Good reason to do good

In this post I want to tell you a story of a colleague of mine. His name is Adam and he is clever twenty something year old dude. Dark haired and tall with two degrees from Oxford and always carrying a great big friendly smile on his face. But on top of all of these qualities, Adam is also one hell of a nice guy. And while I always knew he was nice, if there was ever the need for him to prove it, he did so recently by, out of nowhere leaving one of the more interesting books I have read for a while on my desk.
Doing Good Better is the name of the book. After neglecting to read the book for a few months I have now finally managed to complete it—and I recommend you read it too.

Why did Adam give me this book?
Few years back, Adam was doing work for a nom-profit and at an event where he was promoting the non-profit he ran into the author of this book, MR William Macaskill. I don’t know exactly what happened during the conversation, but as a result of it Adam quit his ambition to work for a non-profit and acquired his second Oxford degree in Economics, and he did so in order to maximise the good he could do for the world.

Adam did not go on to study economic development but instead set of on a path to get a well-paid job in the private sector, where we met. Now, it may sound counterintuitive that this is how Adam could maximise the good he does, but by reading the book it becomes clear what inspired him.

Being a Bill Gates, adjusted for your own potentia
What if Bill Gates would have worked for a non-profit instead of founding Microsoft? That is of course impossible to know, but he probably would have done fine. He would have contributed to the cause he would on and potentially made it marginally better than it would have done in his absence.

Instead, however, Bill Gates worked like a dog, in a field where he had an edge above most others. Today, Bill Gates is one of the most generous philanthropists in the world. He has without doubt contributed more through redistributing his wealth, and by inspiring other millionaires to do the same than he ever could have had he decided to start at day one to do good by working for a non-profit.

Same thing holds true for Adam, only on a smaller scale. He could have gone into the non-profit sector and would probably have made a good—but most likely a marginal—impact. After all, there were probably many equally qualified people waiting in line to take the non-profit job. Instead Adam now donates 10% of his income to one of the most impactful charities in this world—Against Malaria Foundation.

Adam does not stop there though. He also replaced the highly ineffective, yours truly, Eiki in the charity remit at work. And there is no doubt that I made a great contribution to that remit by existing and allowing him to take my place. He has pushed for new initiatives, promoted some fabulous causes as well as he has increased involvement and most recently he has started to nudge some of us to increase the share of our income that we devote to making other people better off.

How Adam nudged me to be better
As I said earlier, Adam gave me the book. I read the book, and now I am committed to follow in his footsteps and up my charitable giving. The book largely relies on first principle economic arguments on how to approach charitable giving and doing good. Obviously this appeals to me –the economist geek. Although I must admit that I am somewhat critical of some of the arguments made in the book.

In particular I am a little bit nervous about the potential unintended consequences applying rational decision making models to altruism (I will get to that in a different post later). But I think the strongest argument made in the book has to do with the concept of diminishing marginal utility (wellbeing) of income. What this concept (and it is in fact empirically robust) tells you is frankly quite simple. Every single dollar you earn the happier you are, but less then you were when you received the dollar before that.

Take this example. Think about two people: a person earning $1,000 in Ghana and a random middle class person in the US earning $30,000. Now if each party gets a pay rise of $100 dollars this will make a middle class person a bit happier, but it will make the poor person massively happy. So, if a benevolent global dictator was to allocate the pay rise to one person only, with the objective of maximising the earth’s happiness, it is clear that she would give it to the poorer person.

The example above can be tweaked slightly and it is possible to think of a world where income between the two parties was fixed at $31,000 and there was no pay rise. Then if the middle class person was to donate $100 of her income every year to the poorer person, the increased level of wellbeing acquired by the poor person would greatly outweigh the loss of joy by the middle class person.*

The super-rich can do super good and collectively the rest of us can too
Arguments for giving away some of your income due to assymetric utility of cash, in my view, hit the nail on the head. And the richer you are the stronger they get. After all, instead of going for the $263m yacht Dilbar, Alisher Usmanov could instead have gone for the more reasonable priced yacht Seven Seas and donated the $63 million price difference to Guinea-Bissau. And by doing so, he could have raised the per capita income in that country in that year by 6%. I think it is pretty clear that, collectively, the1.3 million people in Guinea-Bissau would have been far happier with such one-off pay rise then Mr Usmanov would be unhappy riding around on the Seven Seas.

Usmanov would probably not have been too miserable in this yacht

Although the super-rich can of course have much more impact at a lower loss of utility then the rest of us, I do not think this gives us an excuse not to cut down on some of the less extravagant luxuries we enjoy. In the end of the day, if skipping only one artesian cup of coffee per day as well as one cinema viewing per month I can donate about $39 to a poor Guinea-Bissau farmer. Furthermore, if 1.3 million of people like me do the same we can have the same impact as Mr Usmanov would have had he chosen to ride around on a slightly cheaper yacht and donate the rest.

Back to Adam
Adam keeps his mission going and by choosing a corporate career he has already made a substantial contribution through his wages, but probably more importantly, he has begun to inspire other people to do so to. I have seen this first hand when he converted me and again when one of our other colleges received the same book from his secret Santa at our practice X-mas party. I did not have to think long and hard who the person’s secret Santa was.

Thank you for reading, and if you are interested in getting the book for yourself you can buy it on Amazon starting at $5.87 on Kindle.


*Note that if the $100 dollars would be perceived as “lost” by the middle class person, there are two things to keep in mind. First, more wellbeing will be lost by the middle class person as a result of the standard properties of utility functions with properties displaying diminishing marginal utility from income, and second an argument from prospect theory could be used to claim that the utility loss could be further be re-enforce from the “loss”. But given the magnitude of the differences in income of the two in the example, one would have to pretty suborn to try and sway the debate using those arguments.

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