The mistake being made by the Effective Altruists

Given the day, an examination of a moral insistence:

This is the season for giving – a time when charities call for donations and the gulf between the haves and the have nots becomes particularly apparent. But how much good can – or should – you do, by opening your wallet?

Such are the questions posed by effective altruism (EA), a movement thrust into the spotlight by the arrest of its high-profile exponent, billionaire Sam Bankman-Fried, after the collapse of his cryptocurrency exchange.

That a seeming charlatan coopts a moral idea is not a reflection on that idea of course, charlatans do as charlatans can get away with.

However, there’s an error - a gross one - at the heart of this effective altruism idea.

“It’s really important to give to the most effective charities,” Singer contends, “because they can be not just 10 times but hundreds of times more impactful in what they do.”

The same utilitarian logic means the EA site 80,000 Hours (of which Singer is not a part) suggests supporters choose a high-paying career so they can donate more during their lifetime (a practice known as “earning to give”).

That’s where that problem is. There’s a more minor one here:

Many critics focus, in particular, on the enthusiasm of some EA advocates for “longtermism”: the argument that, because far more people will exist in years to come, maximising good means allocating a greater importance to the future.

The other way of describing - OK, one other way - longtermism is that we’re using a low to very low discount rate. If we use market interest rates then things that happen half a century out or more have very little value now. So, our actions now can - should even - disregard that half a century out and more. We should worry much more about alleviating hunger now than soil quality in 100 years’ time, more about shelter and heating for the cold now than CO2 levels in 200 years’ time - ah, you see the problem here?

We are also being told, at this very same time, that society should be using a low discount rate concerning that future in order to deal with climate change. The whole insistence of the body politic is that discount rates should be low - then people start to criticise longtermism?

Seriously folks, make up your minds.

The larger error though. The claim being made by effective altruism is that you go make the money then give it away. There absolutely is a place for charity, yes indeed (To break the collective identity here, the One Taka Meal floats my boat). But if the aim is to do the most for the most people then that’s not quite the thing to be doing. Growing a business that makes a profit is.

No, bear with us. Think of Schumpeterian Profits in the American Economy. Of the value created by entrepreneurial activity some 3% or so sticks to the hands of the entrepreneurs. On average, across economies and time of course. The vast majority of that value created flows to consumers in the consumer surplus they enjoy. That creation of the new or more efficient - which is what entrepreneurialism is - leads to consumers being able to have more than without that new and or efficient. They’re better off.

Two examples, as Jason Furman pointed out about Walmart the benefit to American consumers of the simple existence of the stores is some $263 billion a year (2005 numbers). The net present value of that might be around the $5 trillion level. That the inheritors of Sam Walton’s shares have $150 billion between them is trivial by comparison. The Amazon Effect is that online shopping, by squeezing inefficiencies out of the retail chain (in much the same base manner as Walmart, even if using the next technological step to do so), has lowered the inflation rate, per year, by perhaps 0.2% for a decade and more. Two decades possibly. That’s a 2 to 4% reduction in the cost of living for all Americans. Each and every year. In a $23 trillion economy. That’s somewhere in the $500 billion (OK, $460b) to $1 trillion range. Per year, we’ll let the net present value of that be an exercise for the reader. However much Jeff Bezos has is a triviality compared to that.

Back to that point about effective altruism - do what creates the most value for our fellow human beings. Making a pile of cash to give it to charity isn’t the point at all. The process of making the pile is. Of course, there are certain constraints here, must be by actual entrepreneurial activity, not the capturing of economic rents or political corruption and so on. But within the normal dictates of free market capitalism the creation of an organisation that produces value to consumers aids far more people far, umm, morely, than whatever is done with the pile of capital captured from that activity.

This is true whether the organisation is a workers coop - so not producing the grinning capitalist winner atop the pile of gold - or a charity or a capitalist organisation. The value created by the activity is far greater than the amount that is captured to then be given away.

Make the world a better place? Sure, a valid, even wondrous, goal. Providing something better, or cheaper, or previously unavailable, is making the world a better place.

WhatsApp is free and it provides some 1 billion humans with some to all of their telecoms desires. That’s a pretty good piece of altruism right there. Last time we checked Facebook employs a couple of hundred engineers to provide that. This is a greater or lesser piece of altruism than whatever the Zuckerberg Foundation is going to blow the cash upon?

In a free market and capitalist economy the way that money is made is by producing something that other people, voluntarily, purchase. They do so because what is being offered to them adds value to their lives. Creating a successful organisation (we carefully do not use “business” here, but by successful we do mean an organisation that adds value, that profits. The profit being the added value of the output over and above the costs of the inputs - by definition) that salves or sates some human desire is the most effective form of altruism there is. Beats charity by some orders of magnitude - simply because the benefits of that added value are so much larger than any sum that can be appropriated from the activity then given away.

Effective Altruism as a philosophy manages to entirely miss this really rather important point. The way to add more value to more lives is, well, to produce more value that people can enjoy and which improves their lives. The amount of this that is done by making stuff is vastly greater, by those orders of magnitude, than the amount that can be abstracted from it to then be shuffled off to Tristram and Jocasta to pay for the Land Cruisers with which they play Lady Bountiful.

What’s being missed in the philosophy of effective altruism is the effective part - which does seem to be a strange bit to miss for a philosophy so named.