Sometimes, new technical developments in the discourse around effective altruism can be difficult to understand if you're not already aware of the underlying principles involved. I'm going to try to explain the connection between one such new development and an important underlying claim. In particular, I'm going to explain the connection between donor lotteries (as recently implemented by Carl Shulman in cooperation with Paul Christiano)¹ and returns to scale. (This year I’m making a $100 contribution to this donor lottery, largely for symbolic purposes to support the concept.) Continue reading →

Microfinance charities make small loans to very poor people. The Unit of Caring has a post up answering a reader’s question on microfinance:

intomeans asked: So based on your post about microloans, do you think it's better to give $1000 to one person one time, or to lend it out through microloans and then, as the money's repaid, keep relending it to other people indefinitely? That's the main argument that pushed me to lend through microloans (in addition to giving to charities like AMF), and I don't think Givewell's analysis addresses that.

I think it’s better to give $1000 to one person one time.

The business model of micro loan organization is to loan $1000, take back $1200 if the recipient is able to pay it back, hope the additional $200 covers the money they are spending on identifying recipients and ensuring repayment, and loan $1000 again.

That this constitutes ‘the money doing good indefinitely’ is listed on GiveWell ‘six myths about microfinance’, which also links this really useful article. Basically: there is a lot of overhead involved in selecting and monitoring recipients, such that every time the loan is re-loaned out a significant fraction is lost. Overhead isn’t inherently bad but even if all the loanees repay the loans, it’s misleading to suggest that with some fixed amount of money to start, a microloan charity could make loans indefinitely. And not all the loans are repaid. (And sometimes, charities that report really high repayment rates, higher than American banks achieve, are a sign they have a lot of coercive power to get their money back, not a sign that the program is going brilliantly.)

So, a thousand dollars enables more than one thousand-dollar loan. But almost certainly less than ten, and some of those people repaid at great personal cost and ended up in a worse position than they started in (because they didn’t understand the terms of the loan or similar.)

This seems true as far as it goes - but even if the empirical premise were true, this case for microlending seems pretty weird. This argument for microlending is that each time you make a loan, you help the borrower - and because they typically pay back the loan, you can keep relending the principal, thus continuing to help people.

Let’s think about it disjunctively. For any microloan recipient, either they have a good way to invest the money, or they need the loan for short-run consumption. If they’re financing consumption, then either having to pay back the loan puts them even worse in the hole, or they’re using it for consumption smoothing and what they really need is savings.

If, on the other hand, they have a good way to invest the money, then they might pocket a profit even after paying back the microloan, which can then be lent out to someone else with an investment opportunity, a clear instance of “the money doing good indefinitely.” But what happens if you keep not making them pay you back? If they reinvest that money, then that’s also an instance of the money doing good indefinitely! Reinvestment of earnings is a thing, even in poor places, and so is helping one's neighbors.

When deciding between microloans and cash transfers, you’re not deciding between doing good one time and doing good indefinitely. The only thing that makes microloans feel like the impact is longer-lasting is because you can feel like you’re holding onto control for longer. The charity doesn’t just give the money and go away - at the end of the loan’s term, it gets to decide who gets the money next - and again, and again, and again. [UPDATE: Per Paul's comment below, there are some reasons to think that this kind of control control can be a good thing. My problem is with the assumption that it is.]

You the donor don’t even have the control here. You aren't lending to people you know or have otherwise personally verified can use the money. The only question you get to decide is: should your donation be administered by a big official charity? Or should it be administered by some random person in a poor village who knows the people and situation there? If they end up with a lot of money - and microlending would be a good idea - then wouldn’t the recipient of your cash transfer be motivated to do their own microlending?

The first option, picking a charity to administer your donation, might do better at weeding out obviously irresponsible recipients, but on the other hand, it comes with massive overhead costs that likely outweigh this benefit.

(As usual, the form itself is not the problem. I expect there are cases where microfinance is in fact helping. I expect that most of these are for-profit. The problem is the automatic deference to the form.)

I’m embarrassed not to have noticed this obvious flaw in the argument for microloans earlier. This seems like the sort of pathological thinking Sarah Constantin was trying to describe in Ra. Long-run wealth accumulation due to cash transfers doesn’t count because it’s in the hands of some specific individual as real concrete things. Repeatedly re-loaned microcredit keeps counting because it stays under the control of a large respectable institution, as the abstraction of money.

This is bonkers. It has little to do with doing the most good, and a lot to do with the worship of smooth, respectable official-seeming vagueness. Where else am I still making this mistake?

A philosopher friend told me about a fundraiser urging philosophers to give to the Against Malaria Foundation (AMF), and asked me for my thoughts on it. They were especially interested in making sure there were multiple public perspectives on this because some philosophers seem to have been responding by giving more than they can afford.

I applaud these philosophers for putting the ideal of taking basic rational argument seriously into practice, and taking responsibility for trying to use this power for good. This fundraiser is part of a broader event called Philosophers Against Malaria, which is affiliated with the Effective Altruism (EA) movement, and it seems like a natural expansion of the ideas and methods of that movement. This is extremely appropriate; philosophers are some of the key founders of and proponents of EA, and for good reason – giving a large share of one’s developed-world income to charities focused on health interventions in poor countries is an unconventional action, but follows from clear and simple reasoned arguments based on common moral intuitions.

However, I think that there are some limits to the way EA’s recommendations are applied in practice, that are going to predictably lead to underperforming your true potential at doing good. To be a bit more specific, there’s an obvious argument that if you live in a rich country, care about the well-being of the people around you, and don’t have a principled reason to care less about those far away, then it should look like a great deal to give to charities operating in much poorer countries where money goes farther. This is true as stated.

This, however, is often tacitly conflated with the claim that it is morally obligatory to give a large share of your income to such charities – generally the ones endorsed by some specific organization such as GiveWell or Giving What We Can – and that if you commit to doing this, you can stop worrying about your impact on the world. This doesn’t necessarily follow, for a few reasons:

• You may not be the core audience for charity recommenders like GiveWell or Giving What We Can.
• For uncontroversial interventions, money may not be the limiting factor.

Moreover, the broader EA movement that produced these recommendations has some methodological issues that should make you doubt that it’s giving you the most relevant information on how to do good:

• In recommending ways to do good, it centers the role of giving money to charity, implicitly at the expense of more direct ways to do good.
• In evaluating actions, it implicitly uses an act-utilitarian or -consequentialist framework even in cases where rule-utilitarianism would be much more appropriate.

Continue reading →