You would like to go to the beach tomorrow if it’s sunny, but aren’t sure whether it will rain; if it rains, you’d rather go to the movies. So you resolve to put on a swimsuit and a raincoat, and thus attired, attend the beach in the morning and the movies in the afternoon, regardless of the weather. Something is wrong with that decision process,[1] and it’s also wrong with the decisions made by many supposedly systemic approaches to philanthropy: it does not engage with real and potentially resolvable uncertainty about decision-relevant facts.
Different popular philanthropic programs correspond to very different hypotheses about why people are doing wealth inequality, much like swim trunks and a trip to the movies represent different hypotheses about the weather. Instead of working backwards from the proposals to the hypotheses, I will lay out what I think are the two main hypotheses worth considering, and reason about what someone might want to do if that hypothesis were true. This is not because I want to tell you what to do, but to clarify that any time you think that something in particular is a good idea to do, you are acting on a hypothesis about what’s going on.
The ideas of charity and philanthropy depend on the recognition of inequality; otherwise it would just be called “being helpful.” The persistence of wealth inequality, in turn, depends on many people working together to recognize and enforce individual claims on private property.
If the mechanism of private property tends to allocate capital to its most productive uses, then incentives are being aligned to put many people to work for common benefit. But if wealth does not correspond to productive capacity—i.e. the people with the most are not those best able to use it—then, assuming diminishing marginal returns to wealth, coordination towards persistent wealth inequality comes from a self-sustaining misalignment of incentives, i.e. conflict.
The economic ideology taught in introductory microeconomics courses, which is assumed by many formal analyses of how to do good at scale, including much of Effective Altruist discourse, tends to make assumptions consistent with the means of production hypothesis, so if we are considering making decisions on the basis of that analysis, we want to understand which observations would falsify that hypothesis, and which beliefs are incompatible with it.
You walk into a workshop, and see someone holding a hammer. You can infer that this is because there is some hammering to do right now, and the holder is competent to do it. Someone else has a saw, and you make a similar inference. In this context, the unequal distribution of production goods is part of how things get made; wealth inequality is a part of the means of production. If a workshop did not allocate tools in a way that justified those inferences—if perhaps you observed one person with a hoard of wrenches doing nothing while others used their bare hands as best they could—then you might infer the existence of a conflict between the wrenchmaster and the other laborers, and you would expect that workshop to do a worse job if called upon to make something. On the other hand, if someone with a hoard of wrenches were freely lending out the wrenches when appropriate, seemed like an especially good judge of which wrench (if any) is appropriate for which job, and made sure people put the wrenches back instead of putting them down at random in hard-to-find places, then you might not think worse of the workshop for its wrenchmaster.
The hypothesis that wealth inequality is part of the means of production has moral and strategic implications for charity.
From a global utilitarian perspective, having much more than others is not on its own a reason to transfer wealth to them. Instead, you should expect the return you can get on reinvesting your wealth into profit-yielding enterprises to frequently be higher than the return they can get, so you might be able to make a more important gift to the future than to the present. Even when there is a large enough market failure to justify philanthropy, some amount of paternalism is warranted, because your wealth advantage corresponds to a way in which you know better than them. An exemplar for this perspective is Andrew Carnegie, who amassed a vast fortune improving the organization of steel production, and used some of that fortune to provide a public good, specifically the information good of public libraries. Readers who want his perspective in his own words might do well to read The Gospel of Wealth and his autobiography.
While the details of the return on investment calculation from the selfish perspective will be different, the basic tradeoffs are similar. Due to diminishing marginal returns, at some point it becomes so prohibitively expensive to solve your problems by buying commodity goods or even custom services that the most selfish thing to do is contribute to undersupplied public or coordination goods. For example, Elon Musk’s interest in acquiring Twitter and relaxing its censorship regime—and creating Starlink—may be the selfish one of wanting to maintain access to lines of communication with sympathetic strangers (which has been important for things like his ability to find a compatible reproductive partner).
If, on the other hand, wealth inequality is mainly due to systemic oppression, i.e. coordination by an extractive class against producers, then the world looks very different. The simplest implication is that the possession of a fortune is no longer evidence that you know better than others. And before we can even generate the idea of charity under this framework, we run into a justification for a radical form of economic skepticism: what are we even doing when we try to buy a good?
Under the means of production hypothesis, the answer was straightforward: when I buy a good, I am sending a price signal which causes some combination of reallocation of resources to produce more of that good, and the reallocation of that good and its inputs away from those with the least productive use for them. On balance I should expect such price signals to enrich those alleviating scarcity by improving the efficiency with which scarce goods are produced. It follows analytically that under the oppression hypothesis, since the enrichment of producers doesn’t happen, any price signals I send do not reallocate resources to produce more in-demand goods on net. There must be a loser, so either I am paying for a weapon to extract from others, or I myself am the target for extraction, i.e. I am being scammed. The pure oppression hypothesis implies that wealth has no real purchasing power for goods; at most it has an illusory or dramatic one.
I have enough money to pay a modest premium for high quality ingredients, and I really do seem to feel better after eating them, which is some evidence for the hypothesis that wealth inequality is part of the means of production. But a friend of mine lives nearby in public housing and cooks on a food stamp budget, and my millionaire housemate enjoys my friend’s cooking more than mine. The friend in public housing has complained to the two of us that a much wealthier friend and potential donor to her nonprofit likes to take her out to eat at an expensive club with dismally bad food to waste her time, and won’t actually financially support her programs, even the ones he’s agreed are good ideas. This is not consistent with the story that money buys good things, but is consistent with the oppression hypothesis.
The pure oppression hypothesis is difficult to imagine. If wealth is nothing but a way to threaten others, and has no independent purchasing power, then it has no way to threaten anything outside of the system; it is a closed system of domination and those outside it can safely ignore it. The rule of the Roman Catholic church in Europe is not a perfect example, but provides a suggestive resemblance. The church made the most extreme metaphysical threats towards its constituents, mixed with what were in most cases mild physical threats if any. The very large sums of gold paid in indulgences or contributions to crusaders show how strongly motivated people were to get out from under this threat. People who rose in the ranks acquired more power to make or withdraw threats towards others, but were not supposed to correspondingly control more productive capital, and they were discouraged from reproducing.
From a global utilitarian view, on the oppression hypothesis, what should a rich person do? The arguments for paternalism or reinvestment do not apply here; your wealth does not imply that you are a good steward, because the allocation of resources does not conform to the function of meeting people’s needs. You have no reason to think that you know better than others how to help them, and the idea of a return on investment is perverse. But needs are getting met somehow, so the coordination to do so must be happening outside the system of oppression.
One thing you might try to do in this situation is to use your position as someone validated by a system of oppression to invalidate it, e.g. by publicly setting your money on fire. (This differs from conspicuous consumption because it eliminates motive ambiguity; intentionally wasteful spending still pretends to be receiving something of value, while literally making a pile of cash and setting it on fire does not, so it sends a credible signal that you think the money is worse than useless.) Another thing you might do is try to deescalate threats towards others, in the hope that this frees up their capacity to solve problems, including the existence of the system of threats you’re caught up in. In other words, cash transfers.
You might try applying some selection by concentrating your gifts on people with reputations as good actors within the system. The Bezoses seem to have done something like this, with MacKenzie Scott distributing money widely among nonprofits working on things that seem good, and Jeff Bezos making one-time $100 million grants to Van Jones and José Andrés. On the other hand, you might reasonably worry that the reputational system—or at least, the mechanism by which news gets delivered to you, a wealthy person—is part of the system of oppression. In that case, you might apply Rawlsian skepticism and simply try to help whoever is worst off, e.g. cash transfers to the global poor, programs to help prisoners, etc. But then you need to trust that you can pay for the cash transfers to actually happen, which is not clearly justified (remember, under this hypothesis money facilitates threatening people, not providing goods and services) - the best available option might be to wander around incognito looking for people who seem like they could use help but aren’t seeking attention.
We live in a mixed economy, but it can’t be a homogeneous mixture. Instead, there are details to investigate: who gets paid to produce, and who gets paid to destroy, under what circumstances?
This post was inspired by the state of public discourse on effective altruism, in which cash transfers to the global poor, paternalistic global health interventions, animal welfare interventions in explicit conflict with incumbent powers, and extremely high-leverage high-trust speculative AI design, are put on a single list as though the same set of assumptions could calculate an ROI for all of them, and the main thing that’s left to do is pick from the list, or add items. This seems crazy to me like planning to put on swim trunks and a rain coat, and go to the beach in the morning and the movies in the afternoon. It represents a huge missed opportunity: to clarify what our hypotheses actually are about the world in which we live, and test these hypotheses in ways that prevent us from wasting huge sums of money and a corresponding number of human lifetimes on programs that do not matter.
A community without the discursive apparatus to clarify such disagreements, and the ability to invest an appropriate level of work into testing them, is operating on assumptions too low-trust to justify any of the predominant EA hypotheses, all of which require the ability to delegate a lot of work to strangers, including much of the work of evaluating the output of the work you are funding.
Addendum: If you don’t already find yourself with a large surplus of wealth or power, and are considering how to make yourself helpful to yourself or others, the model laid out above implies that one thing worth paying a lot of attention to is, as you make your way in life, whether the skills and behaviors you are learning and being rewarded for seem like the sort of thing that is likely to be able to help someone solve a practical, material problem. Sometimes the connection may be real but unclear, but the less reason you have to think that your society is a just one, the more open you should be to the hypothesis that you’re being rewarded for bad behavior. If so, you might want to look for another game to play. On global-utilitarian grounds, if you thought that capital accumulation is a gift to the future (or that accumulating “career capital” would improve your ability to help others), you might want to update away from that. On selfish grounds, you should become more skeptical about what money can buy you.
- ^
The image of someone relaxing at the beach in a swimsuit and raincoat is equally ridiculous whether it’s raining or not, as is the image of someone similarly attired in a movie theater. I’m pretty sure most readers have found a better solution to a similar problem, than the one in my hypothetical, but I think they would gain a lot from thinking about exactly what their solution would be, and what principles of decisionmaking they are using. I recommend doing that before reading the next paragraph, in which I explain what I’d do and why.
I expect to have more information about tomorrow’s weather tomorrow than today. If, in the morning, conditions look good for the beach, I might head there first, bringing my raincoat but not wearing it. If at some point it starts raining, I would abandon my beach plans, put on my emergency raincoat, and head indoors to a movie. If conditions don’t look good for the beach, I’d head straight for the movies. In either case, if the movie finishes during the daytime, then I can make another observation of the sky, and use that to decide whether the beach seems promising, or whether I should pursue my best rainy-day option.
I’m not going to give an explicitly mathematized decision-theoretic account, as I think the implied principles I’m using here are pretty obvious. On LessWrong, Lukeprog recommends Peterson’s An Introduction to Decision Theory. How to Measure Anything by Douglas Hubbard has more detail about how to use Bayesian methods in practical business applications. The Lean Startup by Eric Ries gives examples, also in a business context, of how we can better achieve our goals by structuring our plans as a series of experiments testing the highest value of information hypothesis, than by committing in advance to a highly conjunctive plan.
Hmmm, this feels wrong to me. In a hypothetical where it is NOT the case that many people work together to recognize and enforce individual claims on private property… is the outcome wealth equality? I don’t think so, I think the outcome is something more like totalitarian dystopia and/or apocalyptic anarchy, and in both I think it would be fair to say there is wealth inequality (the ruling class in the dystopia, the strong men in the anarchy).
I think of power as distinct from wealth, though both are often signaled through privileged access to scarce resources. Someone standing next to, or even physically possessing, a big hunk of gold, is not necessarily understood to be rich; Scrooge McDuck does not have the same relationship to the gold coins he comes into contact with as a museum curator handling a gold artifact, a gold miner actively extracting gold, or a security guard transporting gold. We think someone’s rich when they own a lot of scarce resources, i.e. have some recognized right to it that they can reasonably expect others to defer to.
The relation of Scrooge McDuck to his gigantic vault of gold also differs fundamentally from the relation of the current winner of “King of the Mountain” to whatever sort of hill they’re standing on. The latter must constantly defend their position, and has no claim on it aside from the efficacy of that defense, so there’s less of an abstract, recognized relation to the possession itself, and more of a direct relation to the other people around, which can sometimes be parlayed into compelling them to guard treasures or territory.
In other words, wealth is the sort of thing that’s at least potentially a convergent solution to the problems of multiple independent agents, rationally adjudicable by a neutral third party, while power involves being inside someone else’s OODA loop and subverting their independent agency. Related: Civil Law and Political Drama
This sounds rather like the competing political economic theories of classical liberalism and Marxism to me. Both of these intellectual traditions carry a lot of complicated baggage that can be hard to disentangle from the underlying principles, but you seem to have a done a pretty good job of distilling the relevant ideas in a relatively apolitical manner.
That being said, I don’t think it’s necessary for these two explanations for wealth inequality to be mutually exclusive. Some wealth could be accumulated through “the means of production” as you call it, or (as I’d rather describe it to avoid confusing it with the classical economic and Marxist meaning) “making useful things for others and getting fair value in exchange”.
Other wealth could also, at the same time, be accumulated through exploitation, such as taking advantage of differing degrees of bargaining power to extract value from the worker for less than it should be worth if we were being fair and maybe paying people with something like labour vouchers or a similar time-based accounting. Or stealing through fraudulent financial transactions, or charging rents for things that you just happen to own because your ancestors conquered the land centuries ago with swords.
Both of these things can be true at the same time within an economy. For that matter, the same individual could be doing both in various ways, like they could be ostensibly investing and building companies that make valuable things for people, while at the same time exploiting their workers and taking advantage of their historical position as the descendent of landed aristocracy. They could, at the same time, also be scamming their venture capitalists by wildly exaggerating what their company can do. All while still providing goods and services that meet many people’s needs and ways that are more efficient than most possible alternatives, and perhaps the best way possible given the incentives that currently exist.
Things like this tend to be multifaceted and complex. People in general can have competing motivations within themselves, so it would not be strange to expect that in something as convoluted as a society’s economy, there could be many reasons for many things. Trying to decide between two possible theories of why, misses the possibility that both theories contain their own grain of truth, and are each, by themselves, incomplete understandings and world models. The world is not just black or white. It’s many shades of grey, and also, to push the metaphor further, a myriad of colours that can’t accurately be described in greyscale.
I agree these mechanisms can coexist. But to test and improve our models and ultimately make better decisions, we need specific hypotheses about how they interact.
The OP was limited in scope because it’s trying to explain why more detailed analyses like the ones I offer in The Debtors’ Revolt or Calvinism as a Theory of Recovered High-Trust Agency are decision-relevant. Overall my impression is that while the situation is complex, it’s frequently explicable as an interaction between a relatively small and enumerable number of “types of guy” (e.g. debtor vs creditor, depraved vs self-interested).
Hm I think the main thrust of this post misses something, which is that different conditions, even contradictory conditions, can easily happen locally. Obviously, it can be raining in San Francisco and sunny in LA, and you can have one person wearing a raincoat in SF and the other one the beach in LA with no problem, even if they are part of the same team.
I think this is true of wealth inequality.
Carnegie or Larry Page or Warren Buffett got their money in a non exploitative way, by being better than others at something that was extremely socially valuable. Part of what enables that is living in a society where capital is allocated by markets and there are clear price signals.
But many places in the world are not like this. Assad and Putin amassed their wealth via exploitative and extractive means. Wealth at the top in their societies is a tool of oppression.
I think this geographic heterogeneity implies that you should have one kind of program in the US (e.g. with about market failures with goods with potentially very high negative externalities like advanced AI) and another in e.g. Uganda where direct cash transfers (if you are careful to ensure they don’t get expropriated by whenever the local oppressors are) could be very high impact.
In both extremes, wealth results from forming and leading coalitions: but at one extreme it’s by leading a coalition to produce things for others, and in the other it’s by leading a coalition to extract things from others.
Fair point about localized heterogeneity. But simply having different optimal interventions in different places doesn’t itself justify splitting resources across them. That would require either:
Steeply diminishing returns up to the relevant margin for each intervention (making diversification optimal), or
Having more resources than we can deploy in all plausibly effective interventions.
Either claim would be surprising and worth investigating explicitly. I intended this piece as a call for such investigation.
Moreover, if we take your example—productive wealth inequality in the US vs extractive in Uganda—this actually strengthens the case against portfolio diversification. Under this model, returns to investment in Uganda would be systematically captured by extractive institutions. The efficient response might be to focus on systemic changes that reduce extraction (like charter cities or immigration reform) rather than direct aid or cash transfers. This illustrates why we need explicit models of how these systems interact.
Both of these options sound wrong to me. I think the actual case is kind of obvious when you think about it:
Wealth is the reward people get for doing useful things.
Jeff Bezos is rich because he found away to easily provide people with cheap goods. That benefited everyone. It is good that he is rich as a result, because that’s what gave him the incentive to do so.
That does not in any way imply that now that he has that money he’d be able to use it more usefully than anyone else. It’s possible he will, but also possible he’ll waste it all on gigantic superyachts or a 2000 metre high statue of himself.
Given that’s the case it seems perfectly reasonable to try to push him towards giving some of his wealth to effective charities which will likely do more good for the world than his default next best use.
You don’t think an exceptional magnitude of recognition for doing useful things is evidence for exceptional capacity and willingness to make that capacity useful to others? Why not?
The facts are many billionaires choose to either use their money for private consumption or waste it on pointless charities. That doesn’t in any way imply that their having this money in unfair—they’ve earned it, and taking it away would make the world worse by discouraging excellence. It does however imply we should encourage them to pursue better uses for their money.
I appreciate this post very much! What a great question you have found. Some old thoughts I had on this topic came back to me.
Personally I think of wealth as neither extractive nor hyper-efficient. I think of it as blind dumb compounding growth. A dollar has a lifespan of 1 year and bears 1.07 offspring in that time. A simple way to see this: even a relatively crappy factory will make more goods in a month than it & its employees consume in a month. Likewise for farms, mines, fishing vessels, etc etc. If nothing major goes wrong, money just grows, like a pile of rabbits if the air were made of carrots. Sometimes there’s lots of opportunity to be clever and bump up a couple productivity notches and go rags to riches. Other times there’s no low fruit on the technological/economic tech tree and you can only get richer quick by stealing/scamming/pillaging. But the core dynamic is that it’s relatively easy for anyone to make more than they use, once they have 1/.07=14x their annual spending available as liquid cash (or tied up in decent investments).
This is all because we live in a universe that clearly wants things to happen. We have the greatest endowment ever, a whole damn star, and others nearby! Nuclear energy sitting in the ground if you need cash fast. It’s better than ZIRP, better than a stimulus check! You don’t even have to find a trade partner; you can use it directly to do anything you want, no questions asked. No credit check or collateral. No minimum hours per week; in fact, nothing is asked in exchange at all; you couldn’t give anything back even if you tried — usable energy seems to only go down — but we start with so much that it won’t matter for a trillion years.
This notion hasn’t made me rich and it’s not much use for my day-to-day decisions, but I think it does describe the reality I see. My parent’s friends are all rich (compared to young people) from a lifetime of saving, even the dumb ones. Half the crappy stocks I owned doubled simply because the companies stayed in business; if energy is free then “stay in business” is all you need to do once you reach $10M in annual profits or so. If an individual holds more than ~$100M, they’ll make a good profit indiscriminately investing in every single startup and land offering that shows up in their face: with compounding growth and diminishing losses, the losses just don’t really matter. This seems to me to essentially be the fundamental law of our universe, at least until some pine tree is tall enough to block out everyone’s light at once. (That pine tree may only be 1-4 years away now.)
Wrt swimsuit+umbrella, I feel similarly to Dave Orr. I don’t see why eg the matter of AI Safety vs Global Health has to be settled. Effective altruism is more coherent IMO than most social movements and even some governments (eg I know someone who is paid by the US federal govt to help immigrants avoid ICE). I don’t know if coherence much beyond the current level can be achieved without just falling into blind ideology. Even a very thoughtful and rational collective decision making process might be worse than the current chaotic one, due to missed opportunities. You disagree?
The assumption that value simply multiplies without reference to underlying mechanisms treats money as magical. While this description often matches observed behavior, I think this apparent match requires explanation. Some people become very wealthy precisely by finding or creating exceptions to this pattern.
I try to decompose apparently irreducible trends into physical configurations and social agents’ decisions. When apparent magic persists, I look for the magician—someone intentionally working to make the magic appear true.
Sometimes people are directly targeting a trendline in underlying reality that would support a corresponding high-level economic trend. For exampke, Intel worked for a long time fairly explicitly with the goal of keeping up with Moore’s law). Other times they’re cooking the books. For example, economist Scott Sumner proposed making smooth nominal GDP growth the explicit Fed target, since it’s already the implied target).
Cooking the books causes the nominal trend to diverge over time from what we originally might have wanted to measure with it. So, since we’ve been cooking the books to make financial investment smoothly profitable outside the original context where that trend emerged, this corresponds to some sort of decline in the purchasing power of money, as the set of goods and services we care about increasingly diverges from the ones for which we transact in dollars.
I believe I did explain/decompose the underlying mechanism
I could also have mentioned that it’s relatively easy for two people to make three.
If someone prints money for themselves, they’ll devalue their currency, but they won’t be making factories less productive.
Intel makes more stuff than they use, no technical progress required.
I should’ve said “a dollar’s worth of stuff can produce 1.03 dollar’s worth of stuff”. That would have been more clear.