Rupert Elder, one of the UK’s most successful professional poker players, recently posted about why he’s in favor of effective giving.
From his piece:
“My goal for charitable giving having thought about it is something along the lines of raise the quality of living for the most amount of people as much as possible per dollar spent.” – Rupert Elder
That’s a great strategy! Just like in anything else, effectiveness is really important with charity. In fact, the rough strategy that Rupert came out in favor of is so popular with effective altruists that it’s often referred to as simply, “Buying a bunch of cheap QALY!” (where QALY stands for “Quality-Adjusted Life Years”[1]).
Think about it: There’s no reason to play in a low EV game when you can sit in a way higher EV one. For the same reason, there’s no good reason to invest in lower EV charities until the opportunities with the highest EV ones have been exhausted.
The only real difference here is that while we’re sad to see a good game break, it’s often good news to hear that the currently highest EV charity in the world is no longer available — you know, because they finished deworming the world or they eradicated polio or something.
Should I Give Now or Give Later?
Another important thing to consider with charity is timing. When is the best time to give? Rupert suggests that perhaps it might be better to give later:
“In the long run, would it not be better to allocate 2% of our poker earnings in our wills rather than per quarter?” – Rupert Elder
Let me start of by saying that I respect the hell out of anyone who gets their act together and writes up a will — whether they’re giving to charity or not. Statistics show that most folks have never written a will[2]. And even if you’re not a millionaire, it’s totally crazy to walk around without one. Not having a will leaves you open to the possibility of dying intestate — which means that upon your death, all of your assets will be automatically given to the state to determine how they’re distributed. Your relatives then have to engage in an arcane and costly legal process called probate to reclaim your assets and possessions. This often ends quite poorly with your heirs receiving only a minority of your assets after a lengthy battle with the state (and perhaps each other) that puts most of your money in the hands of probate lawyers and various state actors.
As Rupert points out, another benefit of writing a will is that you can also direct some of your assets to a worthy charity. Giving to charity in your will is referred to as planned giving. It’s a popular practice in estate planning and it’s definitely another good opportunity to “buy some cheap QALY”.
However, I wouldn’t recommend planned giving as your only charitable strategy. If you’re considering the prospect of giving to charity now versus planned giving, planned giving can definitely seem seductive. Planned gifts aren’t distributed until after your death, so you never risk forgoing access to any assets you might otherwise need yourself. But at the same time, some of your excess funds can still go to the charitable cause of your choice. It seems like you’re getting the best of both worlds.
You can even bolster the appeal of planned giving by suggesting that if you’re a winning poker player, and your ROI is relative to your bankroll, then donating after your bankroll has compounded more money throughout your life will offer you the chance to give even more money to charity. This is a familiar argument that I’ve seen used by professional investors or even just passive investors too. They suggest that perhaps they should also delay their charitable gifts until after they’ve had an entire lifetime to compound the high rate of return that they’re getting on all their assets. Is there a flaw in this logic?
Even though these points are all perfectly valid, and they do weigh somewhat in favor of donating later, several decisive factors combine to swing the balance of evidence much more heavily in favor of donating more now, instead of just donating later:
1) Tax efficiency
Almost every country offers 100% tax breaks on money donated to charity. So if your marginal tax rate is something like 35%, then giving to charity is actually 35% better than it otherwise seems to be (before taking this consideration into account). This is the same logic that convinces the most financially savvy people you know to consistently max out the annual contributions to their retirement accounts. This consideration alone is large enough to convince many people of the utility of donating to charity now instead of later.
2) The example you set could easily be worth more than everything you give
Consider Warren Buffett. Even though he’s devoted a huge amount to charity, it’s estimated that the example he’s set has already influenced over 10x as much charitable commitment as the amount that he’s given himself.
Human beings have a strong instinct to imitate those around them. So use this knowledge to your advantage and set a good example for others around you. When they see you give to charity, they’ll want to give too. It’s science!
3) QALY are cheaper today than they ever will be again
Another thing I liked about Rupert Elder’s analysis is how he’s clearly thinking about the future:
“Problems are going to exist in 60-100 years.” – Rupert Elder
I definitely agree. There will always be problems. I can even intuitively relate the implied feeling of indifference between today’s problems and the ones of the distant future. People are always complaining about something. So surely there will always be someone complaining about something, even 100 years from now.
But even though I find this line of reasoning intuitive, I don’t think it’s ultimately compelling. That’s because the empirical evidence tell us something very different. Overwhelming historical evidence tells us that it’s a huge mistake to equate today’s problems with the problems of 100 years ago. And this pattern is fairly stable throughout modern history. Every time you look into the distant past, things were absolutely and uncontrovertibly much, much worse.
To illustrate this point, consider what would happen if you backtested the idea of giving to charity 100 years in the future. So you’re transported 100 years into the past but you still want to “raise the quality of living for the most amount of people as much as possible per dollar spent”. What would happen? Should you save all your 1914 money and invest it in a massively clever and prescient scheme to help improve the lives of people living in the distant future of 2014?
I suspect that some of you are like me, and your first instinct here is to consult an interest table. You’re probably salivating at the thought of earning 100 years of interest and congratulating yourself for being smarter than those dolts who don’t even know about the power of compound interest. But surprisingly, this isn’t a good idea. Even if you assume excellent rates of return. And even if you ignore the rather substantial risk premium of something going wrong with your clever plan (i.e., financial ruin, theft or embezzlement of your money, simply losing the will to follow through with your plan during one of the 100 years you’re planning it, etc). Even if everything goes right, it’s still a massive blunder to donate to 2014 when you could have instead been donating to charities that existed 50-100 years ago.
Again, imagine you’re in 1914. By some measures, the world is pretty great. They’re starting to manufacture cars and planes. Things look on the up-and-up. But on the other hand, for the next 45 years of your life, you are going to be living in a world that’s so underdeveloped, that even though the smallpox vaccine is cheap, effective, and has existed for over 100 years already, there are still 2 millions people a year dying from smallpox. That’s insane! That’s like the entire modern day population of Las Vegas being tortured and killed every year, over and over again… for 45 years. Not by accident, not in some freak tragedy, but from a cause which was universally known, completely understood, 100% preventable, and could be solved for a few million dollars. Our world has problems. Our world even has stupidly obvious problems. But we don’t have anything nearly this universally tragic.
I think it’s hard to have an appreciation for just how insanely shitty things really were in the past (and what comparatively great buys you could get in charity back then). I think many of us view the history of human suffering as a stationary and unceasing tale of constant misery and woe that never ends. That’s the gist of what I remember from history class — just this broadly egalitarian message about how no one is better than anyone else, no time is better than any other time, and history is just a bunch of repetitive, equivalently tragic periods of bullshit. But it’s really not.
When you actually put things in historical perspective, the toll of misery inflicted by war, violence, disease, and nearly all other forms of suffering that humans have endured long enough to measure, things are undeniably getting better over time. And the magnitude of the improvements is so large, that this single consideration alone always makes it better (at least in expectation) to donate to the best possible charities now instead of donating in the far future.
4) The problems you fail to address now cause a cascade of negative effects later
Maybe this all sounds ridiculous. How can it always be the best possible time to give? Well, four years ago, when I made a similar argument about why you should give now instead of later, I pointed out an even more directly intuitive reason to suspect that you shouldn’t squirrel all your money away in hopes of donating it later:
“Non-profit organizations can have endowments and those endowments can invest in securities just like individuals. So if long term-investment in the stock market were really a superior strategy, the charity you’re intending to give your money to could do the exact same thing. They could tuck all your annual contributions away in a big fat, tax-free fund to earn market returns until they were ready to unleash a massive bundle of money just like you would have. If they aren’t doing this already, it’s probably because the problem they’re trying to solve is compounding faster than the stock market compounds interest. Diseases spread, poverty is passed down, existential risk increases.” – Louie Helm
5) Now or later? In reality, there’s really no choice
Although it makes a useful simplifying assumption to synthetically restrict our choices to exclusively choosing to give now versus exclusively giving later, in the real world, the best philanthropists always do both.
The Buffetts and Gates of the world aren’t just giving to charity now or later. They’re giving heaps now, and they’re also planning to give nearly everything else they have left to charity in their wills too. Trust me, if letting your assets compound more and more during your entire life were a superior strategy (especially for those who could command high ROI on their net-present assets), Buffett would have more claim to this strategy than any of us. So why doesn’t he do it?
As much as some people believe that giving to charity is all about claiming status, I honestly find it doubtful that Buffett is primarily giving to charity now in some desperate attempt to impress us all. I expect instead that he used some informal analysis similar to mine (or more likely, some even better, more formal analysis) to arrive at the same correct answer: Giving now is just obviously optimal when you actually care about making the biggest possible impact.
So what now?
So the problems we fail to address largely get worse and compound over time when left unattended. And this happens even as the general arc of human progress continues to make the world generally better in broad strokes over time and the best buys in charity are snatched up by each successive generation.
Current wars and diseases still seem horrible to us. And they are horrible. They’re definitely worth doing something about.
But perhaps the most interesting news is that when you consider the global condition of all of humanity, it’s both true that:
- We’re living in the best time that has ever existed, and
- The present is always the worst place you will ever be.
These statements might sound contradictory, but they’re actually just logical implications of each other (once you know you’re in a continuously improving world). We’re in the best world we’ve ever been in… but it’s also the one that could still use the most help.
Bottom line is that there is no future that could more predictably, or more desperately use your charitable donations than right now. And lots of us have poured over the data to figure out a few good candidates for the most highly efficient charities in the world. So my advice is to read as much as you need to convince yourself of the soundness of these arguments. Then do like an effective altruists and hurry up so you can “buy a bunch of really cheap QALY” — while you still can.
[1] QALY (pronounced “kwal-ee”) stands for Quality-Adjusted Life Years. It’s a widely used measurement of how much benefit is created by different charitable interventions. [2] Over 60% of people in the UK haven’t written a will. Similarly, only 30-50% of Americans have written one.