Opinion

Felix Salmon

Why it makes sense for Larry Page to donate his billions to Elon Musk

Felix Salmon
Mar 25, 2014 17:50 UTC

Three years ago, with a post entitled “philanthropy isn’t for profit”, I expressed the hope that we had finally reached a turning point, and that people would “do good to do good, rather than simply declaring that the best way they can do good is to chase profit as zealously as possible”. And maybe I was right. That post was directed in part at Matthew Bishop, who had written a silly article asking whether IBM had done more good for the world than the Carnegie philanthropies. But this evening, when I ran into Bishop at an event for rich people in a swanky midtown club, he couldn’t bring himself to defend Larry Page, who said something similar at TED:

Rose asked him about a sentiment that Page had apparently voiced before that rather than leave his fortune to a cause, that he might just give it to Elon Musk. Page agreed, calling Musk’s aspiration to send humans to Mars “to back up humanity” a worthy goal. “That’s a company, and that’s philanthropical,” he said.

Page’s comments have already been attacked by Kevin Roose, and, as I say, they’re not going to be defended by Matthew Bishop. But here’s the weird thing: Page’s ideas aren’t nearly as dumb as they might seem at first blush. In fact, even I can defend them — and I’m the kind of person who generally hates the way that rich people give away their money.

Page, with his unorthodox idea, deftly sidesteps most of the mistakes that rich people make with their charitable donations. Most importantly, there’s nothing self-serving about Larry Page giving his money to Elon Musk: there isn’t any ego boost involved, and there isn’t even a tax deduction. Instead, Page is simply trying to work out how his money is most likely to have a positive transformational effect on the world.

The fact is that private philanthropy almost never has such an effect: big-picture changes to the world come from commerce and from government, not from gifting. Exxon Mobil has changed the world; Phillip Morris has changed the world. Apple and Microsoft and Cisco and Intel have changed the world. Monsanto and Cargill and ADM have changed the world; Pfizer and Roche and Novartis have changed the world. Certainly Great Britain and France and Russia and China and the US of A have changed the world, many times each.

And, as Page knows better than anyone, Google has changed the world.

Page is convinced (I agree with him on this, but I’m not going to argue the point here) that Google has been a positive force in the world. Indeed, it has been a more positive force than at least 99% of philanthropies. A philanthropist with $100,000 in 1998 who wanted to make the world a better place could hardly have done better than Andy Bechtolsheim, the first funder of Google — even if you ignore any good that Bechtolsheim might end up doing with the billions that investment ultimately became.

Of course, it’s impossible ex ante to know which startup is going to be the next Google. But Page is someone who has already changed the world once; he knows that there’s a 99% probability that his philanthropic activity will end up being orders of magnitude less effective and less important than his tenure at Google. It’s important to put philanthropy in perspective: for all that very rich people are indeed very rich, they generally aren’t rich enough to really move the needle on a societal level. Page is worth about $30 billion; the budget for the New York City department of education is almost that much per year. Famously, Bill Clinton has said that he will never be able to achieve, over the entire lifetime of his charitable foundation, the same effect that he could have with a two-second stroke of the pen while he was president. Or, to take a slightly more controversial example, look at the amounts of money pledged in the wake of natural disasters like the Haiti earthquake or Hurricane Sandy. The public is invariably extremely generous when such things happen — but government money always dwarfs private contributions.

Page is also smart enough, and hangs out with enough very rich people, to know that philanthropy is hard — and that there’s absolutely no reason to believe that the luck and skill he has demonstrated founding and running Google would read across to similar philanthropic success. There is exactly one technology billionaire who has put an enormous amount of personal time, effort, and money into running his personal philanthropy; not everybody can be Bill Gates, and it’s unfair to expect that other billionaires should be Bill Gates.

In other words, Page probably lacks both the ability and the inclination to create some world-changing philanthropy on his own — as we can see by the way in which Google.org and the Google Foundation have had relatively little impact. Let’s assume that he’s self-aware enough to know that. And now, in that light, let’s revisit the “idealistic vision” of his TED interview:

It’s a vision that includes everything from widespread artificial intelligence to self-driving cars to high-altitude balloons that bring internet access to the far reaches of the world…

Rose also asked him about his fascination with transportation systems, which Page said started while waiting in the snow for the bus at his alma mater, the University of Michigan. That fixation has led to Google’s self-driving cars project, which Page hopes will someday transform the world’s cities…

Page had words that sounded harsh even in his soft voice for businesses that lacked the same lofty goals of an Elon Musk or a Google. “Most people think companies are basically evil. They get a bad rap. And I think that’s somewhat correct,” Page said. “Companies are doing the same incremental thing that they did 50 years ago, 20 years ago. That’s not really what we need. Especially in technology, we need revolutionary change, not incremental change.”

That may be an easy thing to say when your company’s stock is trading near $1,200 per share and your main business of selling ads makes tens of billions a year. But Page certainly seems like someone for whom those ads are only a means to an end, and that end is not making himself rich. Page wants to build the future that we all may very well end up living in.

The point here is that Page’s ambitions are vast: they require vision and also the kind of resources which can be marshaled only by massive corporations, rather than any individual. And the question then arises: what can Page do with his personal wealth which could play on the same playing field as the ambitions he has at a corporate level?

The answer, surely, is help create another Google — another company which can change the world for the better. And if you look around for someone capable of pulling off such a feat, Elon Musk is always going to be at the top of the list.

Does that mean, pace Roose, that Page considers buying stock in Microsoft to be a credible alternative to giving money to the Gates Foundation? Of course it doesn’t. For one thing, the chances of Microsoft transforming the world again are pretty low. And for another, who said anything about buying stock?

If your philanthropic intent is to help Elon Musk change the world, there are lots of things you can do which are better than simply going out into the market and buying stock in Tesla. That stock has already been issued; the money Musk raised by selling that stock is already in Tesla’s coffers. If you buy the stock from some hedge fund, all you’re doing is transferring money to a hedge fund, you’re not particularly helping Elon Musk.

On the other hand, the glory of corporate capital structures is that they allow your money to be leveraged many times, in a way which is very difficult in traditional philanthropic contexts. (Indeed, if you give money to a foundation and then the foundation gives away just 5% of its capital every year, then you effectively have substantial negative leverage on your donation.)

So let’s say that Elon Musk issued a new class of stock. In the UK, such things are often called a golden share. Such stock would have voting rights and possibly quite substantial voting rights at that; it might even come with one or more board seats. But it would represent a negligible economic interest in the company: it would have no right to dividends, for instance. (For an example of how such a structure might work in the event of an acquisition, take a look at how the Reuters Founders golden share still has an important role to play within Thomson Reuters.)

The money used to buy the golden share would go straight onto the asset side of the corporate balance sheet, where it could support the issuance of more equity and more debt: it would punch well above its weight. It could help Musk’s company to grow faster, to be more ambitious, to be less beholden to common shareholders and/or bondholders. It might not, ultimately, make any difference at all — but, on the other hand, if the sum of money involved were in the multiple billions of dollars, it might make a very large difference indeed. In short, Page would have ended up buying the possibility of changing the world — again.

At that point, Page just needs to start comparing probabilities. What is the probability that he would change the world through traditional philanthropy? What is the probability that he would change the world if he bought a golden share from Elon Musk? If the latter is greater than the former, that’s a pretty strong reason to choose Musk over some tax-exempt foundation.

One of the big problems with contemporary philanthropy is that it’s obsessed with results: everybody wants to ensure that their money is making a real difference. In the case of unconditional cash transfers, for instance, which are pretty trendy these days, you know with certainty that after you give $1,000 to a poor person, that person is $1,000 richer. It’s a clear and unambiguous outcome, and there’s a lot of evidence to suggest that making poor families richer does wonders for their quality of life.

From the point of view of someone like Larry Page, however, it’s easy to see how the idea of simply giving his money directly to the poor might not appeal. The short-term effects would be wonderful, but also limited; the long-term effects would be relatively slim and hard to discern. Certainly the outcome would be minuscule compared to the long-term effects of, say, the invention of the printing press.

Which means that if you’re a person with Page’s ambitions and Page’s wealth, the trick is to take risks, rather than try to engineer a certain outcome. Better a small chance of creating a permanent and positive change to the way the world works, than a much larger chance of making a much more limited intervention. It’s a reasonable stance to take.

COMMENT

FingersFly… “Do you want to help disabled students, or the gifted ones?” good question. Will the gifted ones do things to help disabled students? That’s really what this discussion is about isn’t it?

Elon Musk is one of the gifted ones. He wants to help the world through sustainable energy and has the pieces to make a huge shift in humankind in that and by taking us to a new world. But he might not have the money (he’s trying to make SpaceX profit fund the settlement of Mars).

Of interest, he also recognises that humanity moves in stages, it doesn’t always go forwards, and there’s a real possibility that we could lose our ability to colonise Mars in 100 years if we don’t do it soon. Unlikely – but environmental catastrophes or war etc could hit us hard. A Mars city will be a potential protected pocket of civilisation that can do things we won’t be able to do on Earth, and ultimately bring much good to Earth.

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When the 2-and-20 crowd drives economic research

Felix Salmon
Dec 5, 2013 00:42 UTC

Elizabeth Warren sent a letter to the CEOs of America’s biggest banks today, telling them to reveal how much money they give to Washington think tanks — policymakers and the public, she says, should know when they’re being fed a corporate-lobbying line, and when they’re getting valuable information from a genuinely independent think tank.

Matt Yglesias says that Warren’s letter is little more than “legislative subtweeting”, but she does have a point: the more that think tanks become beholden to vested interests, the less useful they become. If a think tank is working from an ideology and everything that it concludes is in line with that ideology, it’s really little more than a derp tank. On the other hand, if a think tank has a reputation for intellectual independence but is in fact secretly being controlled by ideologues or other people with a certain agenda, then more transparency is definitely in order.

But if you’re worried about Washington think tanks falling under the influence of the finance crowd, it’s not the bank CEOs you should really be concentrating on. Instead, it’s the 2-and-20 crowd, who are giving quite astonishing amounts of money to fund economic research in such places. Last year, for instance, Bill Janeway gave $25 million and George Soros gave another $50 million to The Institute for New Economic Thinking, which gifts spurred INET to announce that it was going to try to raise another $75 million on top of that.

Janeway and Soros were in their own way just following the lead of Pete Peterson, who contributed $1 billion to the Peter G. Peterson foundation, and has pledged to spend the vast majority of it on fiscal and economic issues. And today, Glenn Hutchins announced that he was spending $10 million to create the Hutchins Center on Fiscal and Monetary Policy within the Brookings Institution. The WSJ adds that as vice chairman of the Brookings board, he has also given himself the job of raising another $600 million for the think tank — the kind of money which will pay for an almost unlimited number of distinguished economics commentators. (WSJ columnist David Wessel is leaving the paper to head the new center.)

All of this rich-people money is making a real difference in policymaking circles. Wessel, in the WSJ, is quoted as saying that “there are few forums outside Fed-sponsored events” for questions about monetary policy to be discussed, and that he wants the new Hutchins Center to be the main such forum. This is great for Hutchins, who clearly wants to get his fingerprints on any institution where monetary policy is studied or practiced — he is, after all, already on the board of directors of the NY Fed.

The result is that the people who study monetary policy — academics and technocrats and career central bankers — are increasingly being funded not by the state, or by the academy, but rather by a small number of very rich individuals, most of whom made their fortune in finance. And while it can’t necessarily be identified with either the Democratic or the Republican party, there is a rich-people consensus on economic issues. Tax hikes are bad, first of all, while cuts to programs which serve the poor are much more acceptable. As Hutchins himself puts it, “the big problem is the political failure in this town associated with the inability to solve our government debt problems.”

It’s not news that people spend their money in a self-serving manner, of course, or that rich people in particular tend to be very sure that their own way of looking at the world is the true and right way of looking at the world. It’s not even news that rich people have a disproportionate amount of influence in public life. And different donors require very different degrees of fealty to their own economic vision. INET is a highly heterodox institution: it has no particular point of view, except to broaden the debate, and it has a natural economic curiosity which is in line with Soros himself, without necessarily mirroring Soros’s own opinions. If anything, I should imagine that Soros values INET not as a vehicle for his own ideas, but rather as a source for them. The Peterson Foundation, meanwhile, is at the other extreme: Peterson knows exactly what he thinks, and wants to propagate his ideas as effectively as possible. Hutchins is probably somewhere in the middle.

In many ways I’m glad that his center will now exist. The connection between fiscal and monetary policy is not well understood, but is absolutely central to the way the global economy currently works; if Wessel and Hutchins can help central bankers now, when they need all the smart analysis they can get, that is probably a good thing. (Academics are also studying these things, of course, but they tend to work at a much slower pace and be less policy-focused.)

Still, this is just another step in the Davos-ization of the world — just another way in which rich financiers are managing to institutionalize an astonishing degree of access to central bankers and other key economic policymakers. Hutchins chose Brookings for his millions because it is very good at influencing government, and driving the terms of wonkish debate. Influence is at heart a zero-sum game: if the financial sector has a lot of it, that means the rest of us have less. And given what the financial sector wrought in the 2000s, I don’t particularly trust it to get things right this time around.

COMMENT

Ok. Fine. I googled it. It relates to a quote by Warren Buffet in 2006 where he accuses hedge funds of taking 2% of you principal investment if they fail and 20% of your profits if they succeed.

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Philanthropy, stock-picking, and Presbyterian frugality

Felix Salmon
Dec 2, 2013 18:50 UTC

I love the story of Jack MacDonald, which is only becoming public now, after his death. The short version: MacDonald inherited a substantial fortune from his parents, the proprietors of MacDonald Meat Co. in Seattle. But he made the classic promise to himself, that he wasn’t going to let the money change his life — and he kept it. He worked as a government lawyer for 30 years, he clipped coupons, he wore tatty sweaters, and even at the end of his life he was imploring his doctor to treat him only with generic drugs. He died a happy man, and bequeathed his fortune to three charities: the law school from which he graduated in 1940; Seattle Children’s, a pediatric research institute beloved of his mother; and the Salvation Army, in memory of his father.

Or rather, he bequeathed the income from his fortune equally to all three charities. The fortune itself — valued at $188 million — will remain fully invested.

MacDonald did not like to spend his money, but he loved to invest it:

When it came to picking stocks, “he was amazing,” said his stepdaughter, Regen Dennis, of Utah. “He didn’t trust a lot of other people to do his research; he directed what he wanted bought, and he really knew what he wanted.” …

MacDonald and his wife moved in 1997 to the Horizon House retirement community, where Mary died in 1999. In the retirement home, MacDonald continued to keep his hand in the stock market while nurturing his image as a man without means, even wearing sweaters with holes in the elbows…

Picha, of Children’s, often visited MacDonald at Horizon House, where copies of The Wall Street Journal and Forbes magazine were stacked on both sides of his favorite chair. His routine included an early-morning workout, a visit to the grocery store and a walk to his stockbroker to check on his accounts, Picha said.

There are three things going on here of note. Firstly, there’s the idea of stock-picking as a hobby for men. MacDonald was a devotee of this particular hobby, and clearly loved it. His stepdaughter says that he was very good at it, too — but without knowing how much money he started with, or when the inheritance took place, it’s hard to tell exactly how good he was. MacDonald might not have been spending his money on consumption, but he was still getting pleasure from it.

Secondly, there’s the deeply Scottish/Presbyterian idea that saving is something you do in perpetuity — an idea which lies at the heart of the thousands of endowments which dominate the non-profit sector in the US. MacDonald was a steward for his parents’ savings, and, at the end of his life, he created a structure which attempted to ensure that those savings would remain intact for generations to come. This is, at heart, a deeply futile stance, a little bit like hoarding bitcoins and never spending them. I’m reminded of the story told by Mary Ann Glendon:

Bostonians still tell the story of the respectable society matron who was crossing the Common one day and ran into an old college chum she hadn’t seen for years. The matron was dismayed to see that her friend was obviously engaged in the world’s oldest profession. “My dear,” she said, “whatever has happened to you?” “Well,” said her friend, “it was either this or dip into capital.”

From a philanthropic perspective, the point here is that as a rule it makes sense to front-load donations, not to back-load them. I don’t know when MacDonald first inherited his fortune, but it might well have been 50 years ago. That’s 50 years’ worth of children who haven’t received the benefit of his generosity. What’s more, the world and Seattle have been getting richer and healthier all the while, which means that the future recipients of MacDonald’s money will be less needy than the hypothetical past recipients would have been.

And yet, even now that MacDonald has died, Seattle Children’s Research Institute will receive, annually, just 5% of its share of the bequest. That’s the bare minimum, under US law, that MacDonald can give away and still be counted as a charitable trust. I’m sure that if the law allowed the trust to give away even less than 5% per year, MacDonald would have chosen an even lower number. There’s lots of self-congratulatory back-slapping going on around this bequest, but the fact is that MacDonald isn’t really giving his money away: he’s controlling it, to the maximal extent possible, from beyond the grave.

Finally, it’s worth noting that Doug Picha, president of the Seattle Children’s Foundation, cultivated MacDonald for 30 years before finally achieving this donation. I’m sure that his motives weren’t entirely mercenary, and that the two men were genuine friends. But if you’re in the fundraising business, and you’re looking for really big donations from incredibly rich individuals, that means you’re going to be playing a very, very long game — and, quite possibly, having to wait until those individuals die.

MacDonald reportedly said he “wanted to be remembered as a philanthropist” — and he’s certainly less self-effacing now that he’s dead, slapping his name all over the central square of Elora, Canada, as well as the Jack MacDonald Endowed Chair at the University of Washington. But the fact is that if he were really philanthropically inclined, he would have given much more money away many decades ago. And he wouldn’t be giving away only the barest minimum now that he’s dead.

COMMENT

You really need to preface that whole piece with an introduction that you are about to flyspeck the relative virtues of various kinds of exceptional generosity. In life (maybe yachting) or death (maybe a colossal statue of himself), Mr. MacDonald could have just spent all of his money, and we have no reason to expect otherwise of people generally. Also, even while investing, he was giving society the benefit of his resources, instead of calling in his chips for personal consumption. “If he were really” more “philanthropically inclined” than almost everyone else, he might well have done exactly what he did.

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Why privately-financed public parks are a bad idea

Felix Salmon
Nov 22, 2013 01:21 UTC

If you want to find the most valuable land in the world, you have to look for two things. Firstly, find a rich, densely-populated city. Secondly, take a map of the middle of that city, and look for open space: parks, rivers, lakes. Look at the land bordering that open space, where offices and apartments can avail themselves of spectacular views — that’s where land is going to be the most expensive. Indeed, ultra-luxury condo developer Arthur Zeckendorf recently told the NYT that once he finishes the building he’s working on right now, he doesn’t have anything else in particular that he’d like to build: “We have looked at every single site in Manhattan, but we haven’t found one that meets our criteria to be on a park.”

Naturally, the most expensive land in the world tends to attract the richest people in the world — the kind of people who are very good at marshaling money, and politicians, so that they can get what they want. Last year I wrote about John Paulson’s $100 million gift to Central Park — which is, of course, the park he lives next door to — and the way in which Central Park’s charitable status means that the US taxpayer is effectively chipping in a very large chunk of Paulson’s gift, possibly as much as half of it. Which is not an effective use of public funds.

Indeed, more generally, the big problem with the charitable-donation tax deduction is that it’s effectively a multi-billion-dollar tax expenditure on the rich, even as charitable donations by the majority of the US population don’t get subsidized at all. If it were abolished, or scaled back, the amount saved by the government would dwarf any reduction in charitable donations: in theory, the government could simply make up the entire shortfall and then some, and still come out ahead. As a rule, it’s always easier and cheaper for a government to subsidize something directly than it is to try to fiddle around with laws which have the same effect but don’t show up on the official accounts.

But those laws refuse to go away — and in the case of prime real estate next to urban open space, the situation is getting steadily worse, rather than better. The open space itself invariably is a public asset, which belongs to everybody — at least in theory. But you know how it goes: you move in somewhere, paying $10,000 per square foot for your spectacular view, and it doesn’t take long before you feel that it’s yours. You’ll donate money to it, you’ll improve it — and, since most philanthropy these days has a transactional element to it — you’ll expect a little something in return. Pretty soon, the public’s parks become rather less egalitarian than you might imagine. Here’s Benjamin Soskis:

For much of the twentieth century, the city’s public parks represented a robust vision of egalitarian, governmental support for the public welfare. But that vision, and that support, withered with the fiscal crisis of the nineteen-seventies, when city funding for parks was slashed dramatically. It has never recovered; no city agency has suffered as dramatic a drop in its workforce over the past four decades than the Parks Department. The fiscal crisis also inaugurated a shift toward private governance and administration, marked by the establishment of the Central Park Conservancy in 1980. The Conservancy, and others modelled after it, promised to provide an antidote to the messy and unpredictable city budgeting process. For the most part, they have proved an overwhelming success: Central Park and its well-endowed kin, neglected before the rise of the conservancies, look better than ever, and city residents of all classes continue to enjoy their offerings.

But such philanthropic arrangements are not without their critics. Some have worried about the general hazards of privatization—the risk of corruption, or conservancies abetting the exploitation of public parks by private interests. Others grew concerned that the private funding of certain flagship parks would sanction the erosion of public stewardship, leading to a two-tiered system in which certain green spaces flourish while the majority of the city’s nearly two thousand parks languish.

The exploitation of public parks by private interests is absolutely happening, and Alex Ulam has example after example, and doesn’t even mention the fiasco that was GoogaMooga, where a huge swathe of Prospect Park was effectively destroyed by a 2-day for-profit event, which paid the park a mere $75,000. He does mention this, though:

Damrosch Park, for example, a New York City park run by Lincoln Center for the Performing Arts, is closed off for seven to ten months every year for private events, such as Big Apple Circus and New York City’s Fashion Week. In addition to being regularly closed to the public, Damrosch Park has had 57 trees cut down and its distinctive granite benches removed to accommodate such events.

Behind all this, however, is something which is even more insidious. We now live in a world where rich people and big corporations actually get richer by donating tax-deductible money to supposedly public parks. The big news of the moment is that Hudson River Park, which has run out of money, is now going to be able to fund itself by selling its air rights to developers on the other side of the street. This is far from unprecedented: the High Line, a few blocks west, was funded in large part by a scheme where for every $50 you donated to the High Line Improvement Fund, you could add an extra square foot of floor area in any development you were building nearby. (Check out Appendix D on page 61 of this PDF.) Given that developers pay up to $600 per square foot for such rights, that was quite the bargain.

Meanwhile, on the other side of Manhattan, the Howard Hughes Corporation is proposing to build a 50-story tower right on the waterfront. And the principle that private money should pay to improve such sites seems to have become broadly accepted:

Catherine M. Hughes, chairwoman of Community Board 1, said she was glad to finally see the developer’s master plan, which appears to have met many of the community’s concerns. “We understand that in order for it to succeed and provide community amenities it needs to be economically viable,” she said.

In all of these cases, it would be cleaner, more transparent, and more efficient for the public sector to pay for the parks, while raising money through a simple auction of development rights if and when it thought that development in such areas was warranted. If lovely parks like the ones on the west side are public goods, then the public should pay for them — and if they increase property values, then the public should be able to reap the benefit by selling the newly-appreciated development rights. Instead, private developers acquire their development rights at unknown and unknowable cost, because it’s all hidden behind ostensibly charitable activity. (The development which includes that 50-story tower, for instance, will, we’re assured, “include a still-to-be-determined rescue plan for the financially ailing Seaport Museum”.) And development takes place not because it necessarily fits into any greater public plan, but just because it’s the only way that work gets done which has historically been the job of the city, rather than the private sector.

One bill, put forward by Daniel Squadron, a state senator from Brooklyn, would mandate that 20% of any charitable donation to Central Park or Prospect Park be used to support less glamorous parks in less glamorous neighborhoods. Whether such a bill would pass constitutional muster is unclear, but in any case it wouldn’t make much difference: there will always be ways around such things, especially when new parks are in large part being built by private-sector interests.

If the private sector is building parks like the High Line or the new Seaport, then those parks are going to be designed, from the very beginning, to privilege monied interests and rich-people preferences in general. (A visit to the High Line, any summer weekend, will confirm that the people who go there are decidedly well-heeled, the presence of large public housing projects very nearby notwithstanding.) He who pays the piper, calls the tune. Which is why, if we’re building public parks, the public should be paying for them. If we want to raise public income by selling development rights, that’s fine too. But let’s not conflate the two.

COMMENT

For those scholars among you, see Ill Fares the Land by Tony Jundt. Good reading on why private public partnerships are bad for the public. But on the specific topic of parks, it is important to note that when housing became the near-sole means to pay for Brooklyn Bridge Park, all year round recreation came out of the original master park plan. All recreational amenities were replaced by very costly to maintain landscaping.Why? Lawns sell condos but pools, ice rinks and indoor rec-centers do not. It took the community 8 years to get back 3 soccer fields and a seasonal recreational pier from the community’s original master plan. 8 years of constant and continuous advocacy (ne, fighting) with the Bloomberg “entity” that runs this non-designated “park”. If we were to dedicate just 1% of our tax revenue to public parks, all parks would be maintained to the level of these “private” parks. Remember when the Republican convention was held in NYC? Remember that a big section of Central Park was cordoned off for a Chase party? Remember that the democratic caucus wanted to use parts of the park for their event and were denied? These are historic facts – these Conservancies are a menace to open and transparent use of public lands. They should be abolished. And hopefully, under Mayor DeBlasio, they will and all parks folded back into the NYC Parks Dept. Think of all the money tax payers will save if there is just one entity running our parks? Certainly for Brooklyn Bridge Park we would save about $1Million in redundant public servant salaries and related expenses for their own building and benefits. That is on top of the Conservancy’s costs – publicly funded by City Council and State representative donations to run this redundant BBP Conservancy. The whole thing is a scam and the public loses – again, and again, and again.

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Why charitable donations to public schools are OK

Felix Salmon
Sep 6, 2013 21:44 UTC

Rob Reich is worried about school inequality. (Longer, more fun version here.) When it comes to education, as in so many other fields, the rich just get richer, leaving everybody else behind. His Exhibit A: the parents of wealthy Hillsborough, California, who between them donate some $2,300 per child per year — all of it fully tax-deductible — to supplement the money coming from the state. This, says Reich, is not what charitable deductions are for:

Wanting to support your own children’s education is understandable, but it also has unintended, pernicious effects… charity like this is not relief for the poor. It is, in fact, the opposite. Private giving to public schools widens the gap between rich and poor. It exacerbates inequalities in financing. It is philanthropy in the service of conferring advantage on the already well-off… Tax policy makes federal and state governments complicit in the deepening of existing inequalities that they are ostensibly responsible for diminishing in the first place.

On the one hand, I should really agree with Reich here. After all, I spent 1,500 words last year railing against the private-school equivalent of these donations: the charitable top-ups that parents get arm-twisted into paying to educate their own kids. But in fact, partly because of that post, I actually quite like what’s happening in California.

For one thing, we’re seeing some real community spirit here: the parents of Hillsborough are supporting the entire school district with their donations, rather than just their own kids’ specific schools. As a result, their donations are improving the lot of every child in their district. True, most of those kids, as Reich says, are “already well-off”. But the quality of education in aggregate is improved, and while inequality might be exacerbated between communities, it isn’t exacerbated within communities, which is what results when the richest members of society decide to take their kids out of the public school system entirely.

The parents of Hillsborough have come to a collective realization: if they club together to make their public schools excellent, then none of them need to think about sending their kids to private school. An annual donation of $2,300 is peanuts compared to even the cheapest private-school tuition — and can result in a better education, too. (I can tell you first-hand that Palo Alto’s public schools are better than a certain expensive private school in London.)

As Richard Reeves says, the job of redistribution rightly belongs to the government, not to individual charitable donors. The state of California should take some of the money currently being spent in Hillsborough, and spend it instead in East Palo Alto, where it’s needed much more urgently. At the margin, private cashflows in Hillsborough should just make such redistribution easier, rather than harder. California, even more than most states, is suffering from enormous budget cutbacks; if there are thousands of parents around the state who are willing and able to augment current education funding, that’s a gift horse which I don’t think needs a huge amount of dental examination.

As Reich himself says, “when it comes to addressing the root cause of inequality in public education in the United States, the solution will have little or nothing to do with philanthropy”. It stands to reason, then, that philanthropy is not the problem here either. I do worry about the rise of what I call “transactional philanthropy” — the quid-pro-quo model where you give money to a philanthropy just because you get something back in return. (A tote bag, your name on a building, a better education for your child.) But I’m also drawn to the deeper idea of what’s going on here.

We all pay for public education, because it’s a public good. Private education, meanwhile, is a private good, which is rightly paid for with after-tax income. California is now developing an intermediate model — what the Hillsborough Schools Foundation likes to call “a groundbreaking public-private partnership to support our schools”. I’d like to think that the the intermediate model, at the margin, might slowly replace the old binary model, and result in wealthy parents being more involved in their local public schools, and less likely to opt out entirely by sending their kids to private school. And that, in turn, would be good for everybody.

COMMENT

>if the parents are conscious enough (and well off enough) to pay the extra $2k then that by definition means that they are involved in other aspects of their children’s lives <

Like feeding their children.

Like buying their children basic school supplies.

The situation is really sad.

Posted by dtc | Report as abusive

How a Goldman Sachs scavenger hunt is like a private equity deal

Felix Salmon
Jun 28, 2013 18:47 UTC

The one thing missing from Euny Hong’s wonderful dive into the all-night adventure that is the Goldman Sachs scavenger hunt is an explanation of what, to any Goldman type, is surely the most interesting bit of all: the finances.

Hong does tell us that there were 20 teams, made up mostly but not entirely of some 180 Goldman Sachs employees, and that after paying $270,000 in expenses, they raised $1.4 million for charity. So, each employee ponied up about $9,300, of which about $7,800 was tax-deductible, right? Of course not. This thing was structured by a Goldman partner, Elisha Wiesel, so it was obviously much more complicated than that.

Wiesel came up with a solution: He would charge no entry fee, and he would launch the event as a non-profit fundraiser for Good Shepherd Services, where he is a board member. The roughly $270,000 of operating expenses were covered by Goldman Sachs Gives, a philanthropic fund financed by the firm and directed by its partners, through a grant made at his recommendation. “I wanted to be able to tell donors that every dollar they donated would go to the charity and not to operating costs,” he said. He appealed to his Goldman colleagues’ competitive spirit by asking them to support one or more teams with their own grant recommendation or donation to Good Shepherd Services, a New York-based non-profit that provides support for over 25,000 at-risk youth and their families every year. The event netted $1.4 million for the organization, the bulk of which executive director Sister Paulette LoMonaco said would go toward giving high school dropouts the training needed to finish school.

The first thing to note here, in terms of structured finance, is the weird and really rather clever use of the grant from Goldman Sachs Gives. Most philanthropic funds like to see their money put directly to good use. Goldman’s $270,000, by contrast, was spent on putting together one of the most lavish scavenger hunts the world has ever seen. Is it really a good philanthropic use of money to develop an iPad app which changes the color of the Bank of America tower? In Goldman’s eyes, yes, it is: because once Goldman was covering the expenses of the event, another $1.4 million poured into the coffers of Good Shepherd Services. By directing its money towards for-profit game designers rather than what non-profits like to call “program activities”, Goldman effectively managed to multiply its grant by an impressive multiple of more than 5X. No one knows better than Goldman that money is fungible; as a result, Goldman Sachs Gives doesn’t mind that it wasn’t their money which went to Good Shepherd Services. Truly this is a structure worthy of a Goldman partner.

And then, of course, there’s the tax angle. If Wiesel had simply sold 180 tickets at $9,300 each, then only $7,800 of each ticket would have been tax deductible, since each of the scavenger hunters received $1,500 (!) in scavenger-hunt value over the course of their sleepless night. Instead, under Wiesel’s structure, the full $1.67 million ended up being fully tax-deductible.

The trick here is to note that there was no entry fee: tickets, if they existed, were free. Wiesel separated out capital and labor, in the scavenger-hunt stack, as elegantly as he might create differing tranches of a collateralized debt obligation. Here’s how he explained it in an email to me:

The important thing to understand about last year’s event is that – for the most part, there are always exceptions – there were “payers” and there were “players”.

Senior professionals, mostly partners, at GS ponied up the $70k/team. For the most part this population did not play the game. These are the “payers”.

More junior professionals, again with rare exceptions, gave up their weekend and spend 15 grueling hours racking their brains and undergoing sleep deprivation, and did not pay for this privilege. These are the “players”.

I made my own GS Gives recommendation and covered the $13.5k/team operational costs such that the $70k/team raised was net rather than gross proceeds.

Think of this as you would a private equity deal. First, you have the founders, who aren’t rich but who are willing to put in sweat equity; they’re the talent, and without them nothing could happen. In this case, the founders are the teams — the 180 sleepless Goldmanites who ran around Manhattan all night solving clues.

But founders can’t do anything without money — they need people who are willing to invest in them. So you have the limited partners — the investors who put up the bulk of the cash. Here, the LPs are the Goldman partners, and other senior Goldman types, who ponied up $70,000 for charity so that they could sponsor teams in the hunt.

Finally, there’s the general partner, the architect of the whole thing, the person who makes it happen and who multiplies his initial investment. Clearly, the GP here is Wiesel, who managed to tun a $270,000 donation into a $1.4 million donation by dint of funding a scavenger hunt. (And in typical GP style, even that money wasn’t fully his: it came from the bigger Goldman Sachs Gives pot.)

Because the players aren’t contributing any money, they don’t need to worry about whether their contribution is fully deductible or not. Because the payers aren’t directly receiving the benefit of running around Manhattan all night, they don’t need to subtract the cost of the event. And because Goldman Sachs Gives gave the $270,000 to Good Shepherd Services rather than directly to the organizers of the scavenger hunt, that donation too was fully deductible.

It’s all quite admirable, in its own convoluted way: pretty much what you’d expect when Eli Wiesel’s son joins Goldman Sachs. I’m something of a connoisseur of Goldman Sachs charitable adventures: buy me a drink one day, and I’ll tell you the story of Hank Paulson, Tierra Del Fuego and the Bronx Zoo. This one isn’t nearly at that level, but it’s clever all the same, and I hope it gets repeated. Although at some point you do have to wonder whether they really needed to spend that much money on the game design.

COMMENT

sic sic

Posted by ex-fungi | Report as abusive

Can philanthropists be ruthless?

Felix Salmon
Jun 25, 2013 23:06 UTC

130621_Cover201.jpgCharles Kenny and Justin Sandefur have taken over the cover of the latest issue of Foreign Policy, with a classic of the QTWTAIN genre. The tl;dr version of their 4,000-word article (which is free, behind a registration wall): no, Silicon Valley cannot save the world. Still, there are some very good development innovations out there; the surprising thing is that you’re likely to find them not in Palo Alto but rather in Washington DC.

The strongest point that the article makes is simply that you can’t easily apply Silicon Valley techniques to development. If you look at the bright ideas of the recent past, many of them have failed — which is entirely typical of Silicon Valley. The problem is that the people who develop and fund those bright ideas tend to be the winners of the Silicon Valley lottery, tend to think that their ideas are golden, and are loathe to kill them off. As Kenny and Sandefur write:

When working with new technologies and approaches, we should expect lots of failures. Tech entrepreneurs are used to a culture of failure — 10 bad ideas that sink before one gets to its multibillion-dollar initial public offering. But the advantage of the system in which they operate is the market test. As a rule, the bad ideas go bankrupt (if sometimes only after the multibillion-dollar IPO).

But by moving the model to development, we’ve taken tech entrepreneurs’ high tolerance for failure and penchant for hyping harebrained schemes to an arena where the market test is considerably diluted. Ideas get funding from Kickstarter and philanthropies on the basis of their appeal to donors and philanthropists in the West rather than consumers in Africa. And that’s what leads to the Soccket, the PlayPump, and One Laptop per Child.

One of the joys of the cover story is the way in which it elegantly dismantles these innovations, using a combination of empirical evidence and simple logic. (“You can get a solar-powered lamp for $10. It isn’t clear why anyone would pay 10 times that for a light whose power source you have to kick around for half an hour to get less illumination.”)

But after scolding “tech gurus” for being “wildly overoptimistic” in the first half of the article, it’s then a little jarring for Kenny and Sandefur to start getting all starry-eyed themselves in the second half, talking up a tiny division of USAID as the engine which, even if it won’t save the world, could at least save millions of lives and have an enormous positive impact on development.

Kenny and Sandefur run down a list of three bright ideas funded by a Washington venture capital fund called Development Innovation Ventures; all of them seem very promising. But the whole point of the first half of the article is that promising bright ideas are all too easy to come by, in the development world: the difficult thing is identifying which ones aren’t working — and then killing those ideas with all the ruthlessness of a Silicon Valley venture capitalist. And there’s nothing in the article which shows DIV being particularly good at that.

This area — of judging nonprofit development projects by their empirical outcomes — is one where GiveWell has probably done more work than anyone. And if you read down their analyses, you’ll learn quite quickly that it’s an incredibly hard thing to do. Kenny and Sandefur make it seem that “rigorous testing” is something which can be implemented relatively easily — but in reality it ranges from the incredibly difficult to the downright impossible. Remember that even in carefully-designed peer-reviewed settings, most published research findings are false. And when you’re out in the field, trying to create a replicable test — which of necessity will involve withholding aid from a control group of people who likely need it — becomes extremely fraught on both a practical and a moral level.

In other words, what the article lacks is not only some kind of evidence that DIV’s bright ideas would not have been funded without it. It also could use, ironically enough, a rigorous demonstration that DIV is particularly good at rigorous testing, and that as a result it’s measurably more effective than the Silicon Valley crew. If Kenny and Sandefur really want to differentiate DIV from the rest of the field, they’re going to need to talk much more about its failures, and about the well-intentioned projects which it cold-bloodedly defunded for the greater good of the larger program. Otherwise, we’re left basically where we started, telling feel-good stories.

COMMENT

“Tech entrepreneurs are used to a culture of failure — 10 bad ideas that sink before one gets to its multibillion-dollar initial public offering.”

That’s not true. It’s VCs that fund 10 bad ideas to get one good one; also, not all good ideas must exit with a multi-billion dollar IPO. That’s the Hollywood take on the start-up world.

The tech entrepreneurs who try to save the world are not the ones who have 10 bad ideas; usually they are the ones who have had at least one great idea, and maybe many more. The ones that have had 10 bad ideas don’t get funded, and don’t have the money to save the world.

Posted by KenG_CA | Report as abusive

Adventures with quantitative philanthropy

Felix Salmon
Jun 10, 2013 20:56 UTC

Quantitative philanthropy definitely seems to be a Thing these days. In the Washington Post, Dylan Matthews is writing about GiveWell and about people who are taking high-earning jobs just so that they can give more money away; in the WSJ, Brad Reagan is writing about John Arnold and his determination “to solve some of the country’s biggest problems through data analysis and science”. (Free version here.) And Columbia University Press recently published The Robin Hood Rules for Smart Giving, a guide to the way in which philanthropies should use a framework called “relentless monetization” to guide where and how they spend their money.

Given how much I dislike philanthropy which is mainly designed to make the giver feel important, I ought to be happy about all these developments. But in fact, I’m quite conflicted.

Part of the reason is that philanthropy can not simply be reduced to dollar amounts. You can make a stab at doing so — and if you work for the Robin Hood Foundation, you will do just that. But Robin Hood is very clear that all it’s trying to do is create a way in which to compare apples with oranges, so that there’s a bit of structure under which to answer the “apple or orange?” question. If the Robin Hood quants decide that funding apples causes $4 of benefit while putting the same amount of money into oranges causes $5 of benefit, then they’ll chose the oranges over the apples. But they’re not saying that the apples actually create $4 of benefit: they’re just saying that given their mission, and the way in which they put numbers on such things, they prefer oranges to apples.

The Robin Hood people are very open about the fact that some other foundation with a different mission, or even a different set of quants at the same foundation making slightly different assumptions, could come to a very different conclusion. The quantification framework isn’t a way of replacing judgment with numbers; instead, it’s a way of helping people to be more explicit about exactly what assumptions they’re making when they choose one action over another.

This is my problem with the kind of philosophy Matthews is talking about; call it the GiveWell view. Here’s Matthews, explaining why a well-intentioned chap name Jason Trigg is working at a high-frequency trading shop:

Trigg makes money just to give it away. His logic is simple: The more he makes, the more good he can do.

He’s figured out just how to take measure of his contribution. His outlet of choice is the Against Malaria Foundation, considered one of the world’s most effective charities. It estimates that a $2,500 donation can save one life. A quantitative analyst at Trigg’s hedge fund can earn well more than $100,000 a year. By giving away half of a high finance salary, Trigg says, he can save many more lives than he could on an academic’s salary.

David Brooks does a good job of explaining how there can be something dehumanizing about such logic: there are good reasons to be suspicious of anybody who thinks that philanthropy can or should be reduced to dollar amounts or preset decision matrices. But there’s more going on here, and it’s worth unteasing the various different components of Trigg’s implicit syllogism.

First, there’s what you might call the Peter Singer imperative: “If it is within our power to prevent something bad from happening, without thereby sacrificing anything of comparable moral importance, we ought, morally, to do it.”

Second, we have the ability to turn money into saved lives. “Remember,” writes Matthews, “that giving about $2,500 can save one life from malaria.” Maybe the number is a little fuzzy: it might be $2,000 or $3,000 or even $4,000. But it is fair to say that if I spend tens of thousands of dollars a year on discretionary consumption, then there’s an opportunity cost to that spending — and the opportunity cost is dead people. They died of malaria, and if only I had given that money to the Against Malaria Foundation instead of spending it on booze and taxicabs and theater tickets, then those dead Africans would be alive today.

Third, there is no moral difference between directly saving someone’s life, on the one hand, and, on the other hand, spending an amount of money such that at the margin one extra life will have been saved. The moral worthiness of donating $2,500 to a malaria charity is exactly the same as the moral worthiness of jumping into a shallow pond to save a child from drowning. Both save one life.

Fourth, if you were walking past a shallow pond where a child was drowning, you would surely jump in to save that child.

Fifth, moral mathematics scales: if donating $2,500 and saving one life is good, then donating $5,000 and saving two lives is twice as good, and so on and so forth. If there are diminishing marginal returns on your donated dollar, then they’re small.

If you accept those five premises, then the conclusions rapidly and easily follow: not only should you donate the overwhelming majority of your disposable income to the Against Malaria Foundation, but you also have a moral imperative to maximize the amount of disposable income you have, just so that you can maximize the amount of money you donate and thereby the number of lives you can save.

But the fact is that when you disaggregate the logic in this way, you’ll find very few people willing to accept all five of the premises. I don’t want to wade into the realm of moral philosophy here, so let’s just concentrate on premise number two: the idea that there’s some kind of easy fungibility between dollars and saved lives. This is great as a marketing technique, and if you go through an elaborate quantitative exercise, you can end up at GiveWell’s “cost per life saved” conclusion:

Using the 2012-2013 cost per LLIN, we estimate the cost per child life saved through an AMF LLIN distribution at just under $2,300 using the marginal cost ($5.15 per LLIN) and just under $2,500 using the total cost ($5.54 per LLIN).

The Robin Hood Foundation is far from modest when it comes to its quantitative techniques, but never goes nearly as far as this. At Robin Hood, everything is based on conditionals: if you’re giving away a certain amount of money anyway, and if you have a certain mission statement, and if you make certain clearly-delineated but far-from-certain assumptions, then you will end up preferring this course of action to that one.

GiveWell, by contrast, makes a vastly bolder claim: that if you donate $2,500 to the Against Malaria Foundation, you will save a child’s life. It is entirely transparent in how it arrives at that conclusion, and is perfectly happy for people to quibble with its methodology. But by the time the claim makes it into the pages of the Washington Post, any minor caveats have fallen away, and the conclusion is taken as a simple statement of fact.

I believe that humility is of paramount importance in all philanthropy, and I worry that there’s not nearly enough of it at GiveWell. Malaria is a sexy disease: it’s probably second only to HIV/AIDS in terms of the amount of not-for-profit resources being thrown at it. Zoom out, for a minute, and look at national governments in Africa; at universities and other research institutions around the world; at national and international development banks; at huge philanthropies like the Gates Foundation or the Global Fund; at the philanthropic arms of the big pharmaceutical companies; and, yes, at smaller charities like the Against Malaria Foundation. Add it all up, and you’ll find thousands of people marshaling billions of dollars in resources. These people have been working for many years on trying to build effective strategies to minimize malaria’s footprint and, ultimately, to eradicate it altogether. Some of those strategies have been more effective than others, and the broad distribution of long-lasting insecticide-treated bed nets is undoubtedly one of the better ones. Still, here’s the thesis that GiveWell would have you believe: you can be reasonably certain that every time someone donates another $2,500 to the Against Malaria Foundation, another child’s life will be saved.

I don’t buy it. It’s not that the Against Malaria Foundation isn’t an excellent, well-run charity doing an excellent job at distributing bed nets. In and of itself, distributing bed nets is a good thing to do, and it should, on balance, be helpful the fight against malaria. The Against Malaria Foundation is a worthy cause, and if you write them a check, you’re not going to be committing any of the sins I railed against in December. What’s more, the amount of time that the Against Malaria Foundation has spent with GiveWell has surely paid huge dividends for them: thanks to the GiveWell seal of approval, they have received millions of dollars they would not have gotten otherwise.

But there’s something far too facile about putting a dollar amount on marginal lives saved. Even GiveWell says so: look at the blog post they put up in December, in which they tried to quantify the relative cost-effectiveness of their top three charities. Malaria is a lethal disease, which makes it almost too easy to try to put a dollar amount on lives saved. But attempting the same exercise for deworming is much harder, and they didn’t even bother trying for their third charity, which simply gives cash lump sums, unconditionally, to the poor. Basically, if you want to use GiveWell to help you find a charity where you can buy a saved life with a known number of dollars, you’re going to end up with a shortlist of one.

The Trigg syllogism, then, rests on an assumption which rarely obtains in the real world: that giving money to charity is something which can and will predictably save lives. Charities tend to do little to disabuse this assumption, because people who believe it are likely as a result to donate more money. But talk to anybody who actually works in development or for a nonprofit, and they’ll tell you the world is a lot messier than that. Most of the time, when we give money to charity, we can realistically only hope that our donation will make a positive difference at all; all too often, a marginal extra dollar, even when it’s given to an unambiguously good cause can cause more harm than good.

The purpose of GiveWell is to try to identify the charities where that doesn’t happen — the charities where your donation will do the most good and the least harm. Certain quantitatively-minded types consider that a very worthy cause, and I’d be one of them too, if I believed that GiveWell could really do that.

Instead, however, I think that GiveWell faces three very big problems. The first is model risk: although GiveWell is very open about the models that it’s using, there’s no particular reason to believe that they are robust; obviously, their recommendations are no better than the models used to generate them. The second is that GiveWell imposes a substantial burden on the large number of charities it investigates and doesn’t recommend; that burden carries a real cost.

Finally, and most importantly, there’s GiveWell’s built-in bias towards relatively small-scale, replicable and quantifiable interventions. (Robin Hood has the same bias, for the same reasons.) Such actions are an important part of the philanthropic universe, but the Robin Hood and GiveWell types have a tendency to become evangelical about the way in which virtually all charities should adopt such a framework, and that, I think, is a very bad idea, for reasons that Rob Reich explored in his Boston Review essay about foundations.

Reich explains that things like bed nets are public goods, best provided by the state. And that philanthropies are best placed to do something else entirely: they “can operate on a longer time horizon than can businesses in the marketplace and elected officials in public institutions,” he says, “taking risks in social policy experimentation and innovation that we should not routinely expect to see in the commercial or state sector.” He continues:

When it comes to the ongoing work of experimentation, foundations have a structural advantage over market and state institutions: a longer time horizon. Once more, the lack of accountability may be a surprising advantage. Commercial entities in the marketplace do not have an incentive structure that systematically rewards high-risk, long time horizon experimentation; they need to show quarterly results. Similarly, public officials in a democracy do not have an incentive structure that rewards high-risk, long time horizon experimentation; they need to show results quickly from the expenditure of public dollars in order to get re-elected. In contrast, foundations are not subject to earnings reports, impatient investors or stockholders, or short-term election cycles.

Foundations, answerable only to the diverse preferences and ideas of their donors, with a protected endowment permitted to exist in perpetuity, may be uniquely situated to engage in the sort of high-risk, long-run policy innovation and experimentation that is healthy in a democratic society.

It seems to me that the philosophy of GiveWell and Robin Hood runs directly counter to this philosophy: they require precisely the short-term results which are required also by the marketplace and by the state. As such, they are deliberately disarming philanthropies of one of their key structural advantages.

Both GiveWell and Robin Hood were founded by marketplace-friendly hedge-fund types — but then again, so was the Laura and John Arnold Foundation which falls squarely into Reich’s sweet spot, funding the kind of ambitious, risky, long-term projects with none of the predictability that GiveWell and Robin Hood require. The Arnolds — like the Gateses — take a scientific, quantitative view of the world. But that doesn’t mean they take a narrowly quantitative approach to philanthropy itself. Bill Gates has more than enough money to give a bed net to every living child in Malawi — but his ambition is greater than that. And while I have my quibbles with the way the Gates Foundation is run, I do applaud its ambition and the way in which it tries to do the kind of things that only a monster-size philanthropy could ever even attempt.

Jason Trigg, in this light, is not a moral hero equivalent to a man who has saved dozens of children from drowning; instead, he starts to look more like someone contracting a third party to provide a service which is probably best provided at the state level in the first place. There’s nothing bad about what he’s doing — far from it. But I do think that what he does is limited along a number of axes, and that if he spent less time working at high-frequency trading, and more time out in the field learning about the way that non-profit develop organizations work in practice, then he might develop a richer, more nuanced, and probably humbler view of what his financial contributions can and can’t achieve in reality.

Update: GiveWell responds, pointing to a 2011 post in which they made most of the points I’m making here, and in which they said that they were going to move away from narrowly quantitative estimates and towards a more holistic view of where money can be best spent.

COMMENT

Doing a search for Wall Street or ‘derivatives’ I don’t see that anyone has questioned Trigg’s choice of career if his goal is to ‘save lives’. Walls Street’s risky derivatives (CDOs) were at least partially at fault for the 2008 financial collapse, leading to millions of unemployed, and including an increased suicide rate.

By participating in this system is Trigg enabling a system that will harm possibly more people than he will save? Especially given that he will be devising the algorithms that might increase the risks. The big pool of money that Trigg will be drawing his salary / bonuses/ etc. from is the same pool that is right now lobbying Congress to eviscerate Dodd-Frank and other attempts to restore the regulations that kept the banks in check for the last 80 years.

Posted by ChristoGilberti | Report as abusive

When crowds disintermediate charities

Felix Salmon
Mar 12, 2013 03:55 UTC

Seth Stevenson has a problem with the fact that the Internet raised $703,168 for Karen Klein, the bullied bus monitor. That kind of money is “disproportionate”, he says, adding:

Charities have always used poignant, individual stories to play on people’s emotions and open up their wallets. But the idea was that you should donate to the charity, not to the individual sad sack with the most heart-wrenching video or the most prominent link on Reddit. Likewise, political and social causes have long used the specter of bad behavior to lobby for new laws and policies—but rarely to round up an angry mob that tracks down specific offenders. It seems we’ve decided it’s more fun (and much easier) to collaborate in making one person happy or unhappy than it is to work together to change the underlying context.

Well, yes! It is more fun, and much easier, to make one person happy than it is “to work together to change the underlying context”. And yes, that’s one of the reasons why we do such things. There’s nothing inherently bad about fun-and-easy, but Stevenson seems to think that there is. The hidden syllogism would seem to be that the $700,000 that went to Karen Klein is money that would otherwise have gone to change the underlying context, and that therefore there’s something corrosive about the donations to Klein, because the alternative, while not as fun and not as easy, was in some sense superior.

But this is silly. At the margin, the Karen Klein campaign, along with all the publicity surrounding it, surely helped, rather than hindered, those people working to change the underlying context. And once someone has given $20 to Karen Klein, they will be more rather than less receptive to people asking for help on broader campaigns.

The fact is that almost none of us have some kind of annual giving budget, from which we draw when we send money to someone like Karen Klein. Instead, we give as and when we’re moved to do so. Once you start giving money away, you’re more likely to give money away in the future; Stevenson’s implication, by contrast, is that giving money in one place makes you less likely to give money somewhere else. Which is completely wrong.

Still, phenomena like the Karen Klein campaign are interesting. As Stevenson says, the vast majority of the money was given after it became clear that campaign founder Max Sidorov’s stated aim — to send Klein on “the vacation of a lifetime” — had long been surpassed. Which means that the people giving to the campaign no longer, at that point, wanted to send Klein on a vacation. The whole point of the campaign, from the beginning, was to be excessive: to single out Klein and shower her with cash and goodwill, not because she was more deserving than anybody else on Indiegogo, but just because sometimes the internet does excellent things for people. As the campaign snowballed, the very gratuitousness of it became its point: thousands of people were giving money to someone who no longer needed it, just because they could.

Stevenson draws various lessons about “metaperceptual influence” online, along with “deindividuation through the enhanced opportunity for anonymity”, all in the service of a thesis that there’s “something inherently different about crowd behavior on the Internet”. But he misses the simple and obvious point: that the internet is so enormous that 32,000 is less of a crowd than it is a micro-subset of people who think it’s cool to do something randomly good in a vaguely coordinated and largely effortless manner. As Amanda Palmer puts it, on the internet, a relatively small number of self-selecting people can be more than enough: enough to fund an album tour, enough to send $700,000 to a bus monitor in upstate New York, enough to make thousands of Harlem Shake videos. There’s something random about these things: you could never predict in advance which ones will catch the wave and which ones won’t. That’s just the way the internet works: it’s a bed of a million oysters, and, randomly yet inevitably, some of them will grow pearls.

If you want to look at crowd behavior online, it seems to me that the place to look is not any of the million fads which flare up and die down in a matter of a week or two. More interesting, to me, are the political campaigns — Howard Dean ’04, Barack Obama ’08, Ron Paul ’12 — which manage to excite a wired and youthful base. Those campaigns really are rival goods: if you support Obama you’re opposing Hillary, if you support Ron Paul you’re opposing Newt Gingrich. And they also share with political campaigns more generally the fact that giving money is generally done more for the benefit of the giver than it is for the benefit of the recipient: the marginal benefit of a donated dollar in a presidential campaign is very close to zero, in these ad-saturated times.

And that’s surely the real reason why so much money flowed to Karen Klein: people who gave her money felt really good about doing so. They weren’t trying to change the world, they were just making themselves feel good, and helping out a victim of bullying at the same time. It’s the story of most successful Kickstarter campaigns, too: the feeling-good-about-giving part is much more important than the ostensible commercial transaction.

The internet is the greatest disintermediating force the world has ever known, and it’s going to have to change the way that charities campaign — at least with respect to the ones who like to use individual stories as a way of raising collective funds. That worked much better when you couldn’t help the individual directly. Nowadays, as a charity, you either need to give people the belief that they are helping the individual (as Kiva does, for example). Otherwise, you risk being disintermediated entirely by the likes of Max Sidorov.

COMMENT

Publius, it sounds to me like you’re describing intermediaries. The Red Cross collects blood from a bunch of people, in order to redistribute it to those in need. A disintermediated blood donation system would have individuals willing to donate blood giving that blood to specific people in need of blood.

United Way is DEFINITELY an intermediary. People give them money; they then give the money to organizations that they think are helping people, and those organizations, we hope, actually help people. The Klein story involved a bunch of people giving money directly to Klein, rather than to an intermediary they trusted to distribute it to a broad class of people in need of money.

“You keep using that word. I do not think it means what you think it means.”

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