On Charity

charity

This past week I was fortunate to attend the 2018 San Francisco International Film Festival hosted in Dolby Laboratories. At the event they unveiled The Rescue List, a documentary about the nauseating trend of human trafficking in Lake Volta, Ghana. For those like me who were unaware, parents in devastating poverty will send their kids, some of whom are toddlers, to work with fisherman in exchange for an infinitesimal amount of Ghanaian Cedi. The stark reality arrives when the kids are indefinitely taken: they’re slaves toiling without pay. The directors, after years of researching and garnering trust within the lakeside communities, managed to illustrate the story of two boys – Peter and Edem – as they adjust to “reality” in a rehabilitation center after their forced captivity. While I don’t want to reveal too much, I can say that the story has its abrupt twists and turns: it doesn’t end by freely handing out the fuzzy “warm glow” feeling like candy for the audience as is often the norm.

Charity in a way hovers in the category of topics to shy away from at the dinner table. Conventional wisdom would say that people are binary when it comes to charitable practices: they either enjoy aiding people and feeling that sudden rush of dopamine or they follow the path of Melville’s Bartleby and “prefer not to.” But the issue is much more complicated when given more than just a passing glance.

Within the set of those who want to help, there are people who believe the best way to give back is utilitarian: the palliative “cure” of helping everyone suffering from poverty. Examples of this approach include handing spare change (if you still carry cash in this day and age) to the homeless man and his pet bunny, Moses, on University Avenue in Palo Alto. Whether the generosity arose from wanting to morally grandstand your close friends, believing you were making a difference, or the overwhelming presence of the bunnies’ cuteness, it was still an entirely selfless act, no? On the other hand, one could argue that the incentive for helping was we physically feel positive when we aid others: our bodies are fed endorphins mimicking a mild morphine sensation – known as the “helper’s high” by psychologists.1

In the vein of the 17th century French author, Francois de La Rochefoucauld:

“We should often blush at our noblest deeds if the world were to see all their underlying motives.”

Did the donation quantifiably help the man? Maybe so, but in most cases, the sad truth is that it did not – the act of giving was more for us than those who were in desperate need for the resources. If anything one could argue that because providing palliative care only treats the sores of the wound and not the wound itself, helping the homeless man has let the underlying problem grow larger. Evidence of this lies in our actions: we diversify our charitable donations to keep feeling great and almost never consider giving anonymously. Diversifying is a strong strategy when we seek to bullet-proof our downside, a given in capricious markets like those of commodities or equities. However, fractioning a donation by a few orders of magnitude instead of donating in a lumped sum creates a negative sum situation whereby charities must live a hair’s length away from bankruptcy. From Hope Consulting, roughly 97 percent of donors don’t compare their ideal nonprofit to others, suggesting they must have an organization already in their minds and blindly donate. 2

Again if we did care and felt so much for others altruistically then would we not consider donating anonymously and solely seek to make the world positive sum? Less than a percent of donations to public charities are anonymous and even those who say they seek refuge in the shadows probably delve into details of the orphanages they built within their social circles. 3 Empirically, the data suggests that we like the glamour and fame from demonstrating we control resources in spades to change the world for the better.

This is why I’ve been quite enamored with the rising tide of effective altruism: harnessing evidence and reason to locate where we can do the most good.

This idea is rooted in the philosophy of Peter Singer who made many uncomfortable by suggesting that as we have a moral duty to save someone dying in front of our eyes, we have that same obligation to help someone across the world. If we don’t, Singer remarks in his book, it is the same moral hazard as letting someone die in our vicinity whom we could have saved. Coming from the hedge fund scene, I can see that this framework could lead to a swath of improvement across the charitable genre. Rather than lying in ignorance about our donations, we can see where our money goes and the return on our donations. From the Effective Altruism website, the scale of a cause can be defined by whether it is:

  • Great in scale (it affects many people’s lives, by a great amount)
  • Highly neglected (few other people are working on addressing the problem)
  • Highly solvable (additional resources will do a great deal to address it)

Based off this mental model, there are now funds that seek to achieve the highest return on one’s donation (ROD) – the measuring stick is the extent to which our money is put to good use. I believe that the sector of social impact funds and this wave of effective altruism is ripe for a cambrian explosion. Further proof is witnessed with the arrival of notable venture capitalists entering the space: Vinod Khosla and his Khosla Impact fund serves to “assist great entrepreneurs developing products and services for the three billion people in the bottom half of the world’s economic pyramid.”

One of my theses for the future is that we can leverage technology in the form of cheaper electronics coupled with software to thrust people out of inhumane conditions in the rest of the world. Rather than giving in to our hedonism and seeking to achieve a tiny thrill every time we donate, effective altruism could be the harbinger for making a difference, concretized in atoms, for the lagging parts of the world.

(Thanks to Alex Young for his invariant help in making sure my thoughts aren’t too far off the beaten path.)

Index

[1] Helper’s High

[2] Hope Consulting