Monday, June 18, 2012

Choosing a Charity

(if you don't feel like reading all this, basically I'm just recommending GiveDirectly as a good starting point for being more picky when choosing how to give to charity)...

There's lots of stuff out there aimed at motivating us to give more of our money to others. That's good, but I really believe there's not *nearly* enough emphasis on HOW to give charitably. If the goal is just to pat yourself on the back for making a sacrifice, then maybe it's not necessary to be picky about choosing a charity. But if the goal is to make the world a better place and help people, intentions aren't the only thing that matters.

Likewise, it's good to invest some of your money for retirement. But that doesn't mean you should just buy a random stock and then pat yourself on the back. You're saving/investing money for a goal (retirement), and to actually reach that goal you don't just need the intention to invest. You also need to invest in something that will make money rather than lose money. It's the same thing with charities; if our goal is to help people, we shouldn't just give to a random charity. If you generously give money to Komen's Race for the Cure, but they use it to shut down other charities, you may have actually done more harm than good. If you're at the grocery store, and they ask if you want to give a dollar to some random charity at the cash register, the best response to that feeling of pressure and guilt isn't to give to that charity you know nothing about. The best thing to do is to use that as motivation to carefully select the best charity.

GiveWell, a great (IMO) charity evaluator, puts it best on the problems of not putting enough emphasis on results:
Fundraising often involves social and emotional manipulation, and almost never involves fact-based demonstrations of programs' effectiveness. This means that lots of charities raise money and run programs without ever demonstrating that their programs actually work.
Just like investing money, giving charitably has risk. Someone who receives money may just use it to fuel a drug addiction. A lot of aid to poor countries tries to work through their government, but then corrupt bureaucrats keep it for themselves. If you give a bunch of food to a poor village, the farmers will suffer because the people will need to buy less food from their local markets. Then less people will farm, which leaves that village more vulnerable to food shortages once the aid decreases. That itself is one big problem people often don't consider; when something becomes available for free, it distorts that market and hurts the people who sell that item to make a living, which can end up with much wider consequences.

I've come to believe that the best starting point for giving more effectively is with cash transfer programs like GiveDirectly. It basically makes one-time payments to a random person in poverty. I was very skeptical of that approach at first. The first major concern I had was that the money would be spent poorly. And of course, that can and will happen in some cases. But what I've come to realize is: the only alternative is for someone else to decide what the poor need even though each person is in a unique situation, and so we have that same problem either way. And how much more overhead does it cost in the charity to have employees/volunteers make more decisions for the people we are trying to help? In general, a person in need knows what they need more than some rich person half-way around the world from them.

As an example, let's say you don't trust giving money to a person in need far away, so you give them shoes instead. If they already have shoes that work fine, that was a waste. And if they did want or need new shoes, you may have just made their local shoe seller lose a customer. Imagine being the poor person trying to make a living selling shoes, but then you lose your business because of foreign shoe donations. Each person will have unique needs that we won't be able to guess. With money, regardless of what they spend it on, it will help business in their area instead of hurting it. And that money will continue to circulate among people there through a series of new purchases. There will be some cases where the money is spent on a harmful addiction. But if you give them food or clothes instead, what's to stop them from selling or trading it for drugs? There's no way to guarantee that won't happen no matter what you give someone.

GiveDirectly also avoids the problem of creating dependency. One-time payments made in a random fashion can provide overall help without any person thinking they can rely on it.

Another benefit to cash transfers is scalability; the charity will be less likely to run out of things to do with more money. Many charities just put your money in the bank for a while because their funding needs are already currently met; GiveWell has more on this consideration with charities here.

The other major benefit to GiveDirectly, which every charity should do, is that they are very transparent and are doing careful studies in the areas where they've provided help to evaluate how much good it really does. They are actually making and altering their decisions (such as how much is the optimal amount to give an individual person) based on methodology and facts they are making public. Many charities don't do this; largely because people don't seem too interested in the actual results of a charity.

That being said, the best charity in the world is likely one that is providing something a poor area really needs that its markets aren't providing. For instance, GiveWell's top pick is Against Malaria, which distributes bed nets and teaches people how to use them to stop malaria. I'm not arguing that cash transfers like GiveDirectly are the best possible charity. But I do think they are the best starting point for people looking to give more effectively. We should give money to those in need and let them decide how to spend it unless we're REALLY sure we've found a better alternative. A poor, uneducated person in Kenya may not know the BEST way to spend new money they come across, but you should start off assuming they know what they need better than YOU do. And if they buy something in their own markets with extra money they get a hold of, that doesn't have the same potential for harm and distortion to their local economy like a bad charity does.

Thursday, June 14, 2012

One way to improve unemployment

I've blogged before about how, not long into Obama's presidency, the private sector began and has continued job growth, but it's the public sector where we've continued to lose jobs. Since then, I've somewhat-planned to try to do some math with the raw data to see how different the unemployment rate would be if we hadn't cut so many government jobs. Luckily, my procrastination paid off and they did this for me on Wonkblog.

Here's the change in public employment in the last 4 recessions:

And here's the numbers of how today's unemployment rate would be different if we had taken a different policy towards government jobs:
Since Obama was elected, the public sector has lost about 600,000 jobs. If you put those jobs back, the unemployment rate would be 7.8 percent. But what if we did more than that? At this point in George W. Bush’s administration, public-sector employment had grown by 3.7 percent... If you add those hypothetical jobs, the unemployment rate falls to 7.3 percent.
But the unemployment rate would actually be lower than those 2 numbers because, at least in the short term, cutting a government job will also hurt the private sector, and adding a government job will help the private sector (unless you're at full employment, which we clearly are not). Because when you fire a bunch of teachers, cops, etc., they have less money to spend. So they buy less things, which means other companies will make less money due to their lost purchases, so then those companies will have to cut jobs. Likewise, if throughout this recession the govt hired more people, more people would have more money to spend, which would allow other companies to hire more employees to cover their new customers. This is what people are talking about when they say WW2 got us out of the Great Depression.

So it seems like the simplest thing we should have done differently to fight this recession is to, at the very least, hold government employment steady. But unfortunately, the 2010 elections brought in a big push toward "smaller government" (i.e. firing many people who currently work for the government). Regardless of what "size" you think the government should be under normal circumstances, it's pretty clear that it's best to have a temporary increase in government jobs during recessions and then trim those back as the economy recovers. Even if we should reduce the number of people the government employs in the long-run, this is a pretty crappy time to do it.