The GiveWell Blog

Healing the world: What’s the rush?

(updated on: ) | by Holden

I’d like to welcome myself back with a simple question: why do foundations spend their money so slowly?

A couple quick numbers from 2005, according to the Foundation Center Yearbook:

  • Total amount of money held by U.S. foundations: $510.5 billion
  • Total amount of money granted by U.S. foundations: $33.6 billion
  • 33.6 billion divided by 510.5 billion: 6.6%

6.6%. Assuming that most foundations invest their assets at a moderate level of risk, this means that at this rate, all those assets will be given away by around … never.

Now, I know there are good reasons for foundations to give away their money gradually, not all in their first year. They need to gain experience and administrative capacity; they need to get to know their sectors and partners and options; they need to support charities over time rather than dumping their money on them, because this helps to ensure accountability.

All of this would justify foundations’ aiming to stay in business for up to around 10-20 years. Any more than that, and we’re looking at a staff and even generational turnover that would render these benefits moot. So why is it big news that the Gates Foundation is aiming to give it all away this century? Why, honestly, are the Carnegie Corporation and Ford Foundation still around, long past the point where anyone can reasonably claim to represent the founding funders’ wishes? Why are foundations in aggregate giving away money at a pace that indicates they expect to last longer than any U.S. company ever could – indeed, longer than the U.S. itself is likely to?

Is it because they think the returns from holding stocks and bonds are greater than the returns from enabling more people to help each other?

Is it because the law only requires that 5% of assets be given away each year? The law doesn’t require me to give anything to charity, but I still do it because it’s right (and presumably a foundation exists to do what’s right). And if I had to give 1% of my income to charity every year, I’d still give more than that.

Is it because they can’t find enough work to fund? In that case, what’s with all the kashmillions of charities bombarding the general public by phone every day, begging for more money so they can fund what presumably are currently possible but unfunded activities?

Are those charities all doing useless or fraudulent work? Have the foundations checked them out? If so, wouldn’t it be nice of them to let the rest of us (the general population opening our meager checkbooks year in and year out) know? On one hand, I think everyone should give – on the other, you have to ask how much sense it makes that charities have all come begging to Joe and Jane Sixpack while $500 billion (enough to fund the country’s 200 largest charities 6 times over) of money specifically earmarked for giving away sits in bank and broker accounts.

I would really appreciate if people in the know could weigh in on this question because this situation makes no sense to me. My personal best guess would attribute foundations’ sitting on their hands to two factors:

1. Excessively narrow mission statements. Not only are foundations generally obsessed with “innovation” and “attacking root causes” rather than “helping people as much as possible” (something I’ll complain about more later), but they tend to spec out extremely specific, narrow guidelines, and thus force themselves into a position where very few existing world-improving efforts qualify for funding. This forces charities to design new programs around their funding guidelines; end result is that we have a huge need for funds and a huge glut of funds that can’t clear, because foundations have pre-articulated their priorities and thus stopped them from syncing with the problems actually experienced by the world. I’d call this a tragic mess.

2. Plain old bureaucracy, inertia, crappiness, and crap. It’s easier, simpler, and more job-sustaining to give away 5% a year than it is to pour yourself into improving the world. (Note to foundation funders: if the people you’ve hired to staff your foundations prefer the former to the latter, you should be ashamed of yourself for the horrendous job you did in hiring.)

Others, please weigh in. I will be surprised if you can convince me that a world this needy, a charitable sector this underfunded, and $500 billion sitting in savings don’t add up to a broken system and a tragedy for those in need. But I’m listening.

BRB

(updated on: ) | by Holden

This is my first chance in a while, and my last chance for a while, to take a vacation. Technically, I’m still unemployed, so any Straw Ratio-minded donors should take comfort in the fact that they aren’t paying for this.

I will return to the GiveWell Blog on Saturday, May 19.

In the meantime, here’s a summary of what we’ve talked about so far.

Greatest hits: the 12 posts that I and the random people I’ve talked to like the most

Down with the Straw Ratio, or, “How much of my donation goes to administrative expenses, and who cares?”

If you’ve ever used Charity Navigator or had a conversation about charity, chances are you’ve discussed the wildly popular metric for evaluating charities: how much of their money goes to “program expenses” vs. “administrative and fundraising expenses.” I’m here to tell you that this metric is about as useful for figuring out how to help people as an old shoe.

The Straw Man opened the series, dubbing “% of expenses that go to programs” as “the Straw Ratio.” I then proceeded (after grudgingly conceding a tiny bit of value in this metric) to rip him apart. I started with the obvious: even if the Straw Ratio were useful, there would be a lot more to do to find the best charities. I then argued that administrative expenses are valuable in running a charity (or anything) well, and pointed out that the obsession with penny-pinching has consequences for the quality of the sector’s people, technology, and evaluation capacity. The Straw Ratio isn’t just a silly number: it’s a mentality that has infected everything from the Internet to donors’ brains, and it’s a mentality that GiveWell exists to fight.

What GiveWell looks for in a charity

So how do we intend to evaluate charities? Let’s start with two simple questions you won’t find on Charity Navigator: what do they do, and what’s the evidence that it works? We’re looking for charities that can already answer these questions well, demonstrating proven, scalable, and cost-effective approaches to helping people in the ways we care about. And for those of you who love to warn about the pitfalls of extremes, rest assured that we neither intend to accept evidence-free generalizations nor reduce everything to a formula.

The customer is on your side, or, why fundraisers should stop treating donors like 5-year-olds

Once you start focusing on the questions that matter, you find that they’re complicated. That’s OK – helping people is still worth money, and presumably the fundraisers trying to get mine agree. So why can’t we seem to communicate? Why is charity constantly oversimplified, reduced to pictures, and treated as something that donors must be cajoled and even tricked into? If fundraisers truly believe in what they’re doing, they must believe that donors don’t – and their assumptions about what donors value are keeping us from the relationship we should have: that of equals and teammates in the pursuit of improving the world.

Getting personal: altruism is real and it is spectacular

Well, there may be a lot of donors out there who are giving for the wrong reasons, but I (like other members of GiveWell) am a hard-core, straight-up, card-carrying altruist, and I don’t think we’re alone. My wish for a better world is no more insincere, exotic or “irrational” than the emotions felt by a video gamer or sports fan (and in the end it’s way more awesome). Altruism isn’t my only value, but it’s a passion that has taken over my life, and I’m devoting myself to it right now, not waiting until I’m filthy rich.

In short, I’m a charity nerd. And while some believe GiveWell to be over-intellectualizing giving, I’d say our attitude comes from caring more, not less, than traditional “Show me a picture and I’ll write you a check” donors.

“Nonprofit niceness” and how we hate it

I view criticism as the best road to improvement, and I hate the “everything is wonderful” attitude we see in the nonprofit sector. By focusing on how great people’s ideas and intentions are, too many people in this sector let themselves off the hook when it comes to actually getting results. I’d much rather they went harder on themselves and each other, benefiting the people who really need help.

Thoughts on specific charities and causes – getting down and dirty

Once our operations are up and running, we expect most blog entries to be devoted to specific charities and causes. We haven’t done so much of this to date because we started the blog after our initial (part-time) project, and we’ve been focused on forming a business plan to expand our project (more on that here). But, we’ve shared some casual thoughts on what you can do with your money. Elie and I had a back and forth about what it means to save a life with your donation; I announced the lucky charities that got a piece of my 2006 donations, and Elie endorsed his own charity of choice (although he has since flaked out and not finished the full official review – well, honestly, we’ve had other priorities). We also shared our notes from meetings with Children’s Aid Society and New Visions for Public Schools, and Elie was kind enough to mock people who donate to animal causes. (Note: all blog posts represent the opinions of the individual who made the post, not the official views of GiveWell.)

GiveWell milestones

We launched this blog, started getting attention (after making a stink about credit card processing costs), announced the Clear Fund (our large-scale project to accomplish our goal of promoting transparency and good information for donors), gave a valiant though futile try at making the NetSquared conference (maybe the problem is that we aren’t actually a “Web 2.0” project), and recently revealed our identities.

Other stuff

I got involved in the debate on “responsible investing,” or whether foundations should try to align their investing with their grantmaking (i.e., not hold stocks that work against the values they exist to promote). My position is that it isn’t worth the effort and that too much is made of this issue, but that didn’t stop me from posting a whopping four times on the topic: one, two, three, four. When I get back, I intend to raise more of a stink about the issue I asked about in the second of that series: why are foundations investing (rather than giving away) such a high proportion of their assets in the first place?

I started posting FAQs here, but either the release of our business plan answered most of them or I just got bored with the idea, not sure which. Anyway, here are the three FAQs I wrote up:

And finally, if you’re looking to complete your collection of GiveWell posts, don’t miss these basically pointless updates and notices I wrote!

Can charity be cool?

(updated on: ) | by Holden

Trent Stamp says charity can never be cool. He appears to have history on his side, given (a) the number of powerful people who would love charity to be cool, and the amount of effort and the number of campaigns they’ve devoted to it; (b) the fact that charity isn’t cool, and has never been as far as I (the authority on these matters) know.

Is it a lost cause? I hope not, because it would be awesome if charity were cool. Imagine if people were as voluntarily, proactively, and obsessively interested in fighting diarrhea as they are in poker, fantasy football, Second Life, sudoku, or any of the kaschmillions of other dumb things that people spend ungodly amounts of time and money on. Why isn’t this happening? Can it ever happen?

Consider the following observations, backed by nothing except my supreme coolness:

  • Things that are cool are generally controversial. It’s fun to be part of a group that opposes / makes fun of another group. Well, if you’re pro-charity, who are you against? No one, as long as charity is conventionally thought of as something that never involves any disagreement of any kind – the current attitude (and the attitude promoted by these campaigns) is that all charities are wonderful and that the more you give to any charity, the better. When’s the last time you heard someone slam a particular charitable cause? (This blog doesn’t count.) What “cool” things can you think of that you’ve never heard anyone slam?
  • Hobbies and other obsessions generally have a competitive element. At the very least, they require some sort of skill beyond spending money (even fashion requires taste). Yet the conventional attitude in charity is that all donors are winners, end of story. If two people spend the same amount, there’s no consideration of who spent it better. Can you think of something people do for fun that works like that? I can’t.
  • Hobbies are time-consuming. Of course, a large part of the reason people want to make charity cool is because they hope it will encourage people to spend more time on it. But … what is there to spend time on, as long as donating consists of writing a check?

Here’s something to chew on. I would say about half of the original eight members of GiveWell had never had much interest in charity before the project started. That includes me and Elie. We initially saw our research as a chore. But once we discovered that donating well takes brains, not just money, well … we love using our brains. Once we realized that there is such a thing as a bad donation decision, and we can criticize and argue with and oppose ourselves to those who make them … let’s admit it, that’s fun. Once we dropped the conventional notion of charity, and realized that we were doing something that takes hard work and smart thinking, our interest level went way up. Elie and I are now as addicted/obsessed as any poker player I know of. What no PR campaign has done for us, the realization that charity is something we can argue about has.

Unlike sports or fashion, this hobby is all about hard work and brains. It doesn’t involve our athletic abilities (thank God) or our sense of style (amen). So I’m not sure that our attitude has the potential to make charity specifically “cool.” But it does have the potential to make people spend time and effort in a way that they hadn’t before. In other words, I think our attitude toward giving can make it possible to be a charity geek … and that’s not a bad start.

Post delayed

| by Holden

The next few weeks will be hectic for me and GiveWell. Today, I don’t have time for a post, but I promise you one by midnight (EST) tomorrow.

What’s in it for me

| by Holden

Today is my first day of working full-time for the Clear Fund. (Technically, since payroll doesn’t start until June, it’s my first day of unemployment.)

It’s easy to talk about ditching money for meaning, not so easy to do it. And there’s a lot more I’ve walked away from than money. The job situation I’ve left is one that anyone would be lucky to have. I was well treated and well paid. I was surrounded by intelligent and capable people whom I respect. I largely set my own career path. I was challenged, but at the same time I basically had no worries of any kind.

And, I don’t think that what I was doing was without value to society. Hedge funds help move capital to where it will be most productive. Like any other business, they create wealth that can be approximated by looking at their net profits. And any of that wealth that ends up in my pocket can be donated to the charity of my choice.

But I think that I will be way more valuable to the world working for the Clear Fund. My exact analysis of this is a little tangential, so I’ll spill it out another time (or in a comment if someone asks). Briefly, I think that the “pipes” translating wealth into a better world are broken, and that working on those pipes is a more valuable use of my time and talents than generating more wealth to funnel into them.

And that’s what drives my decision. I think being valuable to the world is an incredible desirable thing, in itself. It’s not the only thing I want, but it’s really, really desirable. (I don’t understand people whose goal is to earn so much money that they can be useless for the rest of their lives. Is watching TV all day so awesome that it makes up for having no value? Have I been watching the wrong shows or something?) The more valuable my work is, the more passionate I’ll be about it, the more I’ll enjoy it, the better I’ll do it, and the more my life will be worth living.

This isn’t about leaving a job because it’s boring or bad or makes me feel empty (none of those things applies). This is about leaving a job I like quite a bit for a mission that I’m passionately in love with. Nobody would argue with me about this if we were talking about women instead of jobs … well, my job takes up more of my waking hours than any woman ever will, and having an equally high standard seems appropriate.

Think about how weird it would be if a million dollars in cash were sitting on the sidewalk and everyone was ignoring it. That’s how I feel about the fact that no one else wants to start the world’s first transparent grantmaker.

A few people are incredulous that I’d be so crazy as to voluntarily take a large cut in pay and general security. It’s certainly true we might fail in our mission, and if that happens this will have been a bad move. But if we succeed, people will look back at my decision and be incredulous about something else: that such a tremendous opportunity to be valuable to the world was just sitting there, ready for the taking.

Here goes.

The veil of secrecy is lifted. Ladies, the race is on

(updated on: ) | by Holden

As of right now, I no longer have any relationship with any hedge fund or other corporation besides the Clear Fund. That means I no longer have to fear that total idiots will associate the Clear Fund with any other entity. And that means … I can cast off my anonymity, lifting the veil of shadows that has cloaked me since December. While I’m at it, I’ll blow Elie’s and MichiganBob’s cover too. So read on if you dare, and see how deep the rabbit hole goes.

(Warning: this will not actually be the least bit interesting. Turns out, we’re just dudes.)

Secretive, cowardly pseudonym: Holden
Real name: Holden Karnofsky
Grew up in: Chicago ‘burbs
Education: bachelor’s, Harvard
Recent employment: 3 years at a hedge fund
Now lives in: NYC
If he could be any animal, he would be: a guy
Sexy: Yes
Single: Yes

Secretive, cowardly pseudonym: Elie
Real name: Elie Hassenfeld
Grew up in: Boston ‘burbs
Education: bachelor’s, Columbia
Recent employment: 3 years at a hedge fund (still employed)
Now lives in: NYC
If he could be any animal, he would be: a hammerhead shark
Sexy: No
Single: No

Secretive, cowardly pseudonym: MichiganBob
Real name: Bob Elliott
Grew up in: Detroit ‘burbs
Education: bachelor’s, Harvard
Recent employment: 2 years at a hedge fund (still employed)
Now lives in: CT
If he could be any animal, he would be: an altruistic mosquito, refusing to transmit malaria
Sexy: Yes
Single: No

The three of us are men – but some of our best friends are women, we swear.

So there you go, we’re real people now. To all you anonymity haters, I hope you’ve learned what you wanted to know, and that you now have a much better ability to engage critically with what we write. To those of you who are capable of analyzing the content of sentences on your own, this post may have been a waste of your time, but at least I warned you.

(Note: this blog post was made without input from Elie or MichiganBob.)