a supply chain could do and you could certainly give preferable shipping or help move what is normal charity at favorable rates.
> Thanks.
If you are seriously considering changing your mind then thank you.
> I don't think this is right. If nothing else presumably the benefit goes away after the net is destroyed which takes, on average, less than a year.
This would only be correct if mortality risk from malaria were uniform throughout time. If a child is especially vulnerable to dying from malaria before age 5 and then has a substantially lower chance of dying or getting permanent brain damage from fever, the life after their counterfactual death is all return.
It's also plausible that if you cross some threshold of sick days per year, your life ends up substantially disrupted afterwards because all slack for non subsistence projects go away.
Obviously the effectiveness of malaria nets works against itself in this analysis (if malaria is super bad, then not having malaria nets gets worse and these later returns get curtailed), but it's not clear to me you can assess a health intervention's impact after the preventative period if the disease is potentially lethal or debilitating.
I can be convinced these numbers don't work out with a model with plausible assumptions or an extremely well constructed study, but the verbal argument of protection from debilitating diseases offer no return" does not pass my bar.
My argument is not that it offers no return. And of course not having diseases has some economic value. My argument is that their own numbers estimate a 1:12 return and it's not hard to beat that. In fact I give them a 1:17 return by adding in some favorable factors!
What you're doing is speculating that there's some secret, even higher value such as avoiding brain damage or a disjoint where too many sick days causes an outsized effect. Maybe! Prove it. AMF doesn't claim that.
My actual theory is you're trying to smuggle a normative moral intuition in on utilitarian terms. You just don't like the idea of children dying of diseases and no amount of economic math is going to convince you. Which is fine. But then we can stop pretending this has an objective utilitarian answer and have the discussion about how to balance limited resources toward savings lives now vs longer term investment that can solve the issue more permanently.
> What you're doing is speculating that there's some secret, even higher value such as avoiding brain damage or a disjoint where too many sick days causes an outsized effect. Maybe! Prove it. AMF doesn't claim that.
Wtf. Is it really controversial that high temperature fevers to young children can cause brain damage? Or that a disease worse than the flu / cold, which we already know is damaging to first world economies, would be damaging to third world economies?
Evidence of brain damage:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2859240/
Cite of prevalence (50% of hospital admittees)
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2676709/
And for the missing school days, that's an intuition from reading up on the (more speculative granted) benefits of deworming. See:
(Dewormed groups attend an entire quarter of a school year over non dewormed groups, and have statistically significant more income)
http://emiguel.econ.berkeley.edu/assets/miguel_research/64/Worms-at-Work_2016-07-12_FINAL_CLEAN.pdf
Now I can admit that I am *too partial* to believing those studies, or that those studies are motivated about proving effects that do exist. But I believe you are wrong about specifically utilitarianism motivating my incorrect views.
Or is your claim that my prior that brain damage is economically damaging is wrong since I'm too charity pilled? That doesn't seem right either, I doubt you would accept a bet where your firstborn is infected with malaria and I only compensate you for the chance of death plus hospital bills, where we allow the fever to cook a brain for a couple of days before treatment begins. This just seems like a reasonable prior that ~everyone accepts.
If your claim is that believing in any of this without exact studies with the quality of RCTs, I think this is an isolated demand for rigor, because from the last 3~ times you posted about EA not listening to your advice, I do not recall any links to high quality evidence you're (hypothetically) demanding, only verbal arguments. If I missed it, then apologies, but I don't think "I want proof around the level of RCTs givewell uses" is a double standard so much as a standard. Hey, if you think that I should have **more** of a prior that economically beneficial interventions are helpful vs healthcare interventions, then you are much better off showing what informed your prior rather than showing my prior is wrong.
> My actual theory is you're trying to smuggle a normative moral intuition in on utilitarian terms.
And the same back to you! Imagining health interventions which prevent brain damage not having economic effects sure seems like motivated reasoning where you stopped trying to think of possible economic effects once you've determined it's an "utilitarian intervention on health!
To be more explicit, I am a first generation ABC and grew up with stories about how wonderful a free market is compared to how horrible economic life was under a communist regime. The idea of a one time donation that solves ~all economic problems, or comparatively simple policy adjustments like how the Asian Tigers made are *especially* appealing. The problem is that almost all of the economic interventions I looked into as a wee EA around 5 years ago, they all sounded as verbally good as you say here, but ended up having lots of unexpected second order effects (mostly remember this applying to research on microfinance, but also some on naive policy implementations). I also have a family member who is deeply involved in operations of an Ugandan company for similar economic altruist motivations, and we regularly discuss this and we think there is reasonable room for disagreement. Maybe I should revisit this, maybe I was premature! But I am emotionally compelled to believe people who are incredibly inaccurate about my internal mental state would also be accurate about charity interventions. Please stop accusing me of vices I do not practice, and instead preach virtues you do practice.
I can follow this
> fairly rigorous estimates of the amount AMF distributes nets
(which is https://www.againstmalaria.com/Distributions.aspx)
and this
> a somewhat more dubious percentage of reduction of malaria this creates.
(which is from Pryce et al 2018's meta-analysis, row 46 in https://docs.google.com/spreadsheets/d/18ROI6dRdKsNfXg5gIyBa1_7eYOjowfbw5n65zkrLnvc/edit#gid=1364064522&range=A46)
and this
> they value how much not getting malaria is worth in what's basically made up numbers
(which is a strawman of https://docs.google.com/document/d/1hOQf6Ug1WpoicMyFDGoqH7tmf3Njjc15Z1DGERaTbnI/edit#heading=h.619kve7fh5cy)
Regarding this:
> This then creates a "return on investment" that has no actual third party verification. For example, they've made no attempt to empirically measure the GDP growth they claim will happen as far as I'm aware.
I think you're referring to row 147, where they estimate 29-48% of the value coming from development benefits, calculated in rows 108 onward. I agree with what you point out here, so I discount this from my own decision-making re: which GHD charities to donate to.
I do broadly buy Pryce et al 2018 though, so I still buy the cost-effectiveness (CEA) claim with development benefits zeroed out, where it's still competitive with basically any GHD charity I've seen evaluated as extensively (emphasis 'as extensively'). I have 2 considerations that push down the CEA estimate (nets are more expensive now than last year; marginal CEA < historical avg CEA more generally) and 1 consideration that pushes it up (AMF is cash-strapped https://forum.effectivealtruism.org/posts/fkft56o8Md2HmjSP7/amf-reflecting-on-2023-and-looking-ahead-to-2024#2024_to_2026_are_shaping_up_to_be_challenging_years_); I'm not sure how this changes the CEA on net but I'll call it a wash.
FYI:
> If nothing else presumably the benefit goes away after the net is destroyed which takes, on average, less than a year.
You'll be interested to know (row 27) that AMF uses 2.11 coverage-years for an LLIN, calculated further here https://docs.google.com/spreadsheets/d/1OzTick_Ua6KS8WM0ftLTRzGZd6tGePvUndCVX2tOx7M/edit#gid=1898050927&range=A11:B11
> Unlike AMF these numbers are subject to market discipline and so as objective as you're
What did you mean to say here?
I'm addressing the argument people keep making at me, I don't care if it "fails to engage" with a different argument.
Ehh, you could see the social enterprise movement mention upthread as a steelman of the arguments that people make at you, in which case you might still want to engage with it.
You are, of course, welcome to beat up strawmen on your own blog. I will still point out you're beating up strawmen rather than steelmanning the other side.
“Double bottom line” has been a buzzword for awhile. Shareholders largely don’t respond well to these expansive definitions of fiduciary responsibility in higher cost of capital environments.
We shall see.
Yes, and b-corps and the 1% rule a bunch of other buzzwords. The issue is very often that's just an existing business effectively donating to charity and expecting to fundraise off it. There's already been research on this. The answer is it buys you some extra consideration but not a ton.
So it's necessary to structure the business model properly from the beginning to ensure that its a good value to investors and produces the proper outcomes. Something that relies on investors passing up better investments is, again, unsustainable.
I always thought the capitalist argument was that, thanks to compound interest, if you invest your $1 million now, in 30 years it will be $1 bajillion, and thus will fund much more charitable activities. To put it in terms of your #2, invest in companies that produce the highest rates of return, and this will produce more surplus value in our national economy, and in the long run will create a wealthier society that can spend more on philanthropic pursuits, some of which will be determine by you, since you now have more surplus, too. You have to balance that against whatever discount rate you want to apply, obviously, which, ya know...starving children probably have a pretty high discount rate, so I don't consider this an easy question to answer.
Discount rate is basically the same as compound interest. It's already taking care off in Scott's argument.
I guess the point I'm trying to make is that that's not clear to me. It would seem to me that the choice between doing some good now vs lots of good a couple decades from now is not exactly a no-brainer. I would be inclined to prefer the latter, really, so that would imply a low discount rate. But, then again, starving children. I have no idea how Scott views the situation, though.
I guess my argument would be that if we decided to always distribute goods in the present, and apply that philosophy to previous eras, we would all be living a menial existence. It takes years of reinvestment in order to create the underlying infrastructure to raise living standards. It's like Amazon making no profits for many years reinvesting all of their revenue in order to become much bigger and more profitable later.
I've thought about this a lot in the context of early Communism (late 19th century). By their own standards, the economies were so large and prosperous in the west that everyone could live "comfortably" by those standards and work very little. By the standards of people now, those people lived in extreme poverty with outrageous mortality rates, especially among children.
At some point we can and should distribute more than zero, but it's hard to draw the right line and we may continue to find that reinvestment pays off in the long term enough to discourage short term redistribution.
Agreed, good comment.
Agreed. This is actually being tried, on a small scale: https://www.vox.com/future-perfect/2021/11/3/22760718/patient-philanthropy-fund-charity-longtermism
I'm not sure he's taken care of it correctly. With a normal discount rate, investing in a good VC fund should provide positive net present value from a purely selfish point of view. In other words, if the investment does actually do good for the world, it does so at zero personal cost, for a cost/benefit ratio of infinity. Of course if the discount rate on charity is much higher than typical investment returns (because an intervention today has an exponentially cascading effect through subsequent decades) then it's harder to answer. But if charity had such a huge cascading effect, we might expect the countries that have received charitable aid to be doing much better now. So I think we have to assume that the discount rate isn't massive, unless there's strong evidence for such a rate for a particular intervention, and therefore the "return on investment" argument is highly relevant, not just a factor of 2.
Why don't the villages have clean water dispensers? Is there an issue preventing their inhabitants from prioritizing clean water? If they don't care about it, fix that. If they do care but can't afford it, fix the problem where they have no jobs to earn enough money to buy clean water dispensers by investing in local companies to those villages.
How does that 'fix' thing work?
As far as I can tell, there's lots of other things you want people to be able to have, like say education or medical care etc, and if you go down the chain of causality for what preventing people from helping themselves, you probably reach lack of clean water quite often.
So I suspect that concentrating on the water dispenser is probably already the result of someone applying your algorithm a few times, and finding out that the 'fix' step often has 'fix the water supply' somewhere in the causal chain.
Of course, you don't have to stop the causal chains or graphs at 'clean water '. But you usually have to stop at some point, if you ever want to do act at all.
These villages are often located far away from the source of water they depend on. People (mostly women and children) spend so much time hauling water around that they have little time to do anything else productive. So the water situation is a bottleneck that prevents them from having good jobs, getting a good education, earning more than just a little money, et cetera.
How does anyone achieve clean water in the first place, then? Water cleaning devices have existed for quite a while.
I was wrong about Dispensers for Safe Water; I assumed they dug wells or ran pipes, like other charities I'm familiar with. They actually provide chlorine, from machines that facilitate getting the ratio of chlorine to water right. GiveWell highlights them because there are lots of popular charities that dig wells (ie the ones I was already familiar with) but not as many working on treating existing water sources.
The more healthy people live in a place, the more effective man-hours are available in the local labor market to support business. Diseases from dirty creek water are strangling the local economy just as effectively as anything else that harms businesses. Cholera is a huge waster of time; a giant productivity suck. Way worse for jobs than high taxes or onerous regulations.
You're right that it's hard to understand why they don't get the chlorine themselves. I don't understand that part. But I think if foreigners are going to help at all, helping with the water situation is one of the best ways, because everything else people do is dependent on water first. You're not going to build a factory in a place where your workers are going to get cholera all the time.
I think the answer is "politics"--ie, markets do not operate in a vacuum, and the interests of wealthy producers and consumers tend to warp the incentives such that policy (in both the locality that is providing the money and where the money is being received) supports the interests of these wealthy participants (be they local elites, global elites, middle class donors in developed nations, or whomever). The one faction with the least leverage over development policy are the poor people receiving the aid.
Chlorine isn't the only way to clean water. Everyone ought to be able to boil water, which ought to clean it at least as well as chlorine, since chlorine only kills bad things in the water, and does nothing for bad impurities.
Boiling water requires a lot of energy. That is often unavailable as well. And it doesn’t scale. So chlorine it is.
you can read more here: https://blog.givewell.org/2022/04/06/water-quality-overview/
"Fix the problem where they have no jobs to earn enough money to buy clean water dispensers by investing in local companies to those villages."
This sounds like microcredit, which I used to think was a great idea, but my impression is that recent evidence suggests it (surprisingly) doesn't really work. See eg https://voxdev.org/topic/methods-measurement/understanding-average-effect-microcredit , I don't claim to be fully up-to-date in this area.
This is a bit of a necromance as I didn't see the reply. I can't help but wonder whether the obstacle to utilization of microcredit is cultural or biological. Both seem plausible in terms of environmental or genetic loading. Your priors may vary but I have this gut feeling that overall human development is more IQ-loaded, implying the root is at the bio level and that investment in biotech gene editing might have greater overall impact, albeit much more long term.
"And it saves its customers time, which they can spend on productive economic activity." - I think this is close to the actual reason why Capitalism is Good. Expanding and generalizing a bit: capitalism creates material abundance, by allocating scarce resources extremely efficiently.
You write "On the other hand, saving people’s lives allows them to engage in productive activity too." But the question is how much productive activity? People abject poverty are for most part deeply unproductive (in the capitalist sense, not in any moral sense). It is at least plausible that saving an hour of some silicon valley engineer's time today via Instacart creates more total economic surplus than the result of saving some poor kid from malaria (after applying some discount rate to future value). Arguably, the fact that morally neutral hypercapitalists seem more interested in investing in Instacart than in saving poor kids from malaria is evidence for exactly this claim.
Fortunately, I'm not a utilitarian, so I have no problem just donating to charity.
Taking your analysis at face value, the problem might not be that an hour of my time is worth more than the life of a starving child, but that starving children can't get loans.
A functioning credit market would make it so that the malaria prevention just needs to raise economic productivity enough to pay back the loan in twenty years when the kid is economically active.
(This is a bit tongue in cheek. But I'm actually quite serious about how access to a well developed financial system, or even 'just' a strong community network, can help you bridge cashflow issues, and makes life so much easier.)
This seems to support the argument in favor of donating to charitable banks and other such financial institutions.
Not sure. Often the problem in finance is overly restrictive regulation, not lack of charity.
See https://en.wikipedia.org/wiki/M-Pesa for an interesting financial example that is not a charity.
Yes, very interesting. Thanks for sharing.
"It is at least plausible that saving an hour of some silicon valley engineer's time today via Instacart creates more total economic surplus than the result of saving some poor kid from malaria (after applying some discount rate to future value). "
I think it's probably not that high in magnitude (an hour vs. a lifetime), but I agree there's a big productivity gap. I do think you recover some of that from the fact that the Silicon Valley engineer's productivity mostly goes to enriching Silicon Valley, whereas a Nigerian farmer's productivity mostly goes to enriching Nigeria, and the marginal effect of creating an extra dollar of wealth in Nigeria is higher than the marginal effect of creating an extra dollar of wealth in Silicon Valley.
I'm going to take a bit of a social credit risk and steel man the claim that 1 hour of the SV engineer's time is worth more in terms of global economic value creation than a lifetime of a child in a third world country who is currently dying from Malaria.
The SV Engineer is already selected from a significant portion of the world population (including immigrants on employment visas) and is likely at near the top of the list in terms of human productivity. This is compared to a random child in a third world country who is clearly in a very bad situation. The chances that that a random child end up a net producer is, optimistically, above 50%, but that SV engineer is not a random human. They are the proverbial cream of the crop. They probably have an IQ in the top 10th percentile, they are already trained and have had laziness filtered out (or optimized for depending on how you look at it). They aren't just a "net producer", they are a 1000x net producer (depending on how you calculate such things).
If there is a one in a million chance that the kid you save goes on to become a 1000x net producer, the other 999,999 kids are a wash (in aggregate) in terms of net production/consumption, and you throw in some other assumptions like 50 productive years in the life of an SV engineer, then saving that 1000x engineer 1 hour of their time outweighs saving one kid in a bad situation for a lifetime.
You can certainly fiddle with the numbers and get a different answer out, and you it is reasonable to argue the premise that productive value of an SV engineer is not actually all that high because it is being directed at stupid/useless things, but I don't think it is obviously wrong to make the claim that the productivity difference of a human selected through a highly competitive free market is many orders of magnitude "net more productive" than a random human in an obviously bad situation.
I think all of this is screened off by an economic argument. A good Silicon Valley engineer earns what, $200/hour? Average yearly wage in Kenya is something like $5,000, so if they work for 30 years, total lifetime productivity is $150,000. So the Kenyan over a lifetime creates ~1000x more than the engineer in an hour.
If you disagree, I'd be interested in hearing why you don'you think the market value of their work is the right way to measure this.
Using your Instacart example, the only reason you are willing to use Instacart instead of going to the store yourself is because you believe that you are coming out ahead on net. This is true for any non-coercive trade between two parties. What is important here is that without coercion, it is impossible for a company to extract 100% of the value of any freely entered trade. Companies will, of course, try to extract as much from the trade as possible but there will always be some amount that goes to the counterparty. The sum of the benefits to both parties is the "productive surplus" we are talking about here.
As an Instacart customer yourself, at what cost does their service become a wash in terms of whether or not it is worth it for you to use their service vs go to the store yourself? Subtract from that number the price you are paying for their service now (including their markup) and then multiply that by 10M customers (assuming you are "average" here for simplicity's sake) and you have a rough estimate on the customer side of the productive surplus equation.
On the business side there are a couple things at play:
1. Paying employees is a small part of how the company's productive value is distributed. A lot of that productive value gets distributed back to investors, service providers, etc. I worked for a big tech company as an engineer a while back and the company was 80% sales & marketing, 20% engineering in terms of HR costs.
2. The productive surplus created by the business is the sum of the productive surplus to each party voluntarily involved in any way. If I can get $150k at company A and $155k at company B, then I would count the productive surplus distributed to me by company B is $5k. The company similarly distributes some productive surplus to every employee. They also distribute some surplus to every supplier, vendor, service provider, etc. in the form of their side of freely engaged trades they make. Investors also receive some non-trivial share of the productive surplus generated by the company. We would want to add all of this up to figure out what the net productive surplus the company is adding (which is very hard to do because it is so diffuse!).
This is all a long winded way of saying that I'm not convinced that engineer salary is the right way to calculate productive surplus created by that one employee.
As a simple illustrative example:
Imagine I used a bunch of modern technology available to me to create a business that is nearly fully automated and improves the lives of all of its customers. Further, lets assume that I only accept the minimum salary necessary for me to live and I charged my customers essentially no mark-up over my costs of operating the business. The "productive surplus" I am adding to society is about the same (maybe a bit higher) as it would be if I took a big salary and charged my customers the maximum they would bear, the only difference is how it is distributed.
I think a better proxy metric would be to ask yourself what the maximum markup over in-store costs you would pay for Instacart is, and then multiply that by 10M (don't subtract Instacart's costs). This doesn't account for the alternative things the company and its employees could have done with their time, but I think it gives a slightly better proxy for productive surplus then employee salaries.
Of course, all we are doing here is adding a couple spherical growths on our spherical cows. Real world economics is far more complicated then our feeble human brains can process. There are other ways you could dissect this problem and come up with different answers. You can pick a proxy metric that makes one point or another proxy metric that makes an opposing point. I'm not strongly married to the description I gave above and I fully recognize it is missing a ton of variables (some I have thought of but don't have time/space to include, some I haven't thought of). My belief that I cannot possibly account for all of the variables properly is precisely why I'm a fan of free markets ("capitalism") rather than centrally planned markets ("donations").
Most of the Nigerian kid's earnings are far in the future, and you need to discount them at a rate above 0%. Also, I'm not sure where you are getting $5000/yr but it seems too high. The first Google result ( https://www.tuko.co.ke/343265-average-salary-kenya-2020.html ) says 20000Ksh/month salary, which is $1521/year. But even that is too high, because that's average wages in the formal sector, which does not describe the extremely poor marginal recipient of an antimalarial bed net. Isn't that marginal recipient from the extreme poverty, <$2/day population?
If the marginal recipient earns $700/year, then assumptions about the discount rate determine whether the lifetime earnings in the future are more than the hour today. E.g., if earnings start 15 years from now and the discount rate is 20%, then the engineer's hour is worth more.
This. The kid who was saved from malaria today, may die of water impurity tomorrow, or starvation the day after that, or gang rape the day after that, or be conscripted into a child army the day after that. (Or not!)
I think it also is worth considering that the possibility the kid would go on to have a productive life really varies, depending on the kid's culture and parents and community, and the subset that needs charity is likely to underperform the average. To use the Nigerian example, if you save an Igbo kid who lives in the city maybe he does produce that much value, and there's a segment of possible outcomes even higher like he joins the diaspora and becomes a wealthy doctor in Nashville. OTOH if you're saving a Hausa kid in the interior his chances to have a meaningful productive life are still pretty low, and he could even be a net *negative* to value creation because he ends up joining a roving military band at 14 and spend the next decade killing people and demolishing buildings and trying to prevent social advancement.
Whereas if you put the resources into developing Nigeria into a modern state with the levels of stability and rule of law that are necessary as a precondition for capitalism, and economic liberty and social mobility begin to flourish, you've moved every Nigerian's range of possible outcomes further to the positive side. (I suppose the Hausa might disagree, if their highest value is maintaining their destructive and oppressive traditional way of life, but their next generation would still wind up with more productive lives.)
You are treating a person's propensity to destructive behavior as independent of the aid the receive. This is unwarranted - prosperity is a great liberalizer. Otherwise, this seems like perfectly valid consequentialist reasoning, and also wholly repugnant.
I completely reject the idea that you should condition life-saving charity based on someone's parentage or culture.
My argument is not that you shouldn't save incredibly impoverished people from malaria. Quite the reverse. It's that you shouldn't expect this to give you a good ROI. Of course positive externalities can be hard to capture, but if the return is large enough and the regulatory environment sufficiently benign, then the good capitalists will find a way to solve the profitable problems for you. Let the market save the lives of people with high expected future productivity - charity should be target the rest!
> I do think you recover some of that from the fact that the Silicon Valley engineer's productivity mostly goes to enriching Silicon Valley
I don't think this is actually true? Most of Silicon valley's productivity improvements have worldwide implications, they're not fancy things SV types consume that no one else does (you had that article a few years ago about how the juice pill startup is nonrepresentative).
Sorry, "enriching Silicon Valley" probably sounded too sneering, I just meant that they'll spend their dollars close to them (in SV), and the Kenyan will spend their dollars close to them (in Kenya).
I agree there's a different effect from the SV engineer creating a product that could be used far away, but realistically SV products are more likely to be used in the developed world than whatever an African is producing.
So this raises the question of what fraction of productivity gains a tech worker captures for themselves (since the rest goes to global productivity gains)- I actually suspect it's low relative to most jobs (no unions and less value on money as an end goal than e.g. finance workers), but don't have a good way to estimate (conversely since many tech products are highly competitive - if Instacart fails there's a dozen similar startups - tech workers may have leverage for high capture even if they don't work hard to use it).
No need to apologize! Sometimes sneering is called for.
The effect, in utils, of a marginal dollar of consumption in Nigeria is much higher than in Silicon Valley. But the effect, in total surplus created, of a marginal dollar of wealth invested in SV is way higher than in Nigeria, because SV productivity is so much higher.
Re: Footnote 1 on how Instacart makes money:
Instacart's service isn't free after the $100 subscription - while you may no longer pay a per-order delivery fee, they continue to extract value through upcharging you on the cost of the groceries themselves (an item which costs $2 in-store costs $2.10 or $2.50 on Instacart), charging a percentage of the revenue to the retailer itself (so even if the price is equivalent in-store and on Instacart, Instacart charges a few percentage points of revenue to the retailer for the customer traffic), charging the retailer directly for providing services (most notably with smaller retailers, where Instacart may pick the products from the shelves, provide the back-end of the ecommerce platform, etc), or some combination of all of the above.
In all cases, the value extracted by Instacart far exceeds the stated fee that they charge you (either per-order or as a subscription), and you end up bearing it in one form or another at the end of the day. It's an interesting experiment to buy the same basket in-store and on Instacart at a retailer where the prices are NOT equivalent - often you'd surprised at the premium they're charging you for convenience. Certainly worth it for a segment of the population and a segment of retailers, but there's a reason that most retailers of scale are moving towards bringing the services formerly provided by Instacart in-house and figuring out ways to monetize it themselves - it's a frighteningly expensive proposition when you lay out all the costs end-to-end.
Makes sense, thanks.
Now if he had published this *before* Sam Bankman-Fried had gotten everyone's money...
<gd&r>
(...admittedly SBF's 'earn to give' cover for his shenanigans puts this into much sharper relief.)
Obviously capitalism is the dominant mode of production in our world so it has a much stronger effect on things than charity. So when compared to charity it has some very big positives, but also some very big negatives. By all accounts the US seems like very unpleasant place to live for a large proportion of the population, undoubtedly for someone who is forced to take a “job” (or are they a self-employed contractor with no benefits) for instacart. Doesn’t instacart also contribute to social isolation and all the problems that causes?
My point is not to say capitalism is wholly bad and we should stop producing hospitals and vaccines and clothes and live in the woods, but that although it’s the main form of production currently it could be changed and improved, and money could be better spent doing that rather than blindly reproducing the current system
In what sense is capitalism a "mode of production"? My opinion is that we should even have the word "capitalism" at all - it's literally defined as "what naturally happens, always, if you don't have an authoritarian communist government that kills you for exchanging things with other people" - but if you insist on using the term, you should at least avoid things that imply it's some sort of "system" or "mode". It's literally the lack of a system. A simple description of the emergent state of the world that always occurs, except for when authoritarian communists kill people for trading.
I’m sorry but I think this is really bad thinking: to take something that is culturally produced and which we could change and assume it is part of the natural order of things and unchangeable. You even suggest not even having a word to describe capitalism to make it even more obscured. Of course, people throughout history have always thought the system and mode of production they were in was natural: people in the Middle Ages thinking Kings had a divine right to rule in keeping with Gods order of things.
> culturally produced
I have a stick, but I want your rock. You have a rock but want my stick. We trade. How exactly is this "culturally produced"?
> people throughout history have always thought the system and mode of production they were in was natural: people in the Middle Ages thinking Kings had a divine right to rule
You're conflating the descriptive, actual natural state of things with the moral justification for a particular state of things. In this case, "divine right" was a reason that was used to justify a deviation *away* from the natural state of things.
You are being silly. Barter is not, by any definition I am familiar with, "Capitalism". There are many economic systems that have been practices or proposed that are not Capitalism. You might argue that Capitalism is the "best" or "most efficient" of these many alternatives, but to suggest that Capitalism is all that exists is just not historically accurate.
> Barter is not, by any definition I am familiar with, "Capitalism"
What are the essential properties that distinguish the two?
"Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price systems, private property, property rights recognition, voluntary exchange, and wage labor."
https://en.wikipedia.org/wiki/Capitalism
Well in your example of two people with sticks and rocks, I think there are a number of implicit assumptions. You’ve assumed some kind of private property or ownership of sticks and rocks, which may occur in some cultures but equally there exist cultures where the stick and rocks are part of nature and not for one person to own. There’s also a desire for sticks and rocks. Where does this come from? I would say the desire is socially/culturally produced, but I’m sure you would assume that the desire and concept of private property come first before the social? If you make those assumptions then I think capitalism as nature follows.
> You’ve assumed some kind of private property or ownership of sticks and rocks
Fine, let's say this isn't assumed - in the scenario, these people simply have those things on their physical person.
> there exist cultures where the stick and rocks are part of nature and not for one person to own
Which cultures?
> There’s also a desire for sticks and rocks. Where does this come from?
Biology...?
> the desire is socially/culturally produced
Huh? Is an Eagle's desire for a nest socially/culturally produced?
If I ask my friend "Hey, can you hand me that stick over there?", do you think he'll say "Sure, here you go," or "I refuse to do labor for free, give me a rock first"?
Most likely, unless I'm asking for an unreasonable number of sticks, he'll just hand me the stick, because we're friends and picking up a stick for a friend isn't a big job. This is a favor-based economy - there's no formal ledger of how much value we're producing for each other, just a social understanding of how much we're both contributing to our shared need for sticks and rocks.
This works just fine at the scale of two guys picking up sticks, it works okay-ish at the size of a village (think "who's allowed to graze their sheep on the commons"?), it's only as the economy gets larger that currency and well-enforced property rights become necessary to keep better track of what everyone is producing.
...What? A complete lack of a system is just anarchism, which usually doesn't last that long because some group inevitably fills the power vaccum, which can possibly end up as feudalism or capitalism or any other system. But capitalism can't exist without some centralized power to manage the actual capital. It's a system like any other.
Capitalism isn't necessarily incompatible with "systems" broadly - but it just isn't a system in itself. It was a word invented by a communist that described, generally, the way the entire world naturally operates. The thing that we call "capitalism" is literally just "agents following their incentives," which is itself a given. Agents follow their incentives by definition. Thus, the term has near-zero informational content, describing the vast set of states consisting of "literally all possible states of the world except for the particular one where I institute a communist dictatorship and kill anyone who tries to voluntarily exchange stuff with other people."
Ah, agreed, during the 40,000 years of humans living as immediate return foragers without any fiendish authoritarian communist states around - or indeed any authoritarians, or states, anywhere at all - people were extremely capitalistic. One can only imagine after hunting down an eland in what is today Namibia, some young, enterprising man began a startup with the infusion of capital its meat provided.
This, but unironically.
If you want to define "capitalism" as "not having an oppressive state," cool. That's called anarchism, or freedom, or something. Not capitalism.
Capitalism is different from previous modes of production in the increasing economic dominance of capital as a factor of production (versus land and labor, which were the dominant components in premodern economies) that came about with the industrial revolution introducing mass production schemes which relied on capital expenditures to buy spinning jennies, steam engines, etc. Thus the name, capitalism.
Well, of course, as our ability to make tools becomes greater, the tools become more resource-intensive, and thus more of society's resources are invested in tools. There's nothing capitalist about that, that's just kind of what we call "progress" or "development".
Capitalism, as I understand the Marxian definition, is the extension of the concept of "private property" to include those tools (aka the "means of production"). Whereas in other societies the tools might be controlled by some other entity, such as a king or church or Central Committee, for stated purposes like "because I said so" or "the glory of God" or "the greater good". The nicer sounding the statements are, the less they may have anything to do with what really happens, which is a nice feature of capitalism, in that "do whatever you want to do" is personally appealing and non-coercive and pretty much a definitionally accurate description of what happens. But it's a little lacking in the area of "being a compelling vision to unify hearts and minds", unless you're Ayn Rand or a Chicago-school economist.
"Private property" is another weird term in that it describes something so obvious that it shouldn't even need to be said. It's like if we had a special word for "the right to not be tortured", as if that were some specific thing that we might deliberate over granting or not granting, and not an inherent and obvious right.
https://en.wikipedia.org/wiki/History_of_slavery
> Evidence of slavery predates written records; the practice has existed in many cultures and can be traced back 11,000 years ago
The earliest records show extensive evidence of people having *other human beings* as their private property. If that level of ownership was normal, I'm pretty sure people would have been able to own a plot of land or two.
> That's called... freedom
Yes, exactly. You're getting it.
> capital as a factor of production (versus land and labor
I don't understand what this means. What is "capital" if not "land and labor" vouchers?
> mass production schemes which relied on capital expenditures
If capital is just vouchers for land, labor, goods, etc., all former production schemes also relied on capital expenditures - just to a lesser degree, because the economy was vastly smaller. What you're describing is simply growth - a difference in quantity, but not a difference in category from previous economic conditions.
> I don't understand what this means. What is "capital" if not "land and labor" vouchers?
Have you ever seen a hammer? A nail? A piece of furniture? These are all "capital" in the sense of the three factors of production. https://en.wikipedia.org/wiki/Factors_of_production#Classical
While I generally take a similar stance that people use the word "capitalism" poorly and should just describe the mechanics of change and trade, I dont think your model here is useful.
A meaningfully functional market DOES rely on some baseline shared assumptions and knowledge that did not exist apriori and had to be culturally developed - namely property rights. To address your stick and rock example - likely actually in the ancestral environment I steal your rock when youre not looking, kill you and take your rock, or convince our peers that I deserve the rock and we communally "decide" (read: coerce you) that the rock is mine. Markets do no function well in these conditions.
Additionally, while not _technically_ a pre-requisite for the loosest definition of capitalism, a market system at all resembling the ACTUAL capitalist activities that correctly get all the credit for catapulting the productivity and quality of life of the world over the last 3 centuries DO require some legible and reliable institution for the enforcement of contracts, prevention of fraud, assignment of liability, and disbursement of debt - while not NECESSARILY a government, these certainly do not arise from the state of nature either.
Therefore, capitalism is a "mode of production" (not the wording id have chosen but its good enough) in the sense that capitalism describes the operating state of a particular kind of market economy which leads to the production of goods and services, and it is different from other systems, which may be authoritarian, may not recognize currency and instead rely on barter or service barter, may not recognize any kind of property rights at all, may have a pseudo-market economy with a centralized owner and essentially all market participants rent or lease (feudal), etc.
The unpleasantness of the US is mostly despite capitalism, not because of it.
Eg their car centric society is a direct consequence of government subsidies and regulations.
And the government subsidies and regulations are a result of companies using their (economic) power to influence government policy through lobbying.
Power these companies inherently do get in capitalist systems.
And capitalism is inherently extractive, trying to externalize costs. To stay with the car centric society - seat belts as a feature cost extremely little when compared to the whole cost of the car, but were not widely implemented before government regulation made them mandatory, and they obviously save lives.
So some unpleasantless in the US might be despite capitalism, but some of it probably is because of it.
> were not widely implemented before government regulation made them mandatory
This is a common but pervasive myth. Consumers prefers safer cars, and they consistently choose cars that have better safety features. Safety is one of the most advertised features in a car.
> companies using their (economic) power to influence government policy through lobbying
This is why the word "capitalism" is a mind-virus for your type - you use it incessantly when you really just mean "incentives". In any "system" you can imagine, if you create the incentives for people or companies to gain favor with the goverment by making it so powerful that it can profoundly impact the economy, you will inevitably get people who will attempt to benefit from that. The problem is not the people following their basic incentives, it's the fact that you've made the government that powerful that an essential business strategy is getting in bed with it.
https://ourworldindata.org/grapher/political-corruption-index
Non-capitalist countries don't seem to fare too well here?
That's what capitalism is--a system of incentives. Invest in a business enterprise in the present so that one can reap a profit later. Capitalism is often criticized for not having any built in disincentive for unlimited growth, either system wide or for individual businesses. When businesses grow beyond a certain point, they start becoming powerful enough to distort government economic policy. One can argue whether the best alternative is some form of better regulated capitalism, such as democratic socialism, or whether an entirely different economic system is preferable, but capitalism as a system does come with certain societal costs.
I am under the impression that seat belts only became universal after they were made mandatory. Not true?
> And the government subsidies and regulations are a result of companies using their (economic) power to influence government policy through lobbying.
Not really. As an example, companies are almost universally in favour of more open borders. Yet, if there's lobbying, it doesn't seem to have much effect.
Not terribly related, but some of us just like cars!!
No public transit anywhere in the world is ACTUALLY a full substitute for the ability to go _anywhere_, and some of us dont like to walk.
Freedom is a full tank baby
I think it's basically a sort of complicated geography and infrastructure rock-paper-scissors:
• Public transport (in the form of ferries, aeroplanes, high-speed rail, etc.) can take you to *plenty* of places you couldn't possibly drive to.
• If you live in a rural area (or for that matter the sorts of sprawling suburban wasteland type places that probably house most of the West's population) public transport is next-to-useless and nothing is as fast, comfortable, convenient, safe, and practical as a car.
• If you live in the middle of a bustling European-style city your car becomes a sort of slow-moving metal coffin that you sit in for hours on end watching elderly ladies overtake you on bicycles whilst carrying their week's shopping, before you finally get where you're going and have to pay £10 per quarter of an hour to park and any time you have the car with you and/or you even just expect you might have to drive somewhere you have to watch what you drink (and possibly eschew other substances besides) and basically behave like a heavily pregnant teetotal liver transplant recipient who has taken a vow against spontaneity lest you end up in prison, meanwhile people on bicycles or the tube or whatever can go wherever they want for next to nothing in half the time and spontaneously divert to the pub whenever they fancy.
• If you really crave that exhilarating, borderline-life-changing sense of freedom, driving a car can't even remotely hold a candle to the experience of riding a motorcycle - there's a good reason why motorcyclists call cars "cages" - but motorcycling is also almost-comically dangerous (and can be a pretty bloody miserable experience in the rain..!)
Depending on where you happen to live and/or where the sorts of things you want to travel to happen to occur* you might have a vastly different personal experience of all of these modes of transport to all the others.
(* and possibly also on how sober your government requires you to be whilst you're using your preferred mode of transport..)
Cars are fine. Car centric cities are awful.
Have a look at the Netherlands. Driving there is good fun, exactly because the roads are not so congested.
I have lived in a couple car centric cities and liked it, and I do not want to live in the Netherlands, and I'm not convinced those kinds of cities are nearly as good when both the number of residents and amount of geography scales up.
I'm not saying everything about current cities is correct and good - far from it. But I don't think the problem is that they were developed for cars. (Rather a lot of times it's so congested because they _werent_ developed for cars)
Living in a place with cars around means you constantly need to be vigilant and watch where you are going. Otherwise someone will kill you. And they will blame you. Just like they used to blame black people when they died to lynching, if they walked around certain towns after sunset.
And the legal system will agree that killing you was not the fault of the guy darting around in a massive death machine.
The Dutch have a lot of people, and high population density. Their model scales to that.
I did not argue against cars for traveling between cities, if that's what you mean by scaling the geography?
(Though for really long distances planes scale better.)
Trains also work well for intercity travel. But your regulatory framework has to make that kind of infrastructure possible. Trying to get the US back onto trains by throwing money at the problem is a fool's errand. But they could at least remove all the implicit and explicit subsidies for driving.
(The US doesn't have a monopoly on silly regulations. In Germany they explicitly lower your income tax the further you live away from work. The assumption is that commuting has a cost that you can deduce from your income.
But they don't give you similar deduction.for eg the higher rent you'd have to pay to live close to your job.
So there's a.tax incentive that on the margin drives people to prefer a longer commute. So much for the green policies they are so keen on.)
> By all accounts the US seems like very unpleasant place to live for a large proportion of the population
What? The way people "vote with their feet" doesn't really support that.
People come here from Africa, Latin America, China, and India. They don't come here from Western Europe or Japan.
Yes, they do.
https://mises.org/wire/3-times-many-europeans-move-us-other-way-around
Scott, I'm not sure your comparison between charity and investing in companies is a good one.
For investing, I would pick an exchange traded index fund. For the charity equivalents, I would pick whatever top charity GiveWell suggests.
I think the charity you did pick is very similar to what my method would suggest. At least in terms of impact.
But the investment is different. Mostly because it's much easier to load up a S&P500 portfolio with leverage than to do that for a single stock.
If our goal is to have the biggest economic impact, we should use the amount of leverage that maximises something like the Kelly criterion, I guess. As a rough guess, it's probably 2x to 2.5x. (Diversification allows more leverage. Leverage doesn't create more capital to invest in the economy. But it sort-of transforms risk-averse capital into at-risk capital. The latter can be a lot more impactful.)
About the impact on jobs: you are right that in a reasonably well functioning economy, Instacart doesn't create jobs.
It's all about opportunity costs and substitutions.
Without Instacart people would still be able to buy groceries, just slightly less convenient.
Similarly, without Instacart the people now working their would have slightly less nice jobs on average. Instacart also bids up the wages all across the economy. It's all about equilibria.
(It's the same as when you explored a few years ago why Switzerland has more expensive haircuts than Turkey, even though hairdressers are presumably just as productive in both places. It's all about who else is competing for their labour.)
The charitable version of capitalism is GiveDirectly. It's just like buying things for yourself but the first person to spend the money is someone else.
This is a good point, but I think there have been plenty of studies showing that other charities are more impactful than GiveDirectly, at least if you accept utilitarian calculations about how much people value various goods.
So this should by itself prove that donating to charity is better than donating to capitalism, no?
I'm willing to accept this analysis being definitive for answering your question. Charity is better, but mostly because some modern charities are freakishly good.
As a related note, I keep meaning to write up something about how, on priors, it's unlikely e.g. bed nets are genuinely worth more than cash if, with cash, people do not buy bed nets. It's not like we should expect people to love their kids less than foreigners love their kids. Something like half the vitamin A charity money goes to essentially marketing, so it's not like the nonprofit model skips the overhead we associate with for-profit businesses.
It seems to me that you are confusing donation vs investment.
Yes, you try to address that in your Return on investment point, but this:
> ... but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
Definitely isn't correct.
There is no "amount you donated" in the Instacard example. You made money! In the case of charity you lost money! Discounting this with VC discounting rate doesn't solve anything?
Is there anything preventing you from investing into Instacard, making wagons of money and then donating into charity? How do you know that this is worse than just donating to charity?
There is a way to know. In theory, at least. The correct approach would be:
1. Take Instacard and calculate discounted cash flow + discounted externalities and come up with ROI.
2. Take your favourite charity and do the same. Yes, there is no cash flow but you are presumably making up for this on the externalities front.
Bigger number wins.
I think this argument is nonsensical because money donated to charity eventually ends up back in the capitalist economy anyway the difference is what gets consumed along the way. If I donate $1 million dollars to the charity that builds wells that charity will then spend that on things like the materials to build wells, the capacity to ship those materials to the locations they need them, paying the people who build the wells etc. all the supposed second order benefits you would get from the money being spent in the capitalist economy would still happen since its still getting spent.
Sorry for the imagery, but there appears to be a similar complexity with the U.S. "donations" to Ukraine's defense: a recent billion-dollar "donation" to the war effort, for example, was in substance a defense contract to Raytheon. That's great for the U.S. labor market, but it's a stimulus to the U.S. economy and the defense industry before it helps Ukraine.
Of course, altruistic charity is usually peaceful, etc., but a contract for DC electrical systems or well casings might benefit the U.S. economy and workers before it reaches the nominal beneficiaries.
Africa's main complaint about China is that when they set up an industry, they import their own labor -- cutting Africans out of the loop.
I mean, if we want to give Ukraine more rockets, and we're running out, we need to build more rockets, right? We really ought to be getting our weapons manufacturers to tool up and increase their capacity, at least for the next decade or so, so we can give Ukraine all the weapons they can use, and still have a large stockpile at home, to prepare for the next time we want to help fight off an invasion. (Yeah, yeah, the weapon systems needed to defend Taiwan are probably completely different from those needed to defend Ukraine, but still.)
This makes sense, but I assume it must be false, because it seems too much like free money otherwise.
Suppose that eg the US government decided to give everyone free health care by taxing people and spending it on health care. It seems like this should have tradeoffs or hurt the economy somehow. But you could argue that the health care money just goes to doctors and nurses and so on, who would then spend it on normal economy stuff, so the non-health-care economy is just as big as always.
I think the solution is that money is just a symbol of production, and if you're diverting production to water dispensers (or health care), you're using less of it for other stuff, even if the money eventually all events out.
It's not free money, there is a trade-off. In case 1 (where you donate instead of buyng whatever goods you personally wanted to consume) the trade off is that you don't get those goods. So for example if you choose to donate 30k to the wells charity instead of buying a car the trade off is that you don't get that new car. But in either case you have spent money in the capitalist economy (either to buy wells or to buy a car) and that has all the second and third order benefits of spending money so the only relevant moral comparison is whether more good is done by the wells being built or by you having a new car. This is an incredibly easy decision and makes the argument look like nothing more than pure rationalization for selfishness.
Now cases 2 and 3 are a little more complex. In case 2 what you are giving up is the value of your investment at some point in the future. Depending on the rate of return you can expect, the opportunity set to do good you expect to exist in the future and your discount rate this might be worth more than the good you can do with the money currently.
And case 3 is simply proposing a different type of charity. the effectiveness of this would depend on the specific charity, how effective it was at enacting legal change, etc. A capitalism spreading charity could have a greater EV than a well building charity if it was effective but its not guarenteed just because capitalism overall has been a success.
>I think the solution is that money is just a symbol of production, and if you're diverting production to water dispensers (or health care), you're using less of it for other stuff, even if the money eventually all events out.
I think that's the point - if you spend money on Instacart you're diverting production towards having people deliver you groceries instead of towards water filters or health care or whatever. Since the second-order effects are a wash, the correct way to tell Capitalism that you want more wells dug in third-world countries is to just spend money on wells. Or if you want to tell Capitalism that you want it to produce more productive capacity, then you should invest the money.
Would be interesting to run through the thought experiment with investing in options with huge asymmetrical upside. Put the 1m in a vc fund. Maybe that all gets lost in a crypto scam. Or maybe you marginally help research for a vaccine that saves millions. Not sure what that tradeoff look like.
Why would you have to do the experiment? Can't you just look at an average VC company's portfolio now?
(I think this wouldn't be quite right, because you should look at the effect of a marginal $1 million on a VC company's portfolio, but you couldn't figure this out by doing the experiment either)
Sure, the specific estimates would be incredibly hard to pin down but I would think the order of magnitude calc would be reasonable due diligence.
Average (median) vc portfolio wouldn’t really be relevant because the wins have a such a fat failed distribution. A top vc firm could help enable tech innovation that saves hundreds of millions: glp1s, malaria vaccine, self driving cars, fusion, etc.
Even if the odds that you specifically help in any way are very small (0.000001 %) it could still be higher EV than clean water projects.
Of course my estimates could be off many orders of magnitude. But the fact that tech benefits to society can scale so much faster than water bottles and bed nets means throwing as much $ as humanly possible towards tech development should be dismissed outright.
Charities are only possible because existing systems of production/management (Capitalism being a piece) allow excess resources which can be donated. Charity outside the family is rare in resource constrained environments. Proponents saying "Capitalism is better than Charity" are right when it comes to outcomes but that doesn't really help short term decision making if you want to send money to one of those options. If I had to choose a society with no Capitalism but with Charity or vice versa I would obviously pick the latter but that isn't the question here.
If your goal is to maximize lives saved then the water charity will clearly be better than the Instacart option. The water charity cheaply saves lives while the Instacart option furthers and improves the current Capitalist system but its effect is so diluted it is impossible to measure the incremental benefit.
Also, there are several economic misunderstandings in this post but the most prominent one I will point out is when you say, "...existing rich countries will out-compete them ..." - it is pretty common knowledge that in global capitalist systems less developed countries have a competitive advantage when it comes to wage demands which encourages companies to go there and set up production...ultimately raising the living standard in said country. See China, India, Vietnam, Taiwan, Mexico, etc.
The problem that developing countries face with outside investment is that the outsiders do all the decision-making and don't let the locals develop the skills to run local businesses. Low-skill laborers get a short term benefit from this, but it doesn't create opportunities for advancement.
If you are talking about capital investment- that can occur if local government does not have adequate protections or developed strategy to acquire skills/tech. Frequently though countries require joint ventures and information transfer for foreigners to invest in their low wage markets.
Charity, however, can also cause problems in developing countries where locals can become dependent on it and the charity ends up causing more harm in the long term. One example of this is TOMS, who drove all local shoe makers out of business because of their massive and regular donations. They actually had to stop the policy due to the market distortion it was causing in the target areas.
See the links just after the "existing rich countries will outcompete them" to https://www.astralcodexten.com/p/book-review-global-economic-history and https://www.astralcodexten.com/p/book-review-how-asia-works, which I think support the point. I agreed with you before reading those books, but now think it's more complicated.
Having now read both those blog posts (the Asia one being a treat) I have a better grasp on your worldview.
I largely agree with Studwell, especially on your bold point(s) 2 (and point 3 which you note is really a sub section for point 2) in the Asia post. I hesitate to comment on point 1 because I am not as familiar with the agricultural scale up for economies so I need to do more reading there. Many advanced economies have different farming regimes (compare USA to France or Italy to China) which makes me skeptical but I am just not learned enough to comment here yet.
Reading your post on Allen's book I am surprised you cite it here as you seems quite skeptical on it in the blog post. I give this book a VERY low weight regarding conclusion making. It seems to omit too much to make useful conclusions.
I am not sure how either of these linked book reviews support your point- my reading of them shows that they support my point. Could you explain how they back your claim of "...existing rich countries will out-compete them..."?
My stance is that developing countries can bring in foreign manufacturers to jump start their industrial revolution and learn from them while keeping some of the financial benefit to themselves. They can also go the tariff plus "learn yourself" route but this is slower. Companies are incentivized to do this because manufacturing is labor intensive and if you have two identical plants the one where you can pay the employees lower wages is going to be more competitive globally.
If you are talking about a country who tries to learn themselves without the tariff barrier, then yes, I agree they will get out-competed by foreign export capable companies. That, however, is not the norm as I think you would be implying in the prior sentence.
Whereas I agree that capitalism is somewhat better than charity, I don't see the world as black-or-white.
What I miss among your list of options is:
4. Start / invest into a business that will (profitably) solve the problem your charity is trying to address.
If the problem is real and can be solved by a business, then a business solution will be permanent and self-sustainable, whereas charity will be just a sink-hole relying on more and more charitable donations every year.
I agree that in Spherical Cow World this is a great idea, but in real life I may have $500 to donate to something without also wanting to move to Africa and become a hydrological engineering entrepreneur.
Sure, moving to Africa is a bit extreme. There are other more practical capitalist things to do though:
1. Invest into African startups.
2. Support micro-loans (https://www.kiva.org/)
3. Make donations that will result in a creation of some businesses.
> $500 to donate
You could solve this with donation lotteries which then invested seed funding in startups trying to address those problems. An example might be Wave (https://www.wave.com/en/), which offers cheaper remits.
I agree that donor lotteries are cool, but is possible for someone to have any amount of money and still think that that money is better used paying others to engage in some charitable activity rather than self-funding a charitable venture of one's own.
The thing that immediately jumps to mind for me is not your #1-3, but an obvious #4:
4. Start or join a company that provides or improves upon the good or service about which you most care.
Your 1-3 all work via aggregate effects, rather than directly. But there's no reason to limit your thinking to such aggregate effects when thinking about capitalism. One can engage in direct action to bring about targeted effects. That's what founders and early employees do all the time.
Yes!!! Invest in a water cleaning start up perhaps? Anyone have ideas on more cost effective desalination? You’ll make a lot of money in the Middle East and help a lot of poor people in Africa.
I think minification of these technologies is what is required, and not enough people focus on that. Building a desalinization plant sounds like a great idea, but the problem is that these third world countries tend to be that way due to corruption, and anything that is city scale is going to be subject to the negative effects of corruption over the long haul.
Take wastewater treatment as an example (related to the clean drinking water problem). There are city-scale and village-scale solutions to self contained waste water treatment (turning sewage into drinking water, burning methane to power the whole system) but these solutions don't make it to or survive in third world countries because they end up "owned" by the same corrupt people/systems that are preventing the country from getting out of the gutter in the first place. A system that is scaled to single-home would penetrate developing markets significantly better than top down solutions.
You can see this in solar power and starlink, both of which can be installed at the single household scale. You only need a small number of intelligent/capable locals who can "demo" the advantages of such technologies well to have them spread rapidly to the rest of the population. After the 20th brownout in a month, people notice the one guy with solar panels/starlink still has power and internet, so they copy them. Since each residence manages the resource themselves, you no longer have the problem of corrupt governance/social systems mucking up the waters.
Showing up and building a power plant or multi-million dollar desalination plant just results in the same corruption problems destroying the effectiveness of the solution that got the country into that situation in the first place.
See above: "I agree that in Spherical Cow World this is a great idea, but in real life I may have $500 to donate to something without also wanting to move to Africa and become a hydrological engineering entrepreneur."
But also, I don't think it's trivial to start a company that solves a problem. If it was very profitable to solve that problem, someone else should have already started that company. Often the problem with poor people is that they don't have enough money to afford the things that would make their lives better. If you can start a company that charges 1/5th what everyone else is charging for health care, that's great (and I am doing something like that in my own field), but it's hard, you have to know a lot about it, and you usually fail because other entrepreneurs aren't making stupid mistakes.
> If it was very profitable to solve that problem...
The venture capital branch of Founders Pledge solves this by only investing in startups which other top VC investors are also investing in. <https://www.founderspledge.com/news/pledge-ventures-first-close>
> ... it's hard, you have to know a lot about it ...
The reasons that make it hard for entrepreneurs to solve a problem make it even harder to do so via charity, for which all manner of critical information signals are missing. I would argue that it is precisely charity that depends on Spherical Cow World.
Very yes. It's the Socialist Calculation Problem redux.
Yes, but charity has things like GiveWell, whereas investing is anti-inductive and you can't create the List Of Ten Best Investments and expect it to stay true for any reasonable amount of time.
Scott wrote: "But also, I don't think it's trivial to start a company that solves a problem. If it was very profitable to solve that problem, someone else should have already started that company."
Some thoughts:
Thinking "someone would have already started that company" is very nearly the same as thinking "what if I'm not the first to spot this opportunity." This is generally a wise thought. Being first to a new idea/opportunity/whatever is pretty rare.
As many folk have already noted, most startups fail. Similarly, it's also pretty rare to have only one startup trying to address a problem/opportunity. And the odds that the one that started first will be the one that succeeds are *only very slightly* better than the odds that one of the others will succeed. First to try, or even first to try with the right approach, in no way implies first to succeed. Further, there are plenty of real-world examples in which we see N>1 successful startups (perhaps "no-longer-a-startup") addressing a given opportunity. Just like in research, your path to (potential, albeit unlikely) success in this instance is to have at least a glimmer of an idea regarding how to do it better than those other guys. Maybe your insight is big enough to justify kicking off yet-another-startup — this is the hardest path. Maybe (in decreasing order of difficulty!) it’s something you can sell the idea/insight to one of the existing startups. Maybe it (along with your skills) are enough to get you employment at one of those startups. Perhaps you could take your skills (no particular idea required here) and contribute to the success of one of the existing players. Maybe you just publish the idea, or push it in the blogosphere… (Note: doing this last one *successfully* may be really really hard. But I put it last because in most cases it is — or can be — a smaller investment of time and effort than the other approaches I listed.)
But what if I AM the first to see this? Well, you won’t know that until/unless you do a fair amount of investigation. Due dilly if you’re a would-be startup founder or a VC; literature search if you’re a researcher; <fill in here for other areas of endeavor>.
Most of the time, you’ll find out that you’re not the first to see it. But you might still be the first to tackle the issue in a meaningful way. In this case see the various paths to potential success, above.
In rare cases, you may actually be first. For any problem/opportunity that gets addressed, it’s trivially true that _somebody_ must have been first to see it. The odds that YOU are that somebody are quite low (even for less-impactful situations), and the opportunities rarely last long. Nevertheless, there truly are $20 bills lying on the sidewalk; they’re rare and they don’t last long, but they DO exist.
All of that is a very longwinded way to get to my largest point. Scott’s observation that “I don't think it's trivial to start a company that solves a problem” is exactly correct. And perhaps the most important wisdom there would be best stated as “I don’t think it’s trivial to start a company.” Full stop.
Founding an enterprise is not for the faint of heart. Folks in Silly Valley “know this.” Nevertheless, I would argue that nearly all of them fail to comprehend just how hard it is, unless they’ve been either (a) a founder themselves, or (b) not just an early employee at a startup, but one whose position requires them to engage with issues of funding, business challenges, hiring & firing, etc. or, maybe (c) a VERY close family member or friend of one of the previous two. It’s way harder than you think. Consequently, I recommend avoiding the “start a company” approach unless (at least) the potential impact and/or reward for success is large AND you have a true passion about it. And many other things not germane to my point.
Possibly relevant: One of the amazing things of capitalism is that it works (relatively) well despite the involvement of many selfish and/or ignorant actors.
You are intelligent and well meaning. It would not surprise me if you outperform the "charity market" (for example by giving to GiveWell). The majority of charitable donations of course go to things that aren't even clearly a net positive. (I.e. promoting a favorite sport/church/political party etc.)
It works precisely *because* of selfish actors. Self-interest and competition are what cause creative destruction. Many here bemoan Moloch, but without him we would all live in extreme poverty.
If it only worked where actors were selfish it wouldn't be a very resilient system - and even capitalism's sternest critics can hardly deny that it's resilient. Rather, it works mostly-independently of whether actors are selfish or altruistic. As you said elsewhere in this threat, it's kinda a baseline. One might even say that capitalism=anarchy+time
(That being said, in those rare microcosms where actors actually are mostly-altruistic I don't think capitalism works anywhere near optimally)
Moloch has always been here, and we have only very recently (and perhaps very temporarily) not been living in extreme poverty; we're in a window, possibly only centuries-narrow, of technology and resource (and possibly also cultural) whalefall; if that ends and we hit diminishing returns again but we haven't broken free of Moloch in time we shall, I'm sorry to say, all be going back to the extreme poverty we've been in for most of history and all of prehistory.
Yes, capitalism doesn't care if you want to make money (and follow incentives etc) because you like to be rich or because you want to feed starving orphans.
Request for a follow-up post “does welfare best charity?” about the returns to a public welfare state vs. effective charity
I think this is a type error in a way that the current post is only kind of a type error.
Suppose I have $500. I can easily donate that to charity.
I can't donate it directly to Capitalism, but you can imagine ways to sort of kind of donate it to Capitalism, like investing it in socially beneficial businesses.
I think there's even less way to donate it to Public Welfare State, other than maybe voluntarily paying extra taxes, or donating to a think tank that lobbies for more welfare.
Put another way, if you could magically materialize the perfect welfare state into existence, that might be pretty great, but it's not an interesting "what should I do in the real world?" question in the same way as the other things under discussion here.
(it would also be great if you could magically materialize the perfect capitalist economy)
My primary motive was actually based on an argument I recently heard that wealth taxes on billionaires are bad because, although there are few billionaires who give to effective charities, the returns are so astronomical that they outweigh welfare state considerations.
So yes, it probably wouldn’t be a post focusing on any particular intervention, but I am still interested in a general discussion about the turns to welfare vs. charity. One could imagine interventions existing in principle, eg hiring someone to advise poor/middle income countries on how to build a better welfare state, sort of analogous to the capitalism case.
The question I think deserves engagement is whether you should give money to GiveWell top charities or just give money to poor people via something like GiveDirectly. For the most part, the former appear to be producing private (i.e. rival, excludable) goods for very poor people, and then using spreadsheets to argue that those goods do much more "good" per dollar than the things those very poor people would buy ("from capitalism") with a marginal dollar. These arguments are usually somewhat plausible at the object level, but the poor people in question are probably the experts on their own needs (but don't have so much time to make spreadsheets to pitch charity evaluators). And they seem to often have very high return investments available (e.g. buying a cow or a metal roof that doesn't need to be replaced every year), at least according to the spreadsheet-mongers on the GiveDirectly side.
Isn't it kind of plausible that the best way to spend money to make a particular very poor person better off is to give them that money to spend however they want? That capitalism works well enough to provide for their needs once they have money to spend? Isn't that the approach that treats them with the most dignity and respect? Are the object level arguments of the "good charities" sufficiently convincing to overcome this presumption, when you take into account the "multiple comparison" problem that in picking the "best" charities you are magnifying any sources of error that went into evaluating them?
Change my view, it might redirect $1M or so this year.
i think your argument is pretty solid. however there could be an equilibrium problem. think bednets -- maybe buying a bednet is only a little useful so nobody buys them, but living in a place with reduced malaria because everyone uses bednets is great. free bednet distribution can shift the equilibrium.
You can give 1,000 random villagers $100 but they would still lack clean water because they're all in different villages or they're in the same village but don't have the organizational capacity to schedule a water pump installation. Or you could just pay $100,000 to a company so that they install a water pump locally to deliver fresh water to the whole village.
Consider its 1978 and you have $1M that you want to dispose of charitably, because you value the wellbeing of others, and youve heard of this place "America" where things arent so great.
You could give 100 people $10,000. They know their needs and preferences best, and they will take that money and improve their lives with it, according to their best interests as they see them.
However you also know that theres a small startup who is trying to bring computers to the backward country of America, and youve had them for a decade now and know how incredibly useful they can be - so you could instead "invest" that $1M into "microsoft", and be the difference in whether that company has the start up capital available to get rolling, or doesnt.
Whether microsoft and computers are a good idea or not, you should be pretty darn sure that if you went the route of giving 100 people $10,000, they are most definitely not going to collectively coordinate to invest in microsoft themselves. Probably they dont know much about microsoft, but even if they did all know for a fact how awesome computers would be, theres a coordination problem.
As a single wealthy actor, you can single handedly solve the liquidity challenge (capital acquisition challenge) for a lot of relatively easy and low hanging infrastructure, health, and education improvements, that they would be doing themselves, if only they had the capital _and a way to coordinate_.
So, using charitable dollars to help bootstrap their value adding enterprises or providing capital to improvements that we here in advanced economies know have a large impact to health, productivity, and quality of life, that may well be more effective than giving people money directly.
If you do take an honest look and in your assessment none of the proposals at givewell look like that to you - then just GiveDirectly.
You are using a lot of hindsight bias here.
We know that Microsoft turned out well. But you might have invested in eg AI in the 1970s, and that wouldn't have gone nearly as well. (AI went through several hype cycles.)
The reason for that selection is that, from our position as an advanced economy, we know "clean drinking water" and "not dying of malaria" turn out really well.
I don't mean you'll get the same returns as if you invested in Microsoft, but that the productivity gains are a sure thing.
> the poor people in question are probably the experts on their own needs
I find this argument much less plausible in the specific instances of e.g. averting infant mortality from malaria by giving parents insecticide-treated nets to hang over their beds. What would change my mind here (I'm also about to donate, albeit far less than $1M) is evidence that e.g. LLIN effectiveness is falling due to insecticide resistance, or that net distributions are subpar somehow, or that there's no more room for more funding, etc. In other words gears-level stuff.
That said, I also broadly buy the 100:1 ratio in https://docs.google.com/document/d/1hOQf6Ug1WpoicMyFDGoqH7tmf3Njjc15Z1DGERaTbnI/edit#; if you think it should be in the 10:1 range or less than cash beats nets. This would be a moral not factual disagreement, and one I'd welcome (to red-team my own assumptions etc)
A couple of EA orgs found that GiveDirectly is less efficient than health charities if you think of the health charities as producing money equivalent to their health benefits, see eg https://www.givingwhatwecan.org/blog/why-we-still-dont-recommend-givedirectly . I haven't looked into this very hard and am mostly going off their summaries without having thought too hard about them.
The problem is that you're looking for charities when, conceptually, what you are talking about is development finance institutions (e.g., the U.S. International Development Finance Corporation).
There are all sorts of mission-oriented specialty financial institutions, including not-for-profits, which issue loans at below-market rates for 'good causes'. On the domestic side of things (in the US), you could be talking about CDFI Fund lenders or green banks. These get their funds from grants, government programs, and traditional banks which are incentivised to provide capital at below-market rates courtesy of things like the Community Reinvestment Act.
> but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
What discount rate are you using? This is probably the single most important question when comparing your options.
If you pick something low (like a 2% real rate), the expected multiplier of getting an S&P500-historical average return diverges to infinity the longer you keep doing capitalism with the plan of donating later (even if you assume the companies capture literally 100% of the value they create in the meantime and have no net positive effect on the rest of society).
If you pick something high (like 8%), you avoid that problem, but you also invalidate much of the reasoning for caring about long-term climate impacts of CO2 emissions (which is based on low rates in the 2%-5% range), and other similar issues. And there's now a question of whether you should borrow against all your future donation spending at $DISCOUNT-1% in order to spend it now and do more good by your own metric.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Suppose the charity does not invent the equipment to purify water themselves, which I presume is the case, they must buy it from a for-profit company who can offer it at price X only because of innovation and market competition, without capitalism none are possible.
Without capitalism the basis of wealth creation, effective charity will not be possible.
You're answering a moral (credit assignment) question, whereas I'm asking a practical (where do I donate my money?) question.
I actually think it's not your Instacart example choice that's bad for this thought experiment, but your clean water charity. I myself donate to water charities because they seem to me to provide the same kind of benefit that capitalism does -- so it's not a good example of the ways capitalism can be superior to charity. The water charity allows more people to live in a place, which is one of the preconditions for "people consensually doing useful things for each other" -- which is the inner Venn lemon of both charity and capitalism. (Modify it to "people consensually doing useful things for each other, out of the goodness of their hearts" and you get charity. Modify it to "people consensually doing useful things for each other, in exchange for money, according to market price signals" and you get capitalism.)
For a clearer thought experiment, use a charity that just does something useful, instead of one that does something useful and also creates the preconditions for people to do useful things. Then the contrast with capitalism (and with the State) will show up more clearly. I actually think charity is usually superior to capitalism, but for completely separate reasons.
The Copenhagen Consensus Group of economists rates various charitable and miscellaneous initiatives and intriguingly has a runaway first place item that breaks the charts. They say money spent on free trade negotiations pays off at 1000-1 with the larger proportional benefit recieved by the lower income countries involved
However it's difficult to personally spend money on free trade negotiations, and might rather be a bigger focus in terms of political capital and in the opportunity cost of not promoting freer trade in some way while doing other charitable or capitalistic things
Folks have mentioned business-aligned charities, but another option if you want to "give money to capitalism" in a way that would theoretically be helpful to folks in poor countries, you could just buy in some emerging markets mutual fund and continuously re-invest the profits. Similarly, you could lower the cost of borrowing by buying up corporate bonds from similar markets.
Or just buy mosquito tents, which goes a ways to ensuring that the recipients won't be too sick to work. So the question is, do you buy mosquito tents, or do you invest in emerging markets? And what is the methodology for determining which is better?
I think you are too quick to brush aside the criticism that instacart is a bad example. Capitalism works because it incentivizes production and innovation. It also incentivizes corruption and rent seeking which is unfortunate but seems to not be significant enough in most societies to cancel out the good from production and innovation. Instacart does have a little innovation, but it doesn’t look profound to me and so I’d mostly call it rent seeking.
Rent seeking and corruption aren't really worse under capitalism than under alternative real world systems. So they are not a downside you could avoid by avoiding capitalism. So they are pretty irrelevant here.
"Charity vs. capitalism" is indeed a category error. You make various consumption choices with your income (and also have a savings/consumption margin). Apparently one of your favored consumption attributes is utilitarian/EA (I don't keep up that closely with all the inside baseball, here, I'm afraid), so you like to donate to things that you believe help lots of people a lot per dollar donated.
It's entirely possible that there are hidden "altruistic" or "benevolent" impacts from your non-donation consumption choices that do more good to more people than direct donations. Quite likely, however, is that these are perverse "Fable of the Bees" type effects that run counter to what most people think of as "altruistic." For example, if you buy products that include imported cobalt (lots of electronic stuff has this element), it is often mined by desperately poor children who queue up and even pay for the opportunity to go into open pits and scoop it up with their bare hands. The fact that they are willing to queue up and even pay strongly suggests that their next-best option is truly horrible. An incremental increase in demand for cobalt will probably raise the incomes of desperately poor children in the aggregate, so your purchase of an item containing cobalt is a contribution toward their welfare.
On the other hand, ostensibly benevolent charitable endeavors, even when pursued efficiently rather than wastefully, often make matters worse in the long term via perverse incentives that they create. A number of serious thinkers and observers (Bauer, Easterly, etc) have noted that the on-the-ground effects of foreign aid are often destructive of local markets and local governing responsibility. One needn't look at extreme situations such as the Gaza Strip, where foreign aid propped up a vicious and oppressive terrorist "government" that was able to ignore the productivity of its society because of this inflow of external resources. There are third world governments all over the place that have been relieved of all responsibility to allow for a flourishing economy because they don't need to extract surplus via taxes from their population, instead battening on charitable giving from abroad. In that sense, a piteous population that can attract foreign aid is a version of the "resource curse."
Since we like prediction markets so much, why don't we allocate charitable giving according to prediction markets? But one of the big challenges of prediction markets is phrasing the questions correctly. In this case, the most difficult question is what recipients actually consider most beneficial to themselves. We might think that charity should be judged according to lives saved or homes built or whatever, but isn't that a very paternalistic approach? Shouldn't the recipients get the main say here? So maybe the recipients should run a prediction market to decide what would be best to receive, while we should run a prediction market to decide how best to give it. But it doesn't make sense to have two separate markets, so let's combine the markets or let them predict each other.
And that super combined prediction market for allocating charity already exists. It's simply called "the market". That's what the market system is meant to do. It lets us most efficiently spend and invest resources toward production in the way that consumers communicate (through their spending) is most valuable to them.
This isn't about "capitalism", which is separate from markets. (Communist and socialist countries also have markets for goods and services, they just refuse to use them for *investment* because they believe the resulting means of production should not be privately owned.) It's purely about the power of markets to elicit, communicate and process information about the preferences of consumers and the limits of producers in the most efficient way. If you think prediction markets work better than other ways of aggregating information, then you should think that just spending your money as the market naturally incentivizes you should also work better than other ways of deciding how to benefit others with that money.
Hi David,
You wrote: "And that super combined prediction market for allocating charity already exists. It's simply called "the market".
Reasonable enough, but this (to my eye) doesn't address the central issue here, which is 'how to do the maximum amount of social good for each dollar allocated'. Keep in mind that 'social good', in this context, includes the global population, and further keep in mind that there are a million market distortions (tariffs, corrupt governments, and so on) to which the global population is subject to.
Yes, I agree that the story that the market maximizes social good for each dollar is complicated by market distortions and differing initial endowments (i.e. the preferences of the rich are communicated more strongly than the poor). These are absolutely real problems. However, I am not convinced that centrally planned alternatives to the market -- like conventional charity or EA approaches like GiveWell -- can ever do better despite this, because the market's informational advantages are too great. Also, these issues with the market can be dealt with. Reducing market distortions has been a long running politico-economic project, and reducing the difference in endowments is what stuff like GiveDirectly or Universal Basic Income or just plain progressive taxation is meant to address.
Why are you sure that the market's informational advantages are too great? I concede they may be (and in case you're curious, but I'm about three counties away from being your typical economic 'liberal'), but what if they're not? How does that question get answered?
I'm not "sure", but I lean more toward the market as a more effective engine for welfare improvement than charity for two main reasons.
First, history. The largest improvement in human welfare recently has arguably been the export-led economic development of China. More than a billion people were raised out of crushing deadly poverty into reasonably comfortable lives. And it was done not by calculating DALYs, but by the Chinese government letting the market operate, and regular people in rich countries buying stuff made in China if looked like good value (i.e. just acting as the market incentivized).
Second, the intellectual approach of charity, including EA. In my original comment, I mentioned that deciding on behalf of recipients what they need -- lives saved, homes built -- is paternalistic. To expand, controversially, I think that charities and thinking around charity are too focused on visibly virtuous targets like saving lives or increasing DALYs. However, if you actually let people make a choice, e.g. "You can either have a new scooter, or reduce your chance of dying next year of malaria by 2% equivalent to 1 DALY -- both costing me the donor $5k", far more people than you think would value current consumption over their lives or health. I certainly would. And I feel that this choice should be respected! Charity thinking massively undervalues both choice and basic human pleasure. If the market gives people more bread and circuses at the cost of lives that could have been saved, I think that is a superior outcome as long as it was freely arrived at. Charity should be about enhancing human welfare in all forms. (This applies especially to the goals of longtermism, but that's another kettle of fish.)
Certainly I could be wrong. Again, I'm not super sure about this. But I think there is no good way to decide this for both epistemic and moral reasons. The epistemic problem is that it's hard to even know which approach would have done better even in retrospect -- deriving causality, defining counterfactuals, etc. are a bitch. The moral problem is that it's hard to even decide what "better" means. Again, I don't think we should just go by "lives saved", because that's not what people actually appear to value. So it's a hard problem -- that's why I'm not sure.
Magette Wade says that Africa is poor because of bad business laws, which kill capitalism before it can generate prosperity. She wants capitalism for Africa, instead of charity. see: https://magatte.substack.com/p/why-is-africa-poor So perhaps investing in her is a good idea.
The developed world stopped bothering with colonialism because it wasn't worth the effort. Turns out it's just easier to leave the countries to their own devices and exploit the ones that end up producing environments conductive to generating value. The various impoverished countries of Africa failed to do this, and thus their lives are now worthless to the rest of the world. I doubt changes to policy is enough to save them. As long as Africa continues to be riddled disease, crime, and generally inhospitable environments, they simply cannot compete with countries like China and India.
What is this exploitation you mention?
Exploit as in "exploiting resources." In this case, absurdly cheap labor with good returns. The problem with much of Africa is that its population is not even worth using as (wage) slaves because of the problems I mentioned. Companies don't need infinite supply because there isn't infinite demand, and there's no reason to resort to less efficient measures when the current ones are sufficient.
Without disagreeing with her, I think I would have to know a lot more to "invest in her". Ron Paul talks about increasing capitalism in America, but I don't think he would be a "good investment" because I don't see him having any plan to win.
Indeed: so far the only investment she has from me is my subscription to her substack, and my purchase of her book. But she is one person who really _does_ have a plan for bringing capitalism in the small -- the 'nation of shopkeepers' model to Senegal and the rest of Africa, as opposed to the idea that with enough investment, and by removing enough barriers such as bad water and disease capitalism will just 'naturally happen' because 'people are like that'. I think that a lot of barriers are social, not physical, and what you need to do is create a culture of wealth creation, which is difficult when people think of wealth primarily as something you get from foreigners or dig up out of the ground.
Acemogul & Robinson argue that “Why Nations Fail” is poor institutions. They further argue that it’s very hard for non-democracies to maintain good institutions, as there will always (like recently in China) be a temptation to sacrifice the economy to stay in wealth and power.
I'll put it on the list of things to read. Thank you.
It really tears "Guns, Germs & Steel" a new one, and is skeptical but not fully negative about international aid and charity, noticing the the _vast_ majority of resources get lost in a mix of administration, logistics, and corruption.
There's also some discussion of it here:
https://www.astralcodexten.com/p/your-book-review-why-nations-fail
The casual mention of the dairy industry as a core type of capitalist enterprise hints at another key drawback of capitalism: it doesn't necessarily promote absolute welfare, but the welfare of citizens with money (weighted by how much they have). The welfare of this subset can often be increased by arbitraging away the welfare of others, like dairy cows and their prematurely separated calves forced into ever-tinier pens and more-miserable conditions by capitalist farmers competing with each other to provide consumers with ever-cheaper milk.
If you believe the world is on a trajectory towards more and more of the world living under systems resembling rich countries' capitalism, it's a smart move to work on stably improving the total welfare of all human and nonhuman creatures (weighted by speciesist bias if you insist) under systems like these: animal welfare regulations when they outweigh the marginal interest of consumers in cheap animal products, social safety nets when the outweigh the marginal utility of money to the relatively rich, etc.
...And if you do that, you're going to be outcompeted by countries who are willing to sacrifice everything for the sake of power. Your system doesn't exist in a vacuum. Technological advancements and dwindling resources will inevitably increase competition in the future, and eventually your inefficiencies will put you at the mercy of those who don't assign arbitrary value to welfare.
Suppose Instacart had never been founded. Then people would spend whatever money they now spend on Instacart on something else (let’s say booze and porn), which would also create jobs (for brewers, bartenders, and porn stars). There’s no particular reason to think spending the money on Instacart creates more jobs than spending it on those other things would.
If you believe this, then you don't believe any economy can ever grow, barring the introduction of some kind of utterly disruptive consumer good/service that doesn't have any conceivable substitute.
I think Instacart hasn't created jobs but it has created consumer surplus, which means it has grown the economy.
I guess there's a stronger version of your point, where maybe I shouldn't believe any economy can ever create jobs. Maybe it's the consumer surplus that indirectly creates the jobs, not the actual employment by the company?
I think it's a pretty good first-order assumption that capitalism doesn't *create* jobs in the sense of increasing the number of employed people. (I know there are things like unemployment, but it's still a good approximation.) In this sense, yes, economies don't create jobs.
What capitalism does: it replaces jobs by more productive jobs. Capitalism is much better in this replacement process than other systems because the measure for "productivity" is literally built into the system: it's simply the money generated per time unit of work.
Other systems like Soviet communism also tried to have jobs that are as productive as possible. But they had to rely on proxies for productivity. Politburo tried to predict which goods where how valuable for the next year, and allocate resources accordingly. This was less precise and less flexible and made Soviet communism less efficient.
I was glad to see the EA Intervention Report on Charter Cities but it was limited by the fact that it was written by non-expert outsiders. Mark Lutter's response is much better informed than was their write up.
Regarding the widely varying success of SEZs - Read Lotta Moberg's, "The Political Economy of Special Economic Zones." Tl;dr privately financed zones are more likely to be successful than are crony capitalist, politically-motivated government financed zones, plus a lot more nuance worth reading for serious SEZ students. Moberg and Lutter are two of a handful of scholars who have done dissertations on zone related issues. The EA report was not informed by Moberg's research, thus they did not understand the political economy dynamics of different types of zones.
Insofar as one of the core conclusions of the "Intervention Report" was "economic development and reform zones," the actual work done by Charter Cities Institute and others in this domain do, in fact, work on a variety of zone-based reforms. The Romer-esque version of a "Charter City" was to some extent a straw man for what should have been a deeper dive into the global movement of zones with distinctive law and governance.
Thus several of their conclusions were sensible - but should have led you to increase your support of the Charter Cities Institute (CCI) rather than question it:
"Charter cities are expensive to build and take a long time to come to fruition, so if your focus was on the value of information, it seems likely that you could more cheaply and quickly generate this by focusing on alternatives which do not require you to build a new city, such as economic development and reform zones."
Hello? Much of CCI's work is towards what are de facto reform zones rather than grandiose Romer-esque Charter Cities - and that is the way they should be working.
There is a global movement towards zones with distinctive law and governance (precisely because it is widely recognized that bad institutions limit economic development). The Charter Cities Institute is indeed a leader in this movement, and should be supported, but the issue of better law and governance in zones is broader than their work alone. The most successful example is the Dubai International Financial Centre, where a common law legal system was placed in a 110 acre zone within UAE sharia law. It led to Dubai becoming a top global financial center in twenty years.
Zone based reforms are a hack around the public choice challenges of nation-state reforms. Bob Haywood, former director of the World Economic Processing Zones Association, makes the case that zones address Doug North's "natural state" of oligarchy preventing liberalization because export zones don't immediately threaten the rent-seeking structures. In his experience, usually zones were adovcated by the peripheral elites - not the core elites, but the son-in-law, cousin, younger brothers, etc. who had access to elites but were not currently benefiting from rent-seeking themselves. Without zone solutions, however irregular their success, most nations tend to be stuck in the "natural state" of oligarchic rent-seeking. Haywood makes the case that zones led to broader economic liberalization in Mexico, China, Mauritius, Ireland, and elsewhere. If the benefits of zone-based reforms includes broader economic liberalization then the returns are much greater.
The most important work being done by CCI is not necessarily creating Charter Cities - Prospera alone has a much more sophisticated platform than anything CCI has. But they play a crucial role in mainstreaming these ideas so that development economists, multi-lateral institutions, media, and well-intentioned Westerners pay more attention and are more likely to support reform zones. Prospera's technology is ready to replicate - we need this greater mainstream support to close the deals.
I've been involved in selling these ideas in multiple nations, and being able to point to the growing mainstream credibility achieved by CCI is definitely a factor leaning towards adoption. Conversely, without CCI's leadership, developing world government "reforms" are driven by a combination of venality, corruption, populist or leftist ideologies, World Bank banalities, and the occasional McKinsey analysis. CCI is a big positive step in the direction of concrete, actionable reform zones that are likely to improve institutions incrementally. If we can get to the point at which zones with their own law and governance become a routine technology of economic development, then the value of these institutional experiments is likely to become high.
Most people have no idea how much harder it is to do legal business in developing nations. The upside of making Prospera-quality law and adjutication available in zones in Africa will be significant over time. My wife, Magatte Wade, is working to bring Prospera to Africa because of this. She also writes and speaks about the ridiculous over-regulation of business in Africa that makes it necessary - she has first hand experience of what it is like to do business in the US vs. in Senegal. The fact that African nations are ranked at the bottom of the Doing Business index is not an artifact of measurement.
So by all means support CCI. The work it does is much more important than the EA Intervention Report acknowledges.
Have you heard of microloans and microfinance? They are in my opinion the cleanest example of "donating to capitalism". The actually donation is not getting any interest, and you taking on the default risk/lack of due diligence of making a loan to to e.g. lend $500 to Nain Isai in El Salvador to buy animal feed for his livestock, or lend $1,250 to Hương in Vietnam for school supplies and tuition for her children. It's essentially giving a bit more oomph to the invisible hand for these people to use on what they feel is the best use of the money.
Givewell seems to have a largely negative view of microfinance, though these may be outdated, stating that it "is not among the best options for donors looking to accomplish as much good as possible", but if you're looking to make a more developmental donation than non-capitalist mosquito nets, you might be interested in it. To the best of my knowledge the biggest player is Kiva, which makes it very easy to match with microborrowers across the world (my two examples above are from there), Givewell doesn't like them either from what I can tell.
tl;dr If you'd like to make a donation to capitalism, go to Kiva and you can immediately find a fledgling capitalist to lend an arbitrarily small amount of money, and consider the default risk and interest opportunity cost a donation.
https://www.givewell.org/international/economic-empowerment/microfinance (old)
https://blog.givewell.org/2009/12/25/where-we-stand-on-microfinance-charity/ (old)
https://www.kiva.org/
Two more options for donating to capitalism:
1. Give to the Institute for Justice, which fights for the legal rights of small entrepreneurs against arbitrary and unconstitutional regulations. I wish I knew of a more international version of this.
2. Work for, or invest in, a company like Sendwave which focuses on bringing more of the infrastructure of capitalism to people who now lack access to it.
Regarding footnote 1, a significant portion of Instacart’s revenue is from advertising. Not sure whether this meaningfully changes your analysis.
Educating people with high value skills is capitalism-charity that seems to have good trickle down and helps countries get rich (programmers in India).
And an educated middle-class is the best possible tool for achieving and maintaining a democracy.
I think when most people say 'capitalism makes the world richer' they're saying investment spending and research make the world richer. You can trade coconuts and bananas all day, but at the end of the day you'll still only have coconuts and bananas. I think a similar thing can be said about any consumption spending, including Instacart.
Well, you'll have coconuts in the hands of people who like coconuts more than bananas, and bananas in the hands of people who like bananas more than coconuts. That's worth something.
I think that's an example of "free markets" without necessarily involving "capitalism".
I can't quantify any of this but here are some systems-oriented charities that would improve capitalism a lot:
- Improve the incentives of the arena by producing more deeply informed product reviews. Information is a non-excludable good, so the market wont do this very well. Do this well enough and you will obsolete the FDA.
- (Edit: Industry-government partnerships actually seem to be doing okay at this today, so idk, but it's an example of the kind of thing that *could* be needed) Thinktank to develop better interoperability standards. Governments preserve competition by requiring competing products to be interoperable, apple must use USBC (this is a real act that the EU passed), Mastodon can access Threads (happened without regulation though (confusing)), the user can get their data out in a standard format (used to happen without regulation but seems endangered today), that kind of thing, but designing these regulations is genuinely difficult. If they get it right, it supports a lot more competition and innovation than the market otherwise could (*competition and capitalism are antonyms*), but if they get it wrong it can forbid progress in standards, or burden projects with standards that're antiquated and complex, which stifles innovation. Getting it right is *expensive*, it requires deep expertise and consideration. Governments can't reliably do this job. Charity is needed here.
- Decentralized finance system development actually has suffered a lot from the lack of charitable investment. We could've had systems with unlimited global transaction rates and negligible transaction costs (built around a P2P approach that allows the user to earn enough gas to get by without even knowing that there are transaction costs). It's called Holochain, it's been in development for a long time, it's still not complete because having these qualities prevents them from extracting rent on the system later on and that very fact means they make relatively little from token presales and can't hire enough R&D. They haven't had the manpower to develop ZK-rollups and they're going to have history bloat problems.
(And the fact that these systems are all open source should be a clue that they're not going to be capturing much of their value.)
It's worth mentioning that american FOSS funder FUTO actually are charitably funding Freenet (2), which afaict is at least adjacent to the genre of Holochain.
Isn't the argument simply that capitalism creates a powerful system of incentives for people to be productive - in the broadest sense of the word - which in aggregate results in economic growth and rising living standards? Perhaps the greatest reduction in poverty in history was China over the past 4 decades (770 million people brought out of poverty is the number the CCP used in 2021) without having any significant domestic charitable sector and without receiving any substantial foreign aid. The country simply pivoted away from Maosim in favor of a more capitalist approach.
I think the humorous irony of using marginalist reasoning (the basis of modern capitalist theory) to argue against capitalism has to be noted (of course, in this case I think it's legitimate, but funny nonetheless).
I think rather than using money to "promote capitalism" the more appropriate alternative would be to use money to promote the conditions that capitalism, at least the successful style of rich-world capitalism, requires -- which mainly comes down to rule of law, education, good (generally less) regulation, less corruption, and good (generally more) antitrust enforcement. This doesn't really solve the "how do I do that" problem, though, since it largely becomes a "how do I accelerate political reform" problem. Then again, given the dictator book club series, maybe you can figure out how to do that? Incidentally I think the challenge of solving these antecedent problems (especially corruption) are what really makes it difficult for countries to get richer. I kind of suspect western countries mostly had an easier time getting rich because they'd already solved many of those problems. The United States took, what, a hundred years to get from patronage to civil service exams and antitrust law? And we had a very free press, very good courts, and a lot of luck.
One alternative to charity worth considering might also be more science funding: there are a number of private bodies that give grants to scientists, though their scale is far smaller than the federal programs.
Imagine, for a moment, you have a magic box, the contents of which grow by 5% a year. You have a rare and expensive medicine that will save lives.
What do you do with this? Do you save lives, or put it in the box to save lives later? When should you take it out of the box?
That's sort of like investing. You get a return on investment; you can then use this to save -more- lives, -or- you can invest it and save even more lives later.
Now imagine that as long as the medicine is kept in the box, random improvements happen. People get slightly better cell reception one year. The next year, everybody's computers get 1% faster.
Now how long do you keep it in the box?
What if, by keeping it in the box, sometimes the world production of rare and lifesaving medicine slightly increases?
That's what capitalism has to offer. As long as you keep the medicine in the box, and let some people die this year - next year you can save a few more people. But also things randomly just kind of get better in small ways.
Now - if you're going to consume the money instead, charity is probably the better option. The real question is whether you direct your share of market consumption towards single events - getting a motorcycle or saving a life - or whether your direct your share of market consumption towards making the market better/bigger in the future.
Most people want things better now; they want the hungry fed, the homeless housed, the sick healed. And this is quite fine, if the alternative is consumption. But where the alternative is to forestall consumption for another year, to leave the rare medicine in the box, and both have more medicine in a year and ALSO food delivery gets slightly more convenient - the choice looks a lot more in favor of "investment" than I think a lot of people actually think it does.
There is also a return on investment from charity though. The people you save from death this year will produce goods and services next year.
Yep. But that doesn't stop being true - if you could save 100 lives this year, or 105 lives next year, do you take the medicine out, knowing that there will be 5 additional lives producing goods and services the year after that? What about the year after that, when it's 105 lives then or 110 lives the year after that?
That question seems legitimately hard. But, again, when you throw in that the return on investment isn't the only thing investment produces - it's also producing random other small benefits as well, even if they seem kind of trivial - the answer seems relatively easy.
One problem with capitalism is that it is predicated on perpetual growth, that growth ultimately consumes Earth's biosphere, and therefore capitalism will eventually destroy life on Earth. So "donating to capitalism," in whatever sense, contributes in the long run to destroying life on Earth.
Maybe life on earth is a net utilitarian negative, though. As de Maistre said, "the whole earth, perpetually steeped in blood, is nothing but a vast altar upon which all that is living must be sacrificed without end, without measure, without pause, until the consummation of things, until evil is extinct, until the death of death," and as Schopenhauer said "the pain in the world always outweighs the pleasure. If you don't believe it, compare the respective feelings of two animals, one of which is eating the other." So perhaps reducing the amount of suffering life on earth is a good thing, from a negative utilitarian perspective. Of course, my answer is to redirect earthly resources towards developing a system that can turn as much of the universe as possible into minds experiencing pleasure, most likely via some system of self-replicating machines, which would by their sheer magnitude be the only conceivable thing that could outweigh in pleasure the billions of years of net suffering on earth and any other planet supporting life.
"Capitalism is good because it has the potential to eradicate all conscious beings."
Well, so long as there are profits in it, I suspect you'll be able to win over a fair number of people to that view.
That was more a devil's advocate for capitalism on my part, what I actually support is the system of universal pleasure-mind generation that I describe in the latter part of my post. Whichever socioeconomic system would be most likely to bring that about would be the best socioeconomic system by my metrics, and which that is remains unclear to me. Maybe central planning would be best for devoting earth's resources to trying to figure out how to make an ever-expanding cloud of Von Neumann probes that create constantly pleasurable minds, who knows.
That's the great thing though: It doesn't need to win anyone over. The relentless power-seeking exemplified by capitalism is utterly inevitable. Natural selection ensures that those with power, and by extension, control, will outlive those without it. What's "good" for humanity or anything else is completely irrelevant. Competition will continue until all power is centralized into one being, bringing about a perfect, unchanging order. It's just a matter of time.
Nonsense. The vast majority of growth isn’t having a bigger chunk of matter, it’s about making better stuff. While growth _can_ be having two cars instead of one, it’s far more important how cars become safer, lighter, more fuel-efficient, get safer exhausts, become nicer to ride in, and so on, and so on. In Western countries, growth is accompanied by _less_ environmental impact, including CO2 emissions. We can literally have growth forever, as long as people don’t stop coming up with good ideas.
It’s true that at the lower end, like in China, this doesn’t hold, but reasonably, this means we should help countries over the hump rather than condemn them to an eternal poverty where we can give them charity to feel good about ourselves.
Givedirectly seems like a pretty solid option for "investing in capitalism itself." You give poor people money, figure out some way to keep them from losing it to corruption or criminal shakedowns, and then those people use that money to buy things they need, which results in the businesses that provide those things succeeding, and so on.
If capitalism is a very good system for giving people with money what they want, then the problem might just be that people don't have money and that means they aren't getting their needs met.
Honestly feels like a category error of a question.
Capitalism is what keeps us in the game without everything going completely to hell.
"Charity" such as we refer to in terms of EA or give well or such, are just providers of a good under capitalism.
Walking back a step - Whatever people are willing to pay for, Capitalism will provide.
If people value assisting people in the third world, capitalism will (and does) lead to the creation of firms whose mission is to accept money from customers in exchange for making water safe for 10 people or giving two families mosquito nets or whatever.
At a previous time, what most people who wanted to "do charity" actually wanted to buy was the feeling of having given to charity in a personally satisfying way. The firms capitalism created were numerous, existing in fractally obscure philanthropic niches such that an individual could easily find something personally satisfying to them (and even make it part of their identity), and then have slick marketing to make the sale feel as good as possible. Because that was what was being demanded and supplied, these firms didn't optimize for outcomes.
When people began demanding outcomes, capitalism created charitable firms that carefully evaluated and tracked their outcomes and made different kinds of charity compete with each other, so that now people who value assisting others can get the most bang for their buck - all of the good that something like GiveWell has done is ultimately the totally expected and excellent result of capitalism. People wanted effective altruism - firms entered the space to sell it.
"Capitalism" and "charity" aren't alternatives. If someone says capitalism does more good than charity - it's like saying capitalism does more good than cars. Sure? Almost by definition? what does it even mean?
But are you suggesting we should do away with cars and instead have more capitalism?
If they are specifically making the claim that charitable interventions for the preservation or support of capitalism are better uses than for any other kind of charity - first make sure you agree you want to buy the same thing (effective altruism in your case)
If they are making that claim that it's more _effective_, well, that can be at least approached empirically, but I think it's extremely likely pro-capitalist interventions will be much less effective. Much of the low hanging fruit has already been picked, and we don't know how to make there be capitalism in places that don't already have it.
The normal operations of capitalism do a lot of work towards the end of preserving capitalism - but they never ever provide things nobody is willing to pay for. The normal operations of capitalism do not lead to good things by accident, but by purpose.
If you specifically want to altruism most effectively, capitalism will sell it to you, but it won't provide it on it's own.
"If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
As long as investment growth rate > discount rate (which it is), this actually changes things by a factor of infinity.
One way to consider this would be consumption-charity (make things a little better now) vs investment-charity (make things much better later).
Suppose there are thousands of people chained up in a terrible prison. You have enough time and energy to unchain one of them every month. Who should you unchain first?
It's not whoever is suffering most in the prison.
It's not whoever is most sympathetic.
It's whoever will be able to unchain someone else once you unchain them.
For the sake of argument, suppose you believe that humans are causing a problematic amount of climate change via CO2 emissions. Elon Musk shares that belief. He could have donated the vast majority of his PayPal fortune to some kind of charity. Instead he's using it to build the industry-leading electric vehicle company, whose 18-wheelers stand poised to electrify the highway freight market. Effectiveness of altruism is positively correlated with the amount of care, attention, proximity and self-motivation that you can put into your altruism. Care, attention and proximity are maximized when you do something yourself. Self-motivation is maximized when what you are doing is so valuable to other people that you make money by doing it.
Charity is great at saving lives by providing people with the basic necessities of survival. Capitalism (or rather, a mixed economy like the one we have in the US and Europe) is great at creating a world where charity is unnecessary because the basic necessities of survival are so cheap (or, if you prefer, the people are so rich) as to be ubiquitous. Both charity and capitalism are useful; and in fact the key reason for the success of EA (before they went off the rails) was to introduce a form of capitalism into the machinery of charity, thus creating a hybrid approach that was the best of both worlds.
Among the capitalist options, I'd propose:
1b. Same as #1, but whenever you can, buy versions made by a company owned & operated in a poor region, especially complex, capital intensive goods & services with high skill required. If you have to take a hit in quality or price, consider that your donation.
In other words, if you want to support a poor region in undergoing capitalist development, support their capitalists. It's important that the company be operated in the poor region, circulating money locally via wages. It's even more important that the company be owned locally, so that profits also circulate locally instead of being siphoned off to a capital city or rich foreign country. It's most important that the purchases be high in the value chain, so that the revenue supports the whole ecosystem of producers in previous stages.
Of course the central point of the article was that charity still seems to do orders of magnitude more good per dollar. If #1b can compete on that measure, it's because it makes the donation orders of magnitude more sustainable, since you get goods you need.
"There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250. But you can get a yearly subscription to Instacart for $100, after which the service is free. So either customers are overwhelmingly being stupid, not buying the subscription, and paying much more than it should cost - or I’m missing something here and the numbers are wrong."
Iiuc, Instacart often charges a markup on grocery items in addition to its official fee.
It seems obvious to me that this is just a question of scale. Yes, the countries that have become nice places to live have done so through capitalism, but how much more money has capitalism been working with than philanthropy? US GDP is ~$25T, and US charitable giving is ~$500B. Most of that charitable giving is for things like teaching poor children to play the flute and mailing books to homeless people, so I would guess 'real' charity is ~$50B at most. It seems easy to argue that $1 to charity will do more good than $1 to capitalism, but also that capitalism has done more good overall because it's been much more successful at obtaining dollars.
Re "giving to capitalism," what about (4) Build a business based on fulfilling a need/desire that other people in society have? This seems to me to be the most obvious way that capitalism drives prosperity. Trillions (quadrillions?) of trades, every single day, each of which involves net wealth creation (otherwise presumably the trade wouldn't happen) is what makes capitalism "work." You could argue that this is encapsulated in your point (2), but investment in existing businesses is distinct from the creation of new businesses.
More succinctly, simply living your life in a capitalist society by engaging in mutually beneficial trades, at all levels, is the capitalist version of "charity." This is something everyone can do. Intensifying this would simply be either increasing the number or magnitude of trades. The more "charitable" you feel, the more you should let your counterparty accrue the benefits of each trade.
But Moloch. I haven't made peace with Moloch yet. The energy and spirit of money/capitalism colonizes mind and world. I notice sadness and mourning for what Wendell Berry called "the Peace of Wild Things." Perhaps I need stronger psychic defense mechanisms or perspective/framings when faced with narratives of mass extinctions, climate change, rainforest burning, microplastics, and floating oceanic garbage islands.
Moloch-capitalism makes everyone happier and sadder, safer and more insecure. How to abide Moloch/Mammon/Money?
But as is being said, Moloch is over charities now too.
But why assign any value to lives in the first place? Are the lives of those alive today worth any more than the countless lives and species destroyed by the relentless march of evolution? Even humanity will be made obsolete in due time. No one is forcing you to participate in this. Life will march on without you.
Thanks. Great questions. I think it is because I have children who cling to life, who have that egoic sense of self-centeredness that my culture instills in us so we can serve and be served by Moloch better, to run on his hedonic treadmill. My relationships with them, my group, family, and community - to regulate with them my brain thinks with and for them, maintains the conceptions of myopic "me" and "us" which are quite powerful, the beats and throbs that tend to manifest and perpetuate waves of human life and living. And Christian upbringing instills deep dreams of eternal life, of forever, deathlessness, and endlessness. I open my mouth or comment and these remnants are revealed. 🙏
This is why I hate to see Christianity go, even though I'm an atheist. At least it told you to love your neighbor and value all lives, even if these things were more honored in the breach than the observance. What do we have now? Some horrible woke ideology where your value is how oppressed people like you were in 1950? Some equally horrible alt-right ideology where your value is how not oppressed people like you were in 1950? The last ideologies they came up with were fascism and communism, and we know how those turned out. Ugh.
It seems like this discounts the value of instacart, with respect to jobs, while overstating the value of Dispensers For Safe Water.
The million dollar investment in water doesn't save 1500 lives by itself: those people still need food, shelter, medicine, etc.. By contrast, the jobs instacart creates give people a large fraction of what they need to procure all their survival needs (or all of what they need and then some).
Isn't the biggest difference between instacart and the water charity, that instacart is operating in a wealthy country and serving a luxury good to relatively wealthy customers, while the water charity is operating in a poor country? If you instead chose a company making an important necessity, like shelter or clothing, in a developing country, and compared it to, say, the Make a Wish foundation in the US, which would come out better in a similar comparison?
Actually, what does it even mean to "donate money to capitalism"? You derive your costs for instacart based on investment money spent on the company... but the whole point of an investment is to make a return. If you invested 1 million dollars in IC back in 2012, then you would have provided delivered meals for 2,000 people, *and* you would have 1 million dollars * the rate of return of the IC investment. But that's not really right either, because the latter is money that people paid you for the delivery service; you didn't give them food for free. Which gets at the whole point of investment (to be worse off *now* and better off *later*, so of course it looks like a bad idea, and similarly, you'd be warmer now if you burn all your clothes than if you wear them) and makes this whole comparison very confusing, in my opinion.
If you ask the question, "what is the present discounted value of 1 million dollars given to a water charity vs invested in a basket of startups?" If we take your number for the ROI of the latter as 7.5% per year, with 2% inflation, then in 10 years our 1 million dollars is worth the equivalent of about 1.7 million dollars today. If we then converted this back into a water charity donation, we would break even at a discount rate of about 5.4% per year. Or in other words, the investment is a better option if discount the value of future water at less than 5.4% per year, and a worse option if we discount more strongly than that. (I think all secondary benefits should be incorporated into the relevant rates of return and discount, but maybe I messed something up).
Scott, I think you slightly misunderstand the argument for working on spreading capitalism. It goes something like this:
1. If enough of us buy malaria nets, we could potentially prevent all malaria deaths in the nation of DR Congo, which would save ~80k lives/year.
2. But if the people saved by malaria nets still live in very poor conditions (albeit with clean water and maybe some micro-loans provided by charities), that's still a far shot from living as good as the median American.
3. We can very roughly compare the quality of people's lives by looking at GDP/capita. For the US that's $76k/year, for DR Congo it's $600/year or 150x lower.
4. Saving 80k people/year is very much noble but on a GDP/capita basis that's only equivalent to saving 80k/150 = 530 Americans/year.
5. If instead of malaria nets we fund projects that try to bring capitalism to the poorest nations, we have a chance to make a *huge* impact. DR Congo has a population of 111m, and if we manage to bring proper capitalism to the country, it might reasonably 3x the country's GDP/capita over the next two-three decades, which would in turn create 111m*1,200 = $130B/year of additional economic prosperity or be equivalent to saving $130B/80k = 1.6m Americans/year.
6. So how good of a chance of bringing capitalism to DR Congo must a project have in order to have a bigger value than eliminating malaria? Roughly 530/1.6m = 0.03%. Can any project reasonably achieve that? Very hard to say, I would definitely bet that the Belt and Road initiative had a much higher chance than that in the beginning.
7. Can we reasonably identify projects which a) Accept donations or investments and b) Have a chance of at least 0.03% of tripling DR Congo's GDP/capita? I don't know but I would arguably that might be something worthy of EA's time.
I really like this analysis. But maybe, with some clever math, you could compare happiness units instead of $? Like, 80k Congolese saved = avg life satisfaction rating of a Congolese times 80k. Then... idk 🤷♂️
> This kind of development aid has been roundly criticized and did especially badly in Russia.
The perspective I've heard is that Yeltsin had to implement radical capitalist reforms like this to secure the transition away from the soviet system. If he had embraced more gradual reforms, enough of the soviet state apparatus would persist to allow communists to return to power in the next election cycle.
In other words, economic prosperity was not the goal of shock therapy, the goal was to root out entrenched political opponents. Given that the communist party consistently remained popular in post-soviet Russia, this doesn't strike me as incorrect.
Also, hadn't we already implemented capitalist reforms in other post -Soviet states, like Poland, successfully? I thought the Russian case was more of an outlier where development arguably wasn't the core goal of the insiders running the program. (Though admittedly I have no expertise in this area, so I'm quite open to correction.)
> Also, hadn't we already implemented capitalist reforms in other post -Soviet states, like Poland, successfully?
Great question! I don't know the answer either.
As a quick guess, could this have something to do with Soviet Union extracting resources from its vassal countries? The capitalist reforms were good in long term, but bad in short term. In countries like Poland, the "bad in short term" was balanced by "no longer need to send resources to Russia", so the overall result was okay. But in Russia, the "bad in short term" was made even worse by "no longer receiving resources from Poland".
This may be a bit counter-intuitive, but the Soviet Union didn't actually extract resources from it's vassal countries (except for a short period directly after occupying territory post WWII). It was mostly sending resources (search for COMECON if you want to learn more of the history of this). It's just that the inefficiencies of the economic system imposed upon them was such that if was still a massive drag. However in general quality of life was higher in Warsaw Pact countries vs. the Soviet Union proper, and not just because they started from a higher base.
Even within the Soviet Union, resources and economic development was redistributed from the areas considered core (Russia, Ukraine, Belarus) to the edge republics (Central Asia, Baltic states). Post Soviet union the countries that had or were able to quickly set up better institutions, a stable and open political system, and good economic policies quickly made progress (not just in Europe, e.g. see Vietnam). However without resource and tech flows from the core Soviet Union many countries fared MUCH worse, e.g. the literal famine in North Korea, depopulation in Armenia and Georgia, and the sorry state of most -stans, e.g. Tajikistan (until this day) and Uzbekistan (until recently, they have a competent president finally).
I wanted to ask *why* this counter-intuitive setting, but Wikipedia already says "Stalin's precise motives in establishing Comecon were inscrutable". The cynical interpretation is that he wanted Moscow surrounded by a safe zone of poverty in order to prevent a possible uprising. (Poor people may have more motivation to rebel in theory, but fewer means to do so in practice.)
According to Wikipedia, Comecon hurt its most economical developed members (East Germany, Czechoslovakia, Poland, Hungary) by taking away their intellectual property rights (i.e. the main problem indeed was not resources).
I think that countries like Poland were also harmed by having bad trade imposed on them: they had to buy Soviet products even if cheaper and/or better products were available from the West, and had to sell their products to Soviets even if it would be otherwise possible to sell them more expensively to the West.
If it costs $1 million for a charity to provide 50,000 people with drinking water, it will also cost $1 million to provide them with drinking water the next time they need it. And the next time. And the next time. Before you know it you've spent a billion dollars on water and people are still thirsty. A functioning economy will provide them with drinking water *forever*. Invest a million dollars in something that will employ those people and let them pay for their own water from the proceeds.
Why be coy when you can name the actual company you can invest in which employs 50k water poor people for a million dollars?
If you want to know why the charity option appears at least superficially relevant, it's because there is an actual organization that can convert money into good outcomes.
Comparing an actual, real charity to an imaginary company where you can arbitrarily tune the utility to whatever looks the best would obviously come out in favor of the company. Hence: what do you believe would be concretely the most helpful and why do you believe it?
I'm not in principle against the idea that companies can do much better than charity, but there is a large space above "theoretical argument that provides no actionable advice", if you have a model that we can poke at and examine I would feel much more partial to this line of argument.
Shouldn’t the argument be that Instacart provides a service which increases economic activity and therefore taxable income at the company as well as for its employees and gig workers? Some economists somewhere said that each dollar in the economy changes hands 7 times in a year, so capitalism creating new economic activity like Instacart increases that velocity of dollars, which are taxed wherever yet are spent, which (in theory) goes to support the government services that the charities are trying to replace.
In other words, if they had tax revenues supporting competent governments, those governments would provide clean water and the charity wouldn’t be necessary
Blithely, capitalism gives wealth to people who deserve (in some very specific sense) it, and charity gives wealth to people who don't deserve it.
("Deserve", in this sense, means "capable of producing value for others, due to a combination of internal attributes and the surrounding environment". This may or may not match up with your personal definition of desert, in particular for those whose inability to produce value is caused by their environment rather than their own attributes.)
Developed countries don't need safe water dispensers. In order to develop, underdeveloped countries need to join the capitalist system. It's by no means clear how you can get them to do that, but it's something to think about. Meanwhile, the anti-capitalist mood affiliation that shows up in other comments does not do anyone any good.
I’ll always support Scott and the rationalists taking a silly argument seriously and deconstructing it. But let’s be real: the people saying “capitalism is the most effective charity” are just saying “yay capitalism” and are looking for a way to have their cake and eat it too (i.e. buy and spend however they want while being able to wave away drowning child type thought experiments).
There are two meanings of capitalism. One is descriptive. "What happens in Capitalism." Another is proscriptive. "What should happen in Capitalism." I'd argue that capitalism requires some measure of altruistic investment in order to function. An example of this would be something like LOVE (Let Oro Valley Excel) which was a group in Arizona which was unusually successful fighting some shady rent seeking on the part of Walmart. Basically, Walmart got a huge tax break on their property taxes, as they tend to lobby for wherever they go. The governing board that gave it to them swore it wasn't for a Big Box store. And then it turned out to be for Walmart. All but one of the board members were voted out.
I'm not sure how to quantify the value of this kind of behavior, which requires time and altruistic punishment, or to compare it with donations which save lives. I suspect that it has strong second-order effects in terms of promoting competition and preserving choice for workers and customers.
But if you can save lives that wouldn't otherwise be saved, it makes sense to save lives.
I'm curious about your use of the discount rate. I'm not an economist, but wouldn't we prefer some kind of discount rate that assumes 0% growth and 0% inflation? Having a lower value for future money due to a high growth rate makes sense in investment, but makes less sense in regards to charity.
"Return on investment. If you donate to charity, various good things happen. If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
I don't quite track the argument here.
To take an extreme example, If you have a dollar 200 years ago that you invest at a very conservative 4% interest rate investment then that dollar will be worth over a million dollars after 200 years. There's a chance, of course, of losing that dollar over that span of time. But I'm not confident that "act now" is always better than "invest now and act later." Probably, this comes down to a matter of trust, where there are considerable benefits related to spending one's charitable dollars as one chooses within the span of one's lifetime, which nets considerable personal utility for the individual.
Isn't charitable giving just letting governments abdicate their responsibility to administer a bountiful, equitable, and just society, and enabling free riders to exploit the compassionate/gullible? Of course it's your money, do with it as you will. Perhaps it is a good idea to bribe the downtrodden and otherwise unfortunate not to destroy civilization, such as it is, but I'd prefer to address the issues at their root rather than relying on "the kindness of strangers" to paper them over.
So, if charity provides lots of value per dollar but doesn't incentivize people to spend much, and the market provides far less value per dollar but incentivizes people very strongly, then it could both be the case that the market is expected to create more value overall, but also that choosing to spend on charity is better. Once you've made the choice to spend some amount, how incentivized you were to do so is no longer all that relevant.
Forgive me if someone else made the argument in the comments already, but the comparison at the margin is not between a million dollars to capitalism versus philanthropy. Rather it is between competing philanthropies.
Suppose we have a million dollars to allocate. Do we give it all to the clean water nonprofit or a pro-life pregnancy crisis center? Do we give some of it to the pro-life center and some to a pro-choice center? What about the adult literacy center down the block, or the at-risk youth program downtown?
There is no way, ex ante, to determine who should get the million, or a portion of it that meets a standard of rationalism or justice.
What capitalism does, however, is permit the emergent order of philanthropy. I'll give what I can when I can, you'll do likewise, and so will everyone else. And the system of profit and loss, the 'market pressures' incentivize the nonprofits to do the most good with the money they have. And indeed, because it not a choice between the pro-life pregnancy center and the pro-choice one, but between several of each, each with different managers, budgets, and quality of staff. In short, capitalism, or the market, allows philanthropy to thrive the same way for-profit firms thrive.
But capitalism does something else. It allows the wealthy and corporations to give. As major donors or corporate donors, they can give back to causes in their local or national communities. (This, of course, relies on a clear tax system that gives them the write-off.) Even a great many small nonprofit firms are supported by corporate giving.
>There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250
Instacart has a lot of other things they could make money from. This includes partnerships with grocery stores, advertising of specific products, providing data and analytics on spending and shopping habits, etc
It's not necessarily a false dichtomy, but I would model capitalism as a social structure of which purpose **can be** to enable charity by making the humans run around, building the pumps. Communism then is like a dildo that penetrates both ways, since it makes you to run in one wheel of charity in order to get resources from the others.
1755, a full 21 years before writing his classic book on growth theory, The Wealth of Nations:
"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."
In both Adamsmithia and Charitia there is demand for clean water. In Adamsmithia clean water is supplied by Instawater which supplies clean water to all, and makes $500M a year and is self-sustaining. In Charitia clean water is supplied by donations from donors from Adamshithia. This situation is self-sustaining. InstawaterCharitia is never funded or developed.
Love the Adam Smith quote. But that’s a pretty dark take. Like, if you let the population suffer the full effects of their dictator’s incompetence/malevolence, this might motivate them to apply pressure to the ruler for better governance, that is, “do better or get ready to be ousted.” But I think it’s too speculative. You can do so much good with charity. It’s a risky bet to let the people suffer in the hope that they could motivate their leaders to instantiate better policies.
Answering the question in footnote 1: the accounting for Instacart is that they report revenue from the transaction fees, not from the whole size of the order (I'm not an accountant, but I believe technically what's going on is that the grocer is selling to the customer and Instacart is a delivery/ads/other stuff company that intermediates, so it's analogous to Google reporting the $2 someone paid for an ad click and not the $10 of revenue they got from whatever they sold. This revenue number also excludes the payout to the shopper). Instacart's gross transaction value last quarter was $7.1bn, compared to $670m in revenue. So, round numbers, the amount people spend on Instacart is very roughly 10x the company's reported revenue. This is a moving target because the revenue take rate will change, but gets you directionally there.
I think it is helpful to make a distinction between the effects of dollars given at the individual level (lives saved, textbooks bought, meals distributed) and *systemic* solutions to large scale problems. Charity exists, as I understand it, to address the individual level of impact--but it is a very ineffective approach for addressing systemic issues. It just doesn't do that very well: not enough money is donated per year, there is very poor system wide coordination on spending priorities, and there is no public forum or governing structure to debate or determine what those spending priorities should be. What kind of social impact do we, as a global or national public, want charity to have? I know of no consensus on this, nor any method of producing such a consensus.
Capitalism (more accurately, pro-business economic policy) is, to my understanding, designed and intended to work maximally efficiently as the systemic level. Individual participants and businesses might lose money or suffer, but in the long run (years, decades, generations) the market is supposed to deliver sustainable economic growth and make modern civilization possible. As for public consensus, the market at least provides a forum by which people can vote with their dollar--any good or service which is seen as unnecessary or unwanted is eliminated.
Of course, "sustainable" is a term with many meanings and distinctions. The market provides what people want to those who can afford to pay for it, but that doesn't mean that it always serves the interests of society as a whole. The poor are left behind, and global warming is the poster child for the consequences of ignoring externalities.
Government is meant to provide for the common good, the public interest. It may not be as effective at that as we would like, but, well, "Democracy is the worst form of government except for all the alternatives", and so on. No one has come up with a better one yet.
So I think it depends on what your priorities are: fulfilling the economic needs of the majority of individuals (Capitalism), addressing social issues at a systemic level (Democracy), or satiating a need to provide assistance a small number of needy individuals (Charity).
I think it obvious that some balance is necessary. As for how one should invest one's charitable donations, this analysis seems to indicate that it's really just a matter of personal opinion: what needs, which people and how many of them to assist is probably best seen as a subjective opinion. Go with your gut. As long as you are contributing to a problem that neither the market nor public opinion is addressing, it's good.
Capitalism is there to extract rent/taxes from those who can pull their weight. From this the lazy/incapable are known. Charity is spent on them.
1 million given to water dispenser will not stay with charity but trickle down to capatalism. Charity will need to buy water dispenser from a company. So, water dispenser company will get part of 1 million too which in turn could create jobs. Giving dollars to capital intensive project that saves lives and trickles money into the hands of people who need money will be good.
You can certainly find many instances where a charitable donation does more societal good than an investment or act of personal consumption. You can cherry pick so as to make any given claim on your next $100 seem absurd. Of course 200 mosquito nets > than a bottle of Krug.
But there is no arguing that washer / dryers, dishwashers, cipro, tractors, genetically modified crops, cars, iPhones and other byproducts of investment in new tech and the production of that new tech at scale, all financed via the selfish pursuit of profits (i.e., "capitalism"), have done far, far more good in the world, for both rich and poor, first and third world, than any charity has ever done, or that all charities combined have ever done or could ever do.
Which is why I've always been skeptical of EA wanting to move money and expertise away from the efficiency and discipline exerted by market forces and instead give it to projects that don't do much R&D, don't operate well at scale and are often mostly about moral preening. It's like diverting money from Microsoft or Amazon and giving it to the DEI department at the DMV.
Scott, you already made the argument that maybe we don't understand how to jumpstart development as well as we think we do, and I think that extends to development of capitalism. However, I'd like to extend this a little farther and make the claim that capitalism and democracy aren't even the first rungs on the ladder of development, which is why attempts to charitably jumpstart capitalism often don't work out.
Why do I suspect democracy isn't the first rung on the development ladder? While Japan had democracy forced upon them after WWII, other countries that also developed economically didn't see their democratic reforms until much later. For example, South Korea didn't see democratic reforms in that country until late in the 1980's. Meanwhile, they experienced multiple decades before then with annual per capita GDP growth well above 5% (https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&country=USA~KOR~JPN~PHL). The same story can be told about Taiwan, which didn't see democracy until the early 1990's. (Democracy/autocracy is easier to recognize. It's harder to point to a country as 'capitalist' vs. 'non-capitalist', but I'll get to that in a minute.)
We see autocratic regimes and think, "Why can't they just get rid of the dictator and go democratic already? What's the Special Sauce that allows this to happen?" But this ignores the underlying economic reality that most people in low-income countries live in a kind of feudalism, where landowners derive most of the profits from agriculture, even though that's often not the way those landowners actually make most of their money. Just because they own farmland, doesn't mean they're farmers. It's more of a passive income stream for them. So you might have an economy where a small percentage of the population is able to meaningfully engage in 'capitalism', because only a small percentage of the people actually own capital. Everyone else is subsistence farming, typically paying ~50% of their increase to the landowner.
What South Korea and Taiwan experienced right before their catchup period was a successful land reform movement. Effectively, the government forced large landowners to transfer their land titles to the farmers who actually work the land. (That's oversimplifying, of course.) Incidentally, Japan also had a major land reform movement right before they saw dramatic economic development. Even the US gave away massive amounts of land to individual farmers right before experiencing massive GDP growth.
Meanwhile, many countries tried land reform but couldn't make it stick politically (rich oligarchs tend to have lots of political sway - especially in an autocracy) and didn't see significant GDP growth. (Russia, the Philippines, Mexico, etc.)
Before you can 'encourage' capitalism in low-income countries, you have to find a way to dismantle feudalism so the majority of the population can meaningfully engage with the capitalist system you want to set up. Trying to skip this step is a futile effort.
You can try all day long. Let's say you come up with a plan to give chickens to all the farmers. You reason that the chicken will wander around and eat bugs, so they don't have to waste money on feed, plus it will lay eggs nearly every day. Shouldn't this be a permanent increase in standard of living for these people (so long as the poultry shall live)? Make enough of these small changes, and the farmers will eventually be prosperous! Except the farmer doesn't own his farmland. In many cases these farmers live in the nearby village and walk 3-5 km to work the fields every day. They don't have a farm for the chicken to roam in. They live in a tiny shack. What would you do if you lived in < 500 sqft and someone gave you a chicken? Dinner, I guess, but no permanent improvement to your standard of living.
Or say you set a target of 'farm mechanization', trying to copy what works so well in high-income countries. Again, this ignores the effective serfdom most of the world lives under. What good is a tractor to a landowner who works a desk job in the city and monitors his farm by paying for satellite updates? He doesn't want a tractor, or even to be a farmer. Meanwhile, the farmhands don't want to all get replaced by a machine.
I would argue that the reason we've failed to develop many low-income countries in a meaningful way is that we engage with them as though we can just gift them capitalism. But that will never work so long as they're living inside a feudalist system.
(Yes, I recognize that 'feudalism' isn't exactly the right term, but it's colloquially accepted as a shorthand for an oligarchic land ownership model so I'm using it that way.)
I'm surprised that the few comments I've read don't mention two things:
1. Difficulty of value capture (free rider problems, diffuse gains, etc.)
2. Market inefficiencies/failures
Market solutions do not work in these circumstances, so charity/government is superior.
Let's take the water example. If it were profitable for a capitalist to _capture_ the gains of the clean water, it would be done! The gains are diffuse and hard to capture, so a market solution doesn't work here.
Instacart is highly profitable. A charity to connect workers to deliver food would suck. A market solution is substantially better here.
(Another thing to note is that the vast majority of charity dollars goes to places like... Harvard. Might as well set your money on fire. The average dollar spent on "capitalism" is substantially more effective than the average dollar spent on charity even on your metric. You're comparing apples to oranges.)
Even the staunchest (non-insane) libertarians I know don't believe markets can solve literally every problem. The right tool needs to be used in the right situation.
What do you mean it's hard to capture the gains of clean water? It seems to me that lots of people successfully sell clean water or products that produce clean water. Of course, most of the gains go to the consumers, but that's no different from other products in highly competitive markets.
Many reasons why developed economy principles don't apply to developing economies:
1. Dispensers For Safe Water sells dispensers that are hard to gatekeep (i.e., property rights are difficult to enforce - it's easy to steal the clean water).
2. Gains to clean water occur over long periods of time and potential purchasers don't have the capital to purchase the clean water now (liquidity constraints).
3. It's unclear if the purchasers know how to value the clean water.
4. (less of an issue for Dispensers For Safe Water) coordination issues over centralized water supplies.
Even in developed economies, the _vast majority_ of water is done at the government level due to coordination problems. (Yes I'm aware you can purchase filters, etc., but the majority of people use their faucets)
Outside of the actual point, I think your 10 million "happy customers" is flawed, as it's just a single point in time. You need to think instead of the number of total customers, ie number of people who have gotten value from instacart since it's inception. If you don't, the comparison with "number of people saved by clean drinking water" doesn't make sense, it would need to be "today's number of people drinking clean water from our system."
Additionally, I was a gig worker, specifically for Instacart and Shipt, and I think it's fair to put all (or at least a fraction) of the 600,000 gig workers in the "gained benefit" column. (Or should I say, the total number of workers who gained benefit since it's inception)
I feel like this post misses the fundamental difference between expenditures and equity. If you invest in a company, you have the option to donate (or otherwise reallocate) your capital in the future. For example, if you invested $1 million in Instacart in 2012, you have the option today of selling your stock and donating the proceeds to GiveWell.
So the question of whether to invest in Instacart or donate to GiveWell more or less corresponds to the question of whether you'd rather build 100 wells this year or 107 wells next year. (Assuming 7% real returns relative to the cost of building wells.)
Seems like this list is missing the most obvious pro-capitalism form of charity, i.e.,“Give the money directly to someone who needs it more than you do, and then let them spend the money on whatever they personally want, since that’s the normal engine of capitalism and encourages companies to provide desirable things”
I think a "charitable" way to interpret it might be (not sure if it has been covered already) is that to have sprawling successful charities one needs a lot of capitalism to begin with, to make the money to donate to charities. Once there is enough money floating around, some will donate. If there is not enough, very few will.
> And Instacart has gotten better return on investment in the past few years than the local utility company…
Note that PG&E is not an example of "capitalism", or at least not one that you should be able to give with a straight face. Their policies must be approved by the government of California.
"I’m nervous about this because of China’s Belt and Road initiative, which did this at huge scale for infrastructure, but doesn’t seem to have done much good (and might have done some bad)."
Yeah, but how many developing-world projects come with a catchy children's song? https://www.youtube.com/watch?v=M0lJc3PMNIg
The correct way to do 3 is to give to GiveDirectly, which isn't *that* ineffective by the standards of GiveWell.
If the US & Japan got rich through capitalism then indeed it would seem to be a priority for poorer countries to follow a similar path. Donating to the Charter Cities Institute might not accomplish much (how many charter cities have they actually made?) but Tyler Cowen donates money to entrepreneurs in places like Ethiopia rather often. It is actually something of a puzzle in economics that poorer countries, which have a shortage of capital, aren't receiving large influxes of capital for the higher marginal returns, and the common explanation is that political problems makes people suspect they won't receive such high returns from investment. So one is arguably providing more social benefit by investing in such places at risk to your personal returns, although it would still be better to incentivize the stationary bandits in such countries by investing in places with the least avaricious/most pro-growth bandits.
I should note that I donate to GiveWell recommended charities and just let my employer-designated 401K invest my money for me. I'm too lazy to be an optimally effective altruist.
I'm glad you blogged about this, but I think the actual problem is a lot simpler. Clean water, mosquito nets, and giving money directly to poor people all lead to guaranteed measurable improvements right now. Spending money and effort on a vague plan to somehow get non-capitalist countries to start being more capitalist is what we should theoretically be doing to fix the world in the long term, but it would probably go nowhere. I absolutely believe we should spend some money and effort doing that (I insert economic soliloquies into my YouTube videos and decorate my leather jacket collection with the principles of economics for this very reason), but I also accept that it's much more of a gamble as far as effectively spending our altruism goes.
Instacart belongs to a handful of San Francisco techbros. I don't know if any of them are Effective Altruists but they might be. If they are, shouldn't that (or even the possibility they might be} count in favor of capitalism? The standard EA claim being as I understand it that if instacart customers walked to the store they would either not donate the money saved to charity or give it to an animal shelter.
*Carefully raises hand* I think the 2-3 orders of magnitude in affected people should be accounted for?
610k employees getting money
10 million customers saving time and honestly just being a bit more comfortable
Vs
50k people with clean water
Grain of sand for billions vs gruesome murder for a dozen kinda thing
Scott, your math is completely bonkers.
You counted:
Instacart: externalities - cost_to_start <- MASSIVELY INCORRECT
Charity: externalities - cost_of_donation
You should count:
Instacart: externalities - cost_to_start + $10B
(Where "externalities" capture all the facets not accruing to the investors - be they positive or negative).
And this is why investors prefer capitalism over charity - they get another $10B ;)
(yes you do pay lip service to this in one of the latter sections, but the whole calculation still appears completely off)
(Also sounds like a classic problem of incentives - most people are mostly interested in the returns that accrue to them, not to the externalities, hence "privatize the gains, socialize the losses")
For centuries some people have been asking why a diamond is more valuable than water. Water is fundamental for life whereas a diamond is not. Nowadays some ask why porn stars get paid better than a schoolteacher. Basic education is more important than sexual entertainment. Today we ask, why we give money to Instacart instead of this wonderful charity?
Maybe the answer is silly. If Instacart disappears, is Dispensers For Safe Water going to bring the groceries I want to my door? If whateverpornvideos.com disappears, what charity is going to provide that sexual entertainment to people instead? Are charities better in that, arguably, more relevant sense?
If the metric to establish that charity beats capitalism, is that we have to frame life as just a set of very basic human needs that can only can only satisfied just to keep alive the greatest amount of people, in a very efficient manner, then you might be right. The problem is that even in that framing, capitalism and government also got there first.
Don't forget that NGOs also create jobs, to perform their activities, and you can create more jobs in poor countries, with the same money.
(some money monsters like the UN offer excessive salaries for basic jobs like chauffeuring their expats, which drains the local economy of qualified employees, but you weren't thinking about giving to the UN, were you?)
I think you missed what I'd consider to be the most obvious/intuitive way to "donate to capitalism": voting for politicians, funding campaigns, and other actions to increase the number and level of pro-capitalism policies passed in the world.
I expect most people who say things like "Why give to charity when capitalism is better?" are right-libertarians or pro-market Republicans. From their perspective, the marginal best altruistic uses of money may well be trying to get the more pro-market party in office (or voting/promoting the most pro-market candidates within each party).
To be clear, I'm not saying that donating to economically right-leaning political campaigns is a) net positive, b) more cost-effective than GiveWell top charities even if you have typical right-libertarian beliefs, or c) even worth putting a lot of research into.
I'm just saying that the most obvious way to promote capitalism with money probably involves politics ("money is speech" etc etc).
So the pro-capitalism argument can be rephrased as an emh thing - if you can cheaply create more wealth in Africa with public health investment, why don't investors just do that instead of investing in Instacart? I think there's three explanations for this (two pro and one anti charity):
First , it could be a value capture issue. Maybe you create a lot of productivity in Africa by investing in clean water, but Africa doesn't have the financial infrastructure to let you charge everyone 10% of the extra earnings they get from being healthy, so you have no personal incentive to do it. This is a problem directly solved by some people being altruistic and not doing things purely for profit.
Second, corruption - maybe extra investment in public health don't actually make the country richer, since there's inevitably going to be dictators who skim everything off beyond basic living standards. Your foreign investment just goes to displacing the minimum investment they otherwise would have had to make. In this case the charity really is useless or worse, going to empower terrible people (leaders of terrorist groups generally become incredibly wealthy through similar means).
Third, "value" might be fundamentally unsharable. If you make Kenyan workers twice as healthy, that might still be less total productivity gain than saving a silicon valley employee the time it takes to go grocery shopping, because most of the gains are just in that Kenyan workers feeling better, and even after that he doesn't have enough spare resources to pay you what it's worth. This one is mostly a pro-charity take (at least, assuming you value people's internal experiences and not just their economic productivity), but it can also mean economic growth isn't impacted much by charitable investment, which boosts the argument that it's net negative because it creates dependency.
Overall I find (1) here most convincing, but I do worry about (2), which is why I'm generally more supportive of long term public health projects than other ideas like givedirectly.
definite +1 for these guys -- I've seen them do good work on a shoestring (and have a sense of humor)
There isn't really a competition - the two address different issues. Capitalism has lifted masses of people out of poverty, and continues to do so. However, in any system, some people will fall through the cracks, and charity offers an opportunity to catch and help those people. That is the situation within a functioning society with capitalism.
The situation across international borders is different. Charity from wealthy countries, given to poor countries, nearly always results in unintended side-effects. IMHO it is counterproductive more often than helpful. Just as an example: food aid for Africa, where the free food drives local producers out of business, making the country even more dependent on food aid.
Rather than bet on a specific value proposition, why not invest in those who support them? It's a painfully inefficient market as money tends to flow toward to the most entrenched, not the most effective. Efforts to assess the ROI for business incubators/accelerators, counseling programs, etc. are tough to do and there is surprisingly little evidence of even a positive ROI. Applying top-down. linear models to what is an ecosystem may have worked somewhat in traditional economic development but falls way short here. Instead, why not take a systems approach to building entrepreneurial ecosystems** and support the ecosystem builders? (Who are chronically under-funded and facing hostility from the Haves... sometimes it feels like we're Uber/Lyft trying to grow where the taxis are controlled by the mafia, lol.) However, there's progress as we identify what works and doesn't (and limit/delimit those impacts). Perhaps burying the lede, there is now a nascent national group with the charter of "we help those who help the entrepreneurs". As part of that, we have identified some projects that will help these builders to visibly offer significant value to the ecosystem that the old school types cannot. Introducing high-quality entrepreneurship education to a less robust ecosystem can have a big impact long-term but does have measurable impact shorter-term. Improving the mentoring that entrepreneurs get is also powerful. Scott, I can blather on more - but to perhaps oversimplify. it seems that while sometimes you invest in the student and sometimes you want to invest in the school -and the latter is chronically underfunded (that the funding is captured by incumbents...) Thanks for the chance to share!
** ecosystem is actually a good term despite most of my cohorts are not biologists. "Builder" is not my term, I find it a bit arrogant :)
btw, it's still more on the academic side, but Nobel Laureate Elinor Ostrom studied ecosystems where a tragedy of the commons should have happened but didn't? What were the positive conditions? Understanding that there's social, economic, even political elements helps! Here list is here: https://en.wikipedia.org/wiki/Elinor_Ostrom Applies just as much to entrepreneurial ecosystems.
Like many commenters, I'm thinking "isn't microfinance (e.g. Kiva) the best of both worlds?"
Other commenters are saying microfinance isn't actually very good or effective. Could someone summarise the arguments against it?
I found this on Givewell https://blog.givewell.org/2009/12/11/estimating-the-cost-effectiveness-of-microfinance-charity/ and I don't think I understand it. It seems to be saying that microfinance is ineffective because if you take the total amount *currently* being spent on microfinance and divide it by the total number of people in the *potential* target recipient population, you end up with only $0.75 per person. That seems like such a stupid argument that I feel sure I must have misunderstood it, and it could be applied equally well to dismiss the effectiveness of malaria nets or deworming or any other "effective" intervention that's not yet maximally funded. It also seems to be focusing only on the "grants" part of microfinance and ignoring the part about loans which can be repaid and reinvested in other microentrepreneurs, which I thought was the more important part and the part that makes it more capitalism-like and hence relevant to this post.
Surely the relevant factor is how much of an impact microfinance makes on the subset of the population it's currently serving, plus the second-order impact on others in their communities, and how these compare with the impact of healthcare interventions; combined with how likely recipients are to repay their loans and free up the same capital to invest in further microenterprises, which isn't a factor in healthcare interventions.
If I put $1k into microfinance, then, supposing 50% of microfinance loans get repaid (figure plucked out of the air), then the amount of investable money will approach $2k over time. So the impact of one-off healthcare interventions would have to be more than twice that of providing local entrepreneurs with investment, in order for the healthcare interventions to be more effective. This is the sort of analysis I want to see, only with actual data.
(Also, the post seems to conclude "meh, it's a wash between microfinance and typical EA healthcare interventions" rather than "microfinance is notably worse". So it seems to be a matter of framing: why is this being shared as "microfinance isn't that effective really" rather than "microfinance is as good as the best EA-recommended interventions!")
Maybe a good way of thinking about this would be to separate initiatives on two axis, immediate consumption vs long-term investment, and centrally directed vs market mediated.
So a charity that hands out food, would be centrally directed consumption. Wall street investing in a dam would be market mediated investment.
Water filters are centrally directed, and seem more like consumption than investment to me, even though they sort of are "investing" in keeping people alive, human labour probably isn't the tightest bottle neck in the system. They definitely aren't where market mechanism would direct investment to maximise economic output.
If you want your altruism to promote immediate consumption it needs to be centrally directed because the market mechanism just allocates consumption to whoever has money.
For investment, market mediation might work, but it's unlikely to be directed to where it'd be most useful altruistically. Also, it's unclear how much altruism could affect the global rate of investment.
Historically there have been successful centrally planned programs to industrialise countries. That might be the most effective approach for development in places that altruist care especially about.
I don't know if GiveWell would endorse the scheme, but maybe if you resurrected a 1920s soviet agricultural planning officer, gave him jurisdiction over 1000 peasant plots and 10 million dollars to buy tractors, and bridge the temporary gap in food production whilst the system shifted to a new equilibrium, that might accelerate third world development above the rate global capitalism is currently managing.
I think there are several important considerations omitted from this discussion:
- Both a private company _and_ a charity can cause harm under the hood. A charity could be building water pumps in rural Africa, while also giving a cut of the money to a local warlord (because otherwise they would not be permitted to operate in that area, for example), thereby sustaining a group of people who may kill just as many as that charity saved. A private company could be producing a lot of value, while quietly polluting water for the nearby city of a million people. So it is very important to consider the operating conditions and local constraints of both charities and private companies, and if saving 2000 lives comes at the cost of causing deaths of even 2 people, I would personally not give my money to such a charity or company.
- The framing of choice between charity and private company may be ill-posed to begin with. If it were not, it would be possible to consider a society where only charities and no companies exist, or vice versa. However, it would be a clearly absurd, and likely not desirable scenario. A society run by a feudal aristocracy can have a number of highly effective charities but nonetheless an utterly garbage quality of life compared to a capitalist society with half the number of effective charities, for the simple reason that the aristocrats keep the lion's share of the economic value to themselves. So we cannot consider charities or companies outside of the socioeconomic context they exist in, and similarly we should consider situations where a charity or a company, besides saving lives, promotes a specific change to the socioeconomic context. I would not donate to a charity that promotes the institution of feudal aristocracy, for example, even if it were highly effective.
These are not abstract considerations. For this reason, I personally prefer considerations of transparency over just counting how many lives some organization can save. No point if you're only provided with the net profit and not the operating costs, so to speak.
I like the intent of this piece but you (like almost everyone) seem blind to one of the "unspeakable" problems of capitalism — artificial scarcity.
Startups generally, and even some very large companies in the industry-disruption category (e.g. Tesla,) earn 100% of their revenue from creating value. But the majority of large companies get a portion of their revenue through various "rent seeking" strategies. Some get the majority of their revenue this way. "Rent seeking" is a somewhat vague term but it describes very natural behavior to manipulate markets so that more money can be earned from less actual "work." One of the worst of these strategies is the creation of artificial scarcity. A good example is the diamond market, but the same is true of most basic commodities, (e.g. oil.)
If an honest appraisal of the entire global economy segregated the portion that is earned via rent-seeking from the portion due to actual value added, my guess is more than half would be in the former bailiwick. If anyone knows of such a study please share it.
Capitalism is a powerful engine for good. But it naturally also produces a huge amount of bad. I think this is the reason why most discussions of it miss the mark — they fail to admit the scale of the abuse in the system. Unchecked (i.e. with zero regulation) it necessarily results in a vast portion of the world living in poverty due to rent seeking strategies including artificial scarcity. Altering the ratio of good vs bad capitalism ought to be the goal, but so far, our most successful tools have been government regulations, which now often seem to be overmatched due to corporate capture of the regulation mechanisms.
Charity work includes attempts to address both the symptoms and the cause of poverty. In addressing symptoms, it will never be capable of even coming close to balancing out the negative impacts of artificial scarcity, since that is an artificial manipulation in the first place. It is "by design" and is necessary to support that rent seeking revenue. Since charity lacks the function of law enforcement, it will never be able to force companies to abandon rent seeking strategies. Only government, with the implicit threat of prison, can do that.
You’re comparing a marginal (marginal in an economic sense) company in the first world vs a marginal charity in the third world. Of course you’re going to find that investing in the third world is going to have more impact ! That’s what it means to be a developing country. That result has nothing to do with company vs charity ; it’s about first world vs third world.
On Job Creation: That the customers would have spent that money anyway is the broken window fallacy. This frees the time of the customer to do other things, either be more productive or have more non-work time for other activities. What's important is that the Instacart job is the best job that the worker could get (otherwise they get the better job). That means *they* have more money to spend, which creates better jobs for other people, and on and on. It's a positive feedback loop.
Replaceability: You just cheated here. You compared the *brand* of Instagram with the *function* of Dispensers For Safe Water. If DSW was discovered to be embezzling most of its funds and got shut down, another charity would come in to replace it. The brand isn't the thing you're talking about.
Permanence: The lives aren't saved forever. If we assume the other sources of water are, say, magically cursed to be instadeath water, you will immediately see that the lives are saved for only ten years.
And this is key element you missed, and the largest driver of *why* free-market systems are better than charity. A free-market system where the local people are free to generate and spend their wealth on their own would solve the deathwater problem permanently, by creating an incentive for people to create or deliver water that wasn't cursed. Everyone who solved that problem would be directly rewarded by the people who benefit from having the problem solved, and they get into the positive feedback loop measured above.
The rest of your argument hinges on the function of the service in question, rather than the mechanism by which it's delivered. So here's a more useful comparator: Jimmy Donaldson (Mr. Beast) makes a ton of money through his Youtube videos through stupid stunts and silly challenges for tons of money. But he also has an affiliated channel where he makes a ton of money, using the same skills and abilities in promotion and engagement where, instead of stupid stunts, he... does "charity" work. He then takes the money earned through those videos to make more videos about charity work. He doesn't ask for donations, the project is *self-funding* through its commercial endeavors. The results are openly the driver for more results, which are promoted here: https://www.youtube.com/@BeastPhilanthropy/videos
So why doesn't Africa do these? Because most of the governments are corrupt and steal any value the people produce, if the governments even exist at all, and it's not just bandit gangs raiding and pillaging. It's the lack of free markets that makes the continent poor, and where there are, to the extent there are, those countries are improving.
The great advantage of capitalism is that nearly completely useless stuff that doesn't benefit anyone gets filtered out. (Predatory scams, etc, will still get through, but obviously that's not the only kind of low-value project.) You can get even better value out of charities by caring even a little (i.e., checking GiveWell,) but this hasn't reached fixation.
Peter Lindert's analysis shows to my mind that state social spending is competitive with private investment for encouraging long-run growth; and also that as with charities and private investment it's made quite unequally. It's almost certainly the case that GiveWell charities beat out first world state social spending because of the higher marginal impact in developing countries (which also, not coincidentally, have poor state capacity.)
One can probably conceptualize this as a spectrum: market activity (including noncapitalist markets like worker cooperatives) applies a lot of selection pressure to effectiveness, but only maximizes for the benefit of the people with the opportunity to do it; public spending (or peer "charities" like fraternal orgs or neighborhood solidaristic groups) has selection pressure if (but only if) institution are relatively well-functioning via broadly selfish citizens wanting spending that benefits them, and benefits a wider variety of people but only within local borders; charity has completely different agents and beneficiaries and so the highest potential upside but also the potential for the laziest thinking.
One could imagine (however unlikely such a thing might be for humans, obviously) a social system called "charityism" where everyone directs their labor whatever resources they command towards what they good-faith think would do the most good. ("Property rights" over who decides how to direct a resource might be negotiated in advance by participants in projects to create or manage that resource, and the state might set up some rules and try to prevent violence between groups with very strong clashing visions of the good (say Alice wants to blast up a forested mountain to get the ores there for people and Bob thinks this is bad enough to use violence to stop her) but such disputes would take up a much smaller role than in our world.) I suspect that such a system would outperform (on any metric you like) any economic system humans could actually implement. When you do give to charity or otherwise act with the most good in mind you get to bring just a little bit of this sort-of-heaven down to earth.
I'm loving this post because Scott triggered a lot of incredibly cold and calculating readers. The comments are grimly enlightening. I sometimes forget just how ruthless free marketeers can get.
I can see two ways to ”promote capitalism” in ways that might work and be productive. The first is promoting institutions, as capitalism will arise and flower naturally under liberty and good institutions. The second would be to promote free trade, as there’s nothing better you can do for a poor country than involve it in an actually free trade system.
Of course, the question then arises how you would actually achieve this - in most corrupt countries, the leadership are the ultimate beneficiaries of the corruption, and lack of free trade mostly exists to protect some group of people whose support the people in power need.
It’s also easy to imagine any number of ways it’s preferable for a country to, you know, have a working economy rather than being dependent on charity. Resilience - this will be sustainable over time. Dignity - you’re not a beggar. Independence - you can spend on what you want, not on what foreigners think you should. You will also be a good example to others, and even contribute to the international economy.
I also always question the math of this “save a life”. Okay, so A now don’t die from dirty water, one life saved. Next, a mosquito net stops A from dying of malaria… but is this really two lives saved now? Saving the same person from death ten times is good and all, but it’s extending one person’s life, not saving ten lives.
I would argue that in some sense, charity is part of Capitalism. One of the core ideas of Capitalism is that everyone should have the freedom to spend their resources as they see fit, and in doing so, they will affect what is produced/accomplished at a societal level. Charity is just another option in the choice Capitalism gives you freedom to make. I don't really see how investing in Instacart (or whatever) is "more capitalist" than donating to Givewell, except it a total superficial aesthetic sense.
I think a problem here is the either-or aspect. Capitalism has its place, and so does charity. Economically speaking, both have a decreasing marginal utility, so at some point you should put resources toward the other one.
Also, poorly developed areas can benefit their residents more using fewer resources, but the overall economic impact is smaller. For example, if the GDP of a country is $1 million, and you double it to $2 million, that has less impact on the world than a country with GDP of $1 billion increasing 1% to $1.01 billion, even if both countries have the same population. From a charity perspective, the price may well be worth it to double the poorer country's GDP, but feeling good, making other people happy, and saving lives has no dollar value assigned, which kind of points out a limitation of economic theory.
If the charity is operating under a capitalist framework, isn't donating to that charity equivalent to donating to capitalism? IE: If your water dispensers are manufactured in the US, then donating to the water dispenser charity means the money ultimately stays inside the US, providing jobs and stimulating the US economy, and only the product itself is flowing out and improving material conditions elsewhere. The loss of resources is probably trivial compared to the goodwill it generates for capitalism in the destination countries.
Also, since many companies outsource labor to non-capitalist countries (see the volume of product produced in China, or things like oil), then donating to or buying product from those companies is also helping whatever non-capitalist framework those societies operate under, so it can't be as simple as picking the highest ROI company: you'd have to evaluate how much donating to them would contribute to negating capitalism worldwide.
Something I thought was perfect for "laying the pipes" for capitalism is an Indian program for ensuring digital identities to everyone with a bank account connected to it. This is a huge deal! India has nicely opened the solution up, as well.
https://www.globalgovernmentfintech.com/india-opens-up-payments-and-digital-id-global-repository/
One thing about poor countries is that there's often more resources than one thinks, but it's not institutionally secured - for instance, you can't borrow against your house if the only way you own it is through tradition or occupation, and this is economically stifling. Merely having a bank account and a legal identity can be a significant deal. Banking and insurance for the poor is very likely far more important than any charities - see for instance here, at the excellent 'Brain In A Vat' podcast: https://podcasts.apple.com/us/podcast/how-to-end-global-poverty-andy-kuper-rebroadcast/id1509951964?i=1000639600708 .
The fact that people seriously believe that investing in a first world company is going to produce more net benefit than direct charity to third world countries is bizarre to me. It requires such level of wishful ignorance about negative externalities of capitalism that it breaks my benefit of the doubt.
I also notice that Scott didn't mention these negative effects and just compared positive effects which is... not enough at all to understand the situation.
Here is an obvious example. Suppose there are hundreds small chocolate companies buying cocoa beans from Africa. Farmers compete with each other and the most competent become richer. And theoretically, they can use this wealth to educate their children and contribute to the development of their society. Meanwhile, people in the first world get their tasty chocolate and jobs at the companies, which compete with each other for the best offer to the farmers. So far so good. Everyone gets their fair share of gains of the trade, capitalism is working as intended and so on.
Suppose we want even more capitalism with all its benefits and thus a lot of money is invested into some of these chocolate companies. Now, these companies get more slack and a better bargaining position. They outcompete other chocolate companies and now we get an oligopoly of just several huge ones. They are also pushed to provide return on investment, which is achieved by cutting costs, offering worse prices to farmers in the third world. Investors are happy, they get their ROI and invest even more, thus perpetrating the cycle. Customers may even get better prices, thus they are happy too. But farmers in the third world are doomed to poverty now. They have to employ their children working on the farms instead of sending them to get education. Gains of the trade are significantly reallocated, much more of them going to the first world than third world, which needs them the most. No more spare wealth accumulates in the third world, and thus no more awesome effects of capitalism that we wanted - the opposite actually.
What do you mean? We get a bunch of affordable chocolate, and the farmers are no longer at risk of starving to death any time soon. Seems pretty awesome to me.
I mean that first equilibrium, with farmers getting wealthier and their children getting more opportunities is much better than the second with child labor and eternal poverty. That just investing money to get more capitalism often leads not to the kind of capitalism that is beneficial to everybody but to the kind of capitalism that take advantage of poorly developed countries and reallocating gains of trade to the first world, that these sweet ROI, which we treat as a separate advantage of capitalism, may actually be money underpayed to poor farmers.
One thing I do making donations to health charities with an eye to both saving the maximum number of QALYs per dollar but also to how the disease curing will effect the economies of the recipient countries. Preventing deaths is a large good, but preventing crippling diseases that cause people to be drains on the resources of their fellows in addition to the misery they suffer themselves get a bump in priority. And some charities like Iodine Global Network can potentially cause drastic positive externalities that could swamp the direct good they do
Without companies like Instacart, no one would have money to donate water dispensers.
Not too sure where I stand on this, but to strongman the argument for “industrial capitalism” would essentially say that it is basically the biggest factor in improving peoples’ lives and reducing poverty in history. Prior to industrial capitalism, in 1700, if you got incredibly lucky and happened to be born in England, your life expectancy was 37 years, much as it had been in most times and places. The average monthly income was about $80 in present dollars worldwide, although because of vast inequality most would have earned a fraction of that. By historical standards the lives we live today (even in poor countries) are incredibly safe, secure, healthy and free.
It is hard to argue that industrial capitalism isn’t responsible for most or nearly all of this. The timing of the improvements (and the locations) closely mirror adoption of the rule of law, private property and enterprise, competition and financial mechanisms etc (in contrast charitable donations to improve the lives of the poor have existed in nearly all times places).
To take a recent example, in 1980, before reform and opening up, well over 90% of roughly 1bn Chinese people lived in extreme poverty (less than $2.15 dollars a day). Today that number is essentially 0. The UN hit its millenium development goals for poverty reduction five years early (whilst missing pretty much all of the others) not because lots of NGOs did lots of work on poverty reduction, but because China embraced industrial capitalism. Today there are many countries, which similar to China in 1980, have not embraced many tenets of industrial capitalism, and so the lives of most of the population are relatively short and grim. We should be desperately trying to expand the opportunity to use the wonderful life improvement machine that is industrial capitalism to these people.
Therefore strongman case for Scott’s number 3. option (charitable interventions with a capitalist flavour) is probably interventions that encourage the factors necessary for industrial capitalism where it doesn’t exist or does in weak forms. The biggest one is probably changing the mindset of the elites, as a shift to a properly open economy will likely see massive relative reductions in power for them (as the rule of law binds them and power/wealth flow to entrepreneurs/business people) and so generally they (arguably rationally) prevent it from happening.
What would this look like in practice? One example of such an intervention would be educational exchanges between China and the US (as well as other countries) particularly in the 1980s. At the time domestic support for reform and opening up was tepid (with the policy almost entirely collapsing in the early 90s). Educational exchanges helped cement support with Chinese students (much more likely to be tied into elite networks) seeing the benefits of the US model for themselves. Whilst I think Fulbright scholarships are funded by the US government, these sorts of interventions have a relatively low cost and could be done privately. If they increased the chances of reform and opening up succeeding by 0.01% they would be worth a ridiculous amount of QALYs.
Another would be the Ibrahim Prize. This offers $500k for ten years plus $200k a year for the rest of your life to any African leader who reduces corruption and respects democratic norms. If that pushes one leader away from refusing to step down after losing an election (knowing he will have a wealthy and pleasant retirement) again it would seem to be incredibly valuable. It could even go further: $500k is pretty low (and only goes to max one person per year) and it could also be offered to a much wider section of the elite. Once the rule of law and enterprise has taken off these sorts of prizes wouldn’t be needed, as the newly empowered mercantile class will have the wealth and power to defend themselves.
Whilst these interventions are incredibly complex to judge the results and don’t have the clear X number of lives saved metric that the giving well foundation can offer for clean water, in a similar way to often argued for AI risk reduction, the size of the opportunity/risk is so large it is probably worth the attempt.
Slightly separately a few comments on the article:
Comparing an investment in Instacart to a charitable donation is very apple and oranges. The VC investment that led to instacart should in the long run give a market rate of return (otherwise less investments would be made until it did). In a sense the investment that created instacart cost the investors nothing in opportunity costs, they received a market rate of return. A completely amoral rich person would probably put some of their money in VC, whilst likely wouldn’t be donating to charity.
I don’t particularly agree Instacart is a great example, it’s a company that derives rents from network effects rather than anything particularly innovative, the service provided is one of mostly transferring time from poor people to rich people, and the jobs created are relatively low value add and low paying. There are clearly companies that the world is significantly better off for having existed, such as Tesla or Tongwei Solar.
On a slightly pedantic note you can’t really put the cost of Instacart at $10bn (when total capital injected is $3bn) whilst also saying you prefer Instacart as an investment over utilities because of better returns. The $10bn figure is fine but assumes an efficient market (I.e. that investors are investing in VC rationally for market returns and so whilst only $3bn has gone in, you have to include all the other failed investments, and that overall VC investments are making a market rate of return). If you make this assumption it is odd to later assume that the risk adjusted returns of utility investments are much lower than VC.
On further pedantic note, the vast majority of Instacart’s $10bn value comes from investor expectations of rapid future growth. Instacart made a $71m loss in 21 and $70m profit in 22 (after stripping out a one off accounting change as now they are making a profit their past losses of nearly $1bn now have some tax benefit). Ignoring all loss earning previous years, at $70m in earnings, growing steadily, you would probably expect a 10-20x price/earnings ratio for a standard largish firm. Which would put Instacarts value at just over $1bn if we used a 15x multiple. The remaining $9bn is based on expectations of rapid future growth in both revenue and earnings. Therefore the cost of creating Instacart - as it is today - is much closer to $100,000 to give 2,000 people grocery delivery.
It seems to me you're forgetting the by far most important thing that's the advantage of capitalism over charity: scalability.
If you're bottom-line positive, you can make the same product until you hit diminishing return to scale. If you're revenue-negative, you have to get more donation money.
Michael Porter made this case well: https://www.ted.com/talks/michael_porter_the_case_for_letting_business_solve_social_problems?language=en
This is a 1000x+ scaling advantage. If it's generally possible in that system (laws, security, property rights etc.) to create revenue-positive businesses, you can create 1000s more of them.
Only from other positive-revenue businesses can charity money come in the first place. My impression is wealthy donors give about 1% of their money to charity (I could be totally off), which means you need a ratio of at min. 100 to 1 based on fixed human nature assumptions.
Not a battle-tested argument, happy to hear feedback.
This sounds right to me. Another intuition is that "capitalism" (price signals, work, education, buying and maintaining things) involves ~everyone in the process for most of their waking life (working or making decisions about resource use) while charity might be more targeted but involves a very small number of people and hours in the process, because the incentives aren't there.
You link above to your review of _How Asia Works_ (https://www.astralcodexten.com/p/book-review-how-asia-works), and it's interesting rereading that essay in the context of this one. One of the key things it talks about is land reform as a first step toward development, and that seems like something that capitalism can't possibly accomplish. Seizing land from big landlords and redistributing it to the rural poor runs exactly counter to the strong property rights that form one of the foundations of capitalism (foundational enough that the Index of Economic Freedom uses property rights as part of its country scores).
It makes me wonder whether anyone's investigated the possibility of charitable land reform, somewhat after the environmental model of buying land in the Amazon and making it a nature reserve. Rich Westerners could buy land from large landlords in undeveloped countries and redistribute it to poor farmers, helping to create that key basis for successful development to happen.
_How Asia Works_ is kind of negative about Landesa (landesa.org), but that was 2014, and I wonder whether they've become much more effective since then -- their website suggests that they've accomplished a lot (although nearly every charity's website says that, of course).
Still, Landesa seems to be focused on improving land *rights*, as opposed to direct land transfer, so it seems like a different approach from what I suggest above.
I find it frustrating that capitalism is always treated as this black box capitalism is what we do in the United States, period. I think capitalism is both good and inevitable, but that doesn't mean that the inequities in the way we do capitalism are also inevitable. My dad raised nine kids on one salary, we lived well. That's basically impossible today. What happened is that the fruits of the economy are no longer distributed the way they were in the 50s. The poor will always be with us, but if capitalism worked more effectively there would be a lot fewer of them
We need an Effective Capitalism movement.
On your list for what it might mean to "give to capitalism" you should have "burn some money." Money is just the right to allocate resources. If you burn some money, you're saying "My personal needs are met, and I'm no expert in allocating resources for other people, so I'll forfeit my right and let the economy decide." In the short and medium run, letting the money sit in the bank has the same effect, with the added benefit that it provides personal security if you become needy later. This is what I mostly do with my money.
Could we consider capitalism to be the means of wealth creation that funds charity? If it weren't for capitalism, would we have the resources to create and fund international charities at all?
I don't think it's fair to compare Instacart against Dispensers For Safe Water because Instacart provides services to people in the First World and the charities that GiveWell endorses provide charity to people in the Third World.
Prices are very high in the First World, so you should compare Instacart with a charity that helps First World people. Alternatively, you could compare Dispensers For Safe Water with a company that is similar to Instacart but is in the Third World. Such a company will likely deliver more groceries to more people for way less money than $250 per year per customer.
The consequence of this is that if you want to encourage capitalism you should do it in poor countries that need capitalism the most, not in rich countries that already have capitalism.
> Return on investment. [...] I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
I think the factor is much higher than 2. Most people investing in Instacart have purely selfish motives, they only want the ROI, so the other positive effects are free! Since altruistic giving has a non-zero cost, it is infinitely less cost-effective.
The logical conclusion is that one should emulate Warren Buffett, and allocate capital purely to maximise ROI and re-allocate the gains. The argument must surely be naive since Buffett himself gives a lot away altruistically.
Along the same lines as your point 3 is charities that promote self-sustaining development in areas. My friend runs a charity in Haiti that basically funds a few schools, which are mostly taught by locals, as well as initiatives to help train the locals on better ways to produce food and other goods themselves. One of the key components is self-sufficiency, because, you are right, indefinite charity leads to suboptimal outcomes compared to letting the market work out what is efficient itself. However, sometimes capital injections to overcome extreme poverty or knowledge injections to leapfrog years of technical development can be extremely effective.
Your friend's charity sounds like a very worthy enterprise but when it comes to Haiti what they probably need is not self-sufficiency but a decent paying job in a (hopefully big) capitalist firm. I wrote a short article about mining in Haiti in particular:
https://www.mangosorbananas.com/p/what-is-preventing-haiti-from-having
One thing you don't mention is policy advocacy within developed countries.
Advocacy for increased immigration and fewer trade restrictions might actually be competitive with donation on "human welfare per dollar" grounds, though of course higher variance because you're looking at a *chance* of influencing policy rather than a near-certainty of providing {water, mosquito nets, cash, etc} to recipients.
One very important negative to charity is that it undermines local production of similar goods. When we give food to poor Africans, we destroy their local food production (who can't compete with free foreign goods) and make the next famine significantly worse, creating more death and misery and making it more necessary for foreigners to send food again, continuing the cycle. Long term, a country is better off with local producers of fresh water systems who can create and repair such systems with the added benefit of local jobs. You get all of the benefits of the charity (fresh water) while insulating the people from the negative effects and training locals in useful skills at the same time.
The thing about capitalism is that it's really about markets. You need a real market with prices that reflect real supply and demand for capitalism to work well. Charities are a type of subversion of the market, since they distort prices. We don't need investment (capital) nearly as much as we need markets (price signals). If you think of Capitalism as investments, then it's a mixed bag compared to charity. If you think of Capitalism as markets, then it clearly wins.
With functioning markets, people can invest in poor foreign countries and provide services for a known or at least estimated return. Belt and Road doesn't work, because it's not based on markets, it's a type of command economy. Heavy infrastructure investment can work for building a country up (it did in China), but it's not a real economy and creates distortions that can come back to bite later (as it is doing in China). There's no guarantee that heavy infrastructure investment will even help, which you can see in a lot of Eastern Europe in the 1990s but also places like Venezuela more recently where money was thrown at projects but didn't really do any long term good.
Been struggling to verbalize exactly that. Thank you.
The capitalist way to better the lives of poor people is by buying their products. Work to eliminate restrictions on free trade which mostly benefit rich countries at the expense of poor. Tariffs, for example.
Reducing agricultural tariffs would help poorer countries which have little to export but agricultural products. The United States has relatively low agricultural tariffs, averaging around 25%, but they are not 0%. Launch an advertising campaign explaining how these tariffs hurt farmers in poor countries. Push back on the "Buy Local" mindset by illustrating how this affects poor farmers around the globe.
Any benefits that flow from buying goods or services from for-profit companies should also follow from donating to charity, since most of what charities do with the donations they receive is to buy goods or services from for-profit companies. For example, most of AMF's expenses are (unsurprisingly) purchasing nets (https://www.againstmalaria.com/financialinformation.aspx), which they source from for-profit companies (https://www.againstmalaria.com/newsitem.aspx?newsitem=Question-to-AMF-Where-are-your-nets-manufactured).
Somebody arguing that you should spend your additional dollar on goods or services you want instead of charity needs to argue why spending $100 on the for-profit company that makes the thing you personally want is better than spending $90 on the for-profit company that makes the thing the charity wants + the direct impact of the charity.
(I assumed 10% of the charity's donations are spent on things like their administrative staff, which is an overestimate for AMF.)
Regarding the confusion around Instacart's revenue
It's not necessarily the case that all of their customers are long term users paying the discounted rate. Some of their customers will be churn-y, paying a higher fee for a shorter time and then unsubscribing.
At any given moment in time, a snapshot of all current customers will include a percentage who are of this kind.
What about putting things like Microfinance loans in the funding capitalism frame?
There are numerous charities that do this in some capacity, it generally funds individuals that want to start/expand their small businesses in a way consistent with "funding capitalism" and it has ongoing benefits in that the loans are (generally) repaid and then reinvested.
First off, Instacart is a bad example, because you picked the typical marginal company in a developed capitalist society. To have a better one, go back to the 1860s and put seed money into the first companies developing the electric grid. That compares a lot better with charity since it's a marginal company at the beginning of capitalist developement. Or go back to 1300s europe and help a few capable individual set up commercial trade - you'd be contributing to the culture that eventually generated civil law, which is an amazing technological externality of trading wine and spice around.
But that would lead you to the wrong conclusion that you should invest in developing countries. This will work only some times. And that's because in some countries the government and whole social system is designed to explicitly oppose capitalist developement (I'd suggest "the dictator's handbook" as an introduction), while in others it's severely hindered (other useful introduction: "why nations fail"). So, apart from investing in the few remaining developing countries that are not already en route to developement, what can one do?
Investing to change the aforementioned countries' social institutions to remove obstacles to capitalism is unlikely to work (afaik there's no clear way to do it), and likely beyond the means of something smaller than a nation state.
If you can't bring capitalism to the people, bring the people to capitalism. Another way in which capitalism is hindered around the world is by restricting immigration. The potential of millions of people to add their marginal contribution to capitalism-induced well being is wasted by keeping them inside the borders of countries that don't want them to employ their talents. For each capable human you safely help or sponsor to successfully move from an undeveloped country towards a mature capitalist society, you are "donating" to capitalism the difference between their original expected income (let's say $1500 per year) and their expected "capitalist" income (median wage in the us should be around $40k per year), for every year they are alive, which compounds with every children they have in the country.
I think the above is a really good answer! This was my intuition too re: Instacart vs. Clean Water: that the low-hanging fruit in terms of basic human welfare has already been plucked in rich countries, so a lot of recently-successful instances of capitalism offer much more marginal or less tangible value.
Immigration is a good answer also. In addition to the direct impact of immigration giving people access to political systems that don't stand in their way as much, having a big middle class diaspora can be a force for political change, because to some extent the values and experiences and resources flow both ways.
However, I think the biggest case against charity is that you don't really know that clean drinking water, or QALYs, or whatever the metric is, is actually what the recipients *want* the most for their time on this planet, which is short even in the best case. For example, many people in both rich and poor countries choose having a motorcycle over the several [1] QALYs you lose by having a motorcycle, probably because it makes their life better more than it makes their life shorter. Or for more extreme examples, a soldier who volunteers in Ukraine, or an opposition candidate in Russia, or an anti-occupation activist in Palestine chooses to devastate almost any *external* measure of their *own* well-being, but it's hard to question their reasoning. Given the difference between human outcomes in accountable vs. unaccountable governments, their role in creating or protecting an accountable government could be extremely high impact. This is especially true in aggregate across all the people who make sacrifices because they care about society functioning well. And it's so easy to see how much we all owe to the people who over the decades and centuries before us were willing to stick their necks out to improve society.
In terms of the subjectivity of recipients, the impact of an apparently successful charitable intervention could actually be zero, or it could be a tiny fraction of the impact of a motorcycle, or a better president, or a US visa, etc. The cool thing about capitalism, or bottom-up politics and activism, is that it's tied to actual aggregate desire, so you know it's at least somewhat related to what people want.
And (as pointed out in the post) it's also internally self-perpetuating in a way that charity isn't.
1. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2791254/#:~:text=The%20mean%20QALE%20for%20helmeted,a%20loss%20of%2010.7%20QALYs.
I wonder if the answer is investing in companies based in areas without an economy. (Much of Africa, for instance.) One company that could survive would create jobs for the surrounding area, and they would start spending their money there, which would make it rich enough to create clean water and do all the other good things for their community that the U.S. is able to do.
A somewhat false dichotomy - without capitalism you won't have any sensible charity. There would be no surplus funds to make charity with available (there would be some surplus funds though, sadly captured by the ruling apparatchik class). Speaking as someone who regrettably, by the lottery of birthplace, had to spend half of his life without capitalism.
My rule of thumb is that capitalism is good at growing the pie but relatively bad at apportioning it. Capitalism is great at what it does, which is exchange between parties where each one has something the other wants and will pay for. But then there are market failures, especially things that no one wants to or can afford to pay for, like clean water for extremely poor people. Hence redistribution, regulation, and charity.
In practice, both capitalism and charity have varying degrees of success, but it seems clear to me that they are complements. There are good and bad companies, and there are good and bad charities. One category isn't really better or worse in our current world, although if I were in a thought experiment and had to pick I would take capitalism (or enlightened autocracy in theory, but this generally doesn't work out in practice) without charity rather than vice versa.
There's a lot more money looking for investment opportunities than there is in the charity world, so that would tend to favor charity from a supply and demand perspective. However, many of our challenging problems like housing supply or better healthcare can't really be solved just by charity. So it's one of those questions where the answer changes shape depending on which piece you're looking at.
> I’m going to summarize the deal that Capitalism offers by allowing Instacart to exist to “For $1 million, you can give 2,000 people a great deal on grocery delivery”.
I think the error is here. The real deal is “For $1 million, you can give 2,000 people a great deal on grocery delivery, plus shares of a company that are worth more than $1 million.”
I think this pretty much solves the issue? Surprised I haven’t seen more comments saying this directly.
Scott, have you validated that Dispensers for Safe Water's claim of $1M = safe water for 50K people for 10 years => 1500 lives saved is in fact true? Seems like you're working with hard numbers (admittedly with some assumptions) on the Instacart side, but with a press release on the Dispensers for Safe Water side...
TL;DR of my earlier comment: charity is going to be better short-term, investment is going to be better long-term.
For (3), you missed one interesting use of money, which is lobbying to make capitalism work more effectively in your first-world country of residence. As you've noted in the past, the amount of money spent on lobbying is both large on paper but tiny in comparison to the economic value it can influence. Of course, first-world markets work better than third-world ones so there is less low-hanging fruit. But they are also much larger and more receptive to lobbying, which more than offsets this in my view. You could also envision reforms, like lifting individual donation caps so that lobbying can be done more flexibly than via SuperPAC. This leads to uncomfortable conclusions, like the potential that the Koch brothers are spending their money more effectively than Peter Singer.
Also on approach (3), there's a great way to make investment in third world countries better, without sticking your neck out yourself. Make it easier for Wall Street to do it! Maybe you can't identify the right Kenyan Dam, and Wall Street doesn't have the power to do it because of various regulation such as the Foreign Corrupt Practices Act, PATRIOT Act, and AML Laws -- things that the Chinese Govt can skirt to operate more flexibly and create win-wins.
On approach (2) The "return on investment" is stipulated to help by like a factor of 2, but it's really more like a factor of infinity and explains ~all of the advantages of capitalism over charity. The compounding of advantage from investment dominates everything else in the long run. Also Instacart is a public company, and one of the worst possible examples of (2). Doing good via approach (2) looks more like YCombinator, funding novel / ambitious / risky new technology that could be big. The more inefficient the market, the more good there is to be done. Perhaps you wanted to count this benefit as "permanence", but I think it's cleanest to lump "permanence" and "ROI" together.
Maybe this is what you mean by "impact investing" but wouldn't the best option be to provide investment/seed money to a startup company which provides economically priced products for the poor?
In this way, you could create jobs, provide poor people with resources, and also possible get a return on your investment so that you can rinse and repeat.
In order to give to charity you need excess money derived from capitalism.
Within capitalism, charity is a consumer good. You can’t compare capitalism to charity because it’s apples to oranges; capitalism rewards economic control, while charity is a way to fulfill the human need to help others. If you want to help people by encouraging capitalism, you can’t do it by purchasing instacart stock, as you pointed out clearly. Instead you’d donate to political charities or economic assistance organizations that promote the creation of freer markets, whether through regulation or direct assistance.
I think the way to square this is by interrogating what aspect of capitalism has led to the massive increase in well-being — the creation of technologies like electricity, computers, antibiotics, that spread widely and make everyone's life better. Capitalism is a blunt tool; it gives everyone an incentive to make money, and one way to make a whole lot of money is to create this kind of technology. It's this aspect of capitalism that has created ~all of the increase in material well-being since pre-industrial times. It cannot be replicated by charities.
> Some sense in which the US is rich and a good place to live, and each successful company contributes to this.
This is certainly true in aggregate, but I do not think that it is true on a company by company basis. Capitalists are only aligned to if externalities are captured in their incentive structure by some artificial means.
The mob running a protection racket might be a successful company (unless one has the regulatory framework to deal with it). A patent troll might be a successful company. An app vendor pushing free-to-play Skinner box games on kids might be financially successful. A ransomware enterprise might rake in big bucks. Does whoever have a monopoly on epi pens in the US provide ten times as much value per pen than their EU competitors? Are the companies which provide fossil fuels or try to invent AGI well incentivized to consider the overall effects of their endeavors on the global population?
I share Scott's opinion that capitalist companies are instrumental in making the US a decent place for living. But their objective is the shareholder value, not some abstract ideal of honest competition, which is a strategy of last resort for making money if you can not achieve a regulatory capture or monopoly status.
More generally, I would argue that effective charity basically fills the gaps left by the free market. People who can afford to spend 20$/person on safe water dispensers should just buy them, but for the ones who can't afford it, charity can pick up the slack.
(I also do not believe that anything which could possibly be provided on a for-profit basis should be provided in that basis. Scott providing most of his articles for free is fine. Free/open source software is fine. Natural monopolies (e.g. road infrastructure, water supply, or the early telephone network) can also be well provided by publicly owned utility companies on a cost covering basis.)
You actually almost CAN write a check to capitalism directly, though, by pushing for a Georgist land value tax and universal basic income. Moloch, relentless and shortsighted as a cat chasing a laser pointer, promotes the interests of whoever has the most property rights. Shift allocations away from exclusionary speculators, toward "an equal slice of the rent for every citizen," existing engines of capitalism will turn and cater to the formerly-desperately-poor, in direct proportion to their newly expanded ability to pay.
I am currently traveling/touring in Laos, and one of our guides, an english speaking university graduate, told me he want to go for work NGOs for the money, that is where the big money is at. Not at business, not at government, NGOs.
While this post addresses how individuals should spend their money, it does little to address how large organizations or movements should orient their goals or whether said movements are good or bad. In this context, the claim that capitalism is better than charity can be seen as an argument against the effective altruist movement, while not an argument about individual spending decisions.
For this argument to follow it is necessary to observe several facts: the effective altruism movement is not merely about donating your money to the most efficient cause. It is also about participating in a given social structure, researching the efficacy of charities, and selecting a career path. These things are not essential, but to me, they are far from non-central. Second, money donated to effective altruist organizations goes in part to employ people to determine the most effective use of this money.
Thus, I take the argument capitalism is more effective than charity to mean that a) EA organizations frequently direct people away from careers with high returns or direct them away from social enterprises according to capitalism by altering preferences. People who go on to start charities may have started successful tech companies instead, and as a result, redirect value. Likewise, they may enable people to launder their reputation by encouraging people to look away from business fundamentals and best practices, and pay attention to their altruistic pursuits instead. b) EA organizations generate insufficient social value to offset these losses, because capitalist institutions matter more than charity implying that charitable donations will have only muted effects in areas without capitalist institutions, and as a social movement, EA would be more successful if it lobbied for capitalist institutions.
Now personally, I suspect both of these arguments are false, but I think it is worth considering them. For example, I certainly think it is possible that EA causes individuals to place too high of value on AI safety, and thus discourages them from taking other roles. Likewise, I think EA doesn't adequately consider it's own ability to impact and steer social institutions.
TL;DR—Capitalism being better than charity could be a critique of the EA movement rather than individual decisions. This critique is substantive if EA made the wrong individuals less sensitive to market returns, and this decreased aggregate value. Alternatively, if EA could lobby for more capitalist institutions effectively, than this may have a more positive impact than charity.
>if you know a good development nonprofit, please bring it to my attention!
https://www.growth-teams.org/
Wait, how is the answer not just "the charity I'm giving to operates within capitalism and by spending my money will contribute to economy in exactly the same way and amount I would if I spent it on other, presumably non-charitable things, all I'm doing is acting on my preference for someone to have safe clean water".
(That's of course granting the assumption that capitalism is a net good in the first place, which I do not share.)
the best part about Capitalism is that you can spend the wealth you generate by producing stuff other people want on the stuff you want.
so like, if you want to reduce malaria in various places, you can pay for a bunch of other people to make mosquito nets, and someone else to ship them, and someone else to distribute them, and....
Instacart charges fees even if you have the subscription. They're just no delivery fees, but they tack on service fees, and additionally mark up prices.
Before you can donate to charity, someone must have made a profit. That's the only place charity can come from. Someone has to have made the money first.
Plus, it's not just a transfer from one area to another: growth compounds. Do you want to grow the pie or redistribute it? It become just a math problem to figure out how long it takes for the recipients of wealth transfers (say, "the poor") to be worse off than they would have been if the transfers had been used to increase wealth instead. Poverty is the #1 killer of humans, and prosperity is the thing that extends life (and is strongly correlated with happiness too).
Charity is putting the money where it will do the least good, with the lowest return. Growing the pie is where the return is highest, and it compounds forever.
Also, there are basic questions about the motivation for charity. Is living a guilt-driven life a good thing? Ayn Rand would call it living for others, rather than yourself.
I think some of the dissonance in the results of: capitalism vs charity and instacart vs clean water are thermostatic effects.
In a country (world) where capitalism has been a driving and successful force for centuries, it makes some sense that at the margin adding more capitalism has a smaller effect. Charity has less direct self reinforcement mechanisms, and coupled with the nature of new charitable causes coming up (AIDS in the 80s), you’d expect pretty high marginal impact available more regularly.
I also think the example is a little contrived, I wonder what you would think about instacart vs whatever the median charitable gift is — a tithe to a church or something.
One could also come up with an extreme example for instacart, how do you calculate the expected value of investing in the instacart series A round? That might compete a lot more closely versus now that it is a mature company with a huge market cap.
It is unfortunately an appels and oranges comparison.
Lack of capitalism is frequently a political problem-- there's a government that's preventing it from happening.
Are the good charities working to convince governments to permit markets?
Capitalism produces a large output because it gets a large input.
The amount of money/resources that humanity overall puts into capitalistic systems is large, compared to the amount that goes to charity.
>It would seem that capitalism is better than charity. The countries that became permanently rich, like America and Japan, did it with capitalism. This seems better than temporarily alleviating poverty by donating food or clothing.
There are just not enough charitable dollars to give that many people that level of wealth.
Scale. The answer is 98% scale.
I'm assuming your thought is, "How many anyone-utils can I buy for $X with investment, purchasing, charity and charity-investment?" You'll get a much bigger number for charity, which isn't surprising because that's what charity is designed for.
Capitalism produces more utils in total because capitalism is [compares US GDP to a random unchecked google result for total US charitable donations for a lazy statistic] about 50 times larger. Part of that is because capitalism has a way to grow itself which charity can't, part of it is because people will inevitably be more drawn to participate in capitalism than to give to charity.
If you had a hypothetical charity-based economy, it would romp home. This could be modelled as everyone's individual utility function being replaced with a total human utility function.* I can't really comprehend what it would look like (even the most extreme anarcho-communists don't go anything like this far; this is Kingdom of Heaven stuff),** but I'm not sure you'd have anything resembling a functioning market. Anything you would normally pay someone to do they'd already be doing anything as their goals would be completely aligned with yours.
That's obviously absurd though, which is why charity is always an ancillary project of another system. Increasing the amount of charity on the margin seems to be inevitably the right call for any individual-scale donation though.
The remaining 2% is the principle-agent problem involved in charities, which is largely solved by direct cash transfers. These also have a second-order effect of stimulating local economies, as the water-pump shop owners of rural Africa can go and invest their money in mosquito-net shops which employ more people who can buy more water pumps.
*Technically, people would each have a slightly different utility function, as it would be the amalgamated utility function of everyone who wasn't them.
**Cf San Francisco in Unsong.
This is a great point and I’m surprised most of the comments aren’t along a similar vein. It would be extremely weird for capitalism to beat (the best) charities, because capitalist investment rewards positive returns for the investor’s utility function, while charity rewards returns for ALL utility, including the investor’s*! It’s strictly more flexible!
Arguably, GiveWell already IS capitalism over charity. It’s just that GiveWell is an investing agent which feels the pleasure and pain of all of humanity, rather than one given human.
*Of course you get utility from donating to charity (e.g. feeling good about yourself), but turning this discussion to psychological egoism would be a waste.
I see the distinction of charity vs. capitalism as incorrect; our concept of charity exists only in the context of a capitalistic system. There's plenty of charity in pre-modern systems, but it's largely bound up in kinship relationships. A modern charity is where the benefits flow to the recipients regardless of their social relationship to the ultimate givel. Indeed, I've seen the Economist state that you can't fully industrialize without a state-supported welfare system that enables people to shop their skills to the best-paying employer without fearing that getting laid off will cause them to starve to death.
The US didn't have a welfare system until the New Deal in the 30's. Are you suggesting that we weren't an industrialized country before then?
There were local charity systems in the US pre-New Deal, usually operated by churches. (They seem to still be significant in the US South.) And the industrialists of the late 1800s often endowed charities; my suspicion is to have a safety net to encourage workers to move to the company town.
But I think that our idea of charity goes back several centuries in "Western" culture due to the destruction of the old clan-based social system by the Western Church, and was one of the factors which encouraged the development of industrialization in the West.
What percentage of GDP do you suppose those charities represented in aggregate?
I think I disagree with your premise. I find it implausible that capitalistic risk taking is meaningfully subsidized by institutional charity. Perhaps we're no longer clan-based the way we used to be, but family still remains overwhelmingly the most important safety net. No prospective entrepreneur ever thinks to himself "well if my startup fails I'll always have welfare." It's 100% some version of "well I can always move home." Welfare is for people who flat-out just can't do anything. Those people categorically aren't entrepreneurs.
Industrialists donated to charity for the same reason they do today. Status-seeking virtue signaling and cynical political considerations. You want your hand-to-mouth workers to think you're a good person.
Seriously missing how capitalism works here. You don’t “give” $100000 to instacart, you. BUY it. You still have it, unlike your donation. On average, it costs you LESS THAN NOTHING to assist Instacart. You are comparing giving with investing for the same nominal amount but that makes no sense.
The underlying problem is intellectuals that universalize and moralize individual choices. All you need to say is "I don't want to give to charity." you don't need to say "my not giving to charity is better than your giving!" because charity is an individual choice.
The intellectual kind of frames too many choices that way. You don't just like wine in moderation, it must be a health benefit. Having/not having kids is about the future of man; it can't just be one man's hope or fear. When you do that the unspoken thing is that these really aren't choices, they are moral duties or commands.
otherwise its silly; the economic system you are under creates money you choose to give alms with. They are not competitors any more than a basketball court is with basketball players.
I think you got this exactly backwards, Scott is giving to charity, and wants to figure out if there is an altruistically positive pro capitalism case for not donating.
I don't think you can argue that, because you'd be arguing against altruism altogether. You make a preference universal and moral, you need to destroy it to be free of it while claiming the destruction is a good thing. Capitalism is not altruistic; it is not designed to be. The absence of an action cannot be better than the action by the actions own standards.
and no. Scott just had twins. it's normal to be worried about altruism just because now you have two precious lives to care for. Intellectuals always seem to need to make their choices everyone's choice. its ok to not want to give but its very dangerous to argue that not giving is the highest form of giving.
I'd like verify your analysis here. Could you link me to where Givewell documents that $X will chlorinate water for Y people? I scanned all of the posts they had about water quality interventions and couldn't actually find it. Probably I'm just blind. I'm skeptical of your figures because the 3 charities listed on Givewell's "Top Charities" page all have costs of $4000, $5000, and $5500 to save a life. If water treatment was nearly an order of magnitude better then I would expect it to be listed there.
In your point on ROI you say
" I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
Could you make your math explicit here? I'd like to know exactly what effects you included. Also, isn't a factor of 2 actually kind of important? Being able to do twice the amount of good in the world is a big deal, especially since that surplus compounds over time.
I'd also like to question whether it's appropriate to compare a randomly-chosen investment option to the single most cost-effective charity that a dedicated team of analysts could find. Isn't the fair comparison to look at the returns of the best available investment option that a dedicated team of financial analysts could find? Warren Buffett makes his investment advice freely available to everyone and Berkshire Hathaway has averaged something like 20% returns since 1970.