Effective Altruism: Solution or Problem?

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1 - Effective Altruism Under Fire

For all its purported good, Effective Altruism (EA) has been under fire in the wake of SBF, OpenAI, and the broader discussion of what risks Artificial Intelligence poses to the general population as the technology barrels down the path of innovation. But this article focuses on the nuanced dynamics and mechanisms of the incentives driving EA and whether it can be a sustainable approach or if a better approach exists. In a recent discussion on the Pivot podcast, Scott Galloway described EA as "ineffective altruism" and "reheated ESG" (Environmental, Social, and Corporate Governance), ESG having had its own set of critiques including lack of objective substance and not holding up to scrutiny while potentially constricting investor returns.

2 - What is Effective Altruism?

But what is Effective Altruism really?? Effectivealtruism.org describes EA simply as a practical way to help others. Furthermore, it describes EA as both a research field aiming to identify the world's most pressing problems and solutions as well as a community aiming to use those findings to do good in practice. But is there more to it?

3 - Technology Under Fire

Effective Altruism under fire continues the trend of the broader technology field under fire. Digital technology's modern marvels have been going out of favor in the mainstream with almost too many examples to mention (e.g. 1, 2, 3, 4, 5, 6, 7, 8, 9...) Whether this sentiment is part of a cycle or represents a bigger shift would be the topic of another article all on its own. For all its popularity in the early 2000s and 2010s, people in the mainstream have been increasingly concerned tech is moving too fast and breaking too many things. Indeed the prevalence of the venture-subsidized tech model may be a feature of the zero interest rate policy (ZIRP) environment the US has largely maintained for the first two decades of the 2000s.

It will be interesting to see how my industry, software product management, fares moving forward as the ability to maintain high-margins is competed away and writing software is democratized with increasing abundance of software developers and advances in AI automation. (I intend to write more on this topic in the near future as it may potentially affect my industry in profound ways.) In the US and increasingly globally, software continues to eat the world. Even company leaders in traditional industries like real estate say their competitors aren't the incumbents in their industries, but rather Silicon Valley is.

To be fair, technology as a whole gets a bad rap.? Everything from using sticks to wheels, fire, pulleys, agriculture, typewriters, transistors, and software is technology.? In 1900, just under 40 percent of the total US population lived on farms, and 60 percent lived in rural areas. Today, the respective figures are only about 1 percent and 20 percent.?Our ability to use technology to pull the developing world out of poverty at scale, reduce disease prevalence, reduce famine, and double our lifespans within a couple generations is nothing short of astounding.?Technology has also allowed many (though not universally) to spend more time outside of working to survive.? This trend may be reversing in a number of regions, however, in particular where negotiating power is being concentrated among smaller groups with outsized means.

4 - Productivity Dynamics

One aspect of the dynamic may be related to the productivity pay gap observed since the 1970s. However one might massage the numbers, consumer compensation has not kept up with respect to wages, housing, education, and healthcare, which are arguably the biggest factors driving consumer net worth at scale.

An extreme form of capitalism started to take hold in corporate America around that time.? Economist Milton Friedman published an essay which influenced then General Electric CEO, Jack Welch, to maximize shareholder profit over everything else, including innovation.

In a way, EA and ESG are movements counter to the "profit over everything" trend. It is somewhat ironic, but entirely expected in retrospect, that EA and ESG are experiencing its own backlash.

One could do worse than to describe the American psyche as individualist, optimist (in our individual abilities), and increasingly cynical about government. Then not surprisingly, we have a certain amount of comfort and familiarity with those who tell us they want to create prosperity for themselves and their families or communities. It would be fair to say Americans prioritize the good they can do for themselves and their tribes.

"To answer whether effective altruism is a solution or a problem, we need more context and must define whose responsibility it COULD be to do good... for a country."

5 - Good by and for Which Stakeholders?

To answer whether effective altruism is a solution or a problem, we need more context and must define whose responsibility it COULD be to do good not just for the self, not just for the family, not just for the community, municipality, region, or state, but for a country. (To define good beyond a single country would be better left for a different article.)

A broad list of stakeholders who can do good by their constituents or the country as a whole can be broken down into four groups:?

• consumers
• for-profit organizations
• not for-profit organizations
• government agencies

These groups arise from groupings of motivation behind their decision-making including the breadth of their constituents, time frames, and the economics driving prioritization and trade-off decisions in a healthy supply and demand market.? We can take a look at what drives each group of stakeholders and apply a first-principles analysis to uncover which is most incentivized to do good for a country.?

Consumers

Consumers are focused mainly on themselves and their closest family members. Their decision time frames are the shortest of the groups, often on the order of weeks, days, or even in the moment, especially for the majority living paycheck to paycheck. The more affluent consumers can have resources to buy more sustainable products and services, but if the success of Shein and Temu in the US market is any indication, sustainability is not the top consideration for the average US consumer making a buying decision. While understandable, these individual choices contribute to unsustainable practices, hinder long-term societal well-being, and highlight the need for a broader solution beyond individual choices. Pitting their own economic sustainability over that of the country, consumers tend to choose themselves and their families to focus on the immediate over the long-term good of society.

For-profit Organizations

In the case of for-profits, shareholder value (ie. stock-price and dividends) has become a primary decision-making driver since the 1970s.?Meta's recent stock price surge is a prime example. Time frames tend to be measured by months and years. Publicly-traded companies in particular are measured in quarter-year increments due to information disclosure required by government regulators. Main drivers for sustainability are market share impact and government regulation. Like consumers, organizations prioritize the profit and survival of the organization over any group of consumers or staff, even cutting staff dramatically to achieve that end, as Meta and other tech companies have recently done. Many operate internationally to access a larger market and to minimize their total tax obligations, which means they are not singularly aligned to benefit any one country.

Not For-profit Organizations

Not For-profit organizations have dynamics similar to for-profit organizations but the main concern is survival of the organization. Although profits don't exist, per se, many of these organizations still try to maintain a cash balance to provide buffer for leaner periods and as their mission and operation grows, so can the need for a larger cash balance. Also, many organizations have multiple legal structures, combining for-profit and not for-profit, sharing executive team members. Revenue share may fluctuate or shift between the structures over time, or they can even transition from one to the other as OpenAI has.

Government Agencies

Government agencies can represent different breadths of constituents from municipality, to county, state, and federal. Decision time frames are somewhat more difficult to define. The lifetimes of the regions are measured in decades or centuries. Representatives are elected by their constituents to act as fiduciaries to represent the needs of those regions and constituents. But representatives' terms in office are only measured in years and the focus can easily shift to getting elected or re-elected and not the health of the region or its constituents.

Notwithstanding, the potential to corrupt government is real and increases with increasing campaign re-election funding by special-interest groups and individuals. Extending election cycles could have counterproductive effects. Like with many other things, following the money and incentives are good things to address. And the US propensity toward extremes of government in the last couple decades is a hurdle to good government. Fortunately, the US leaves an open door for a centrist candidate and a return to practical policy.

That said, representative action counter to the well-being of constituents often results in the representatives getting voted out of office, a built-in corrective mechanism. The same is not true for organizations, whose executives would often be rewarded officially instead. Neither the organization nor the government mechanisms are optimized for national good in their current form. However, the overarching incentives of the organizations are, by definition, not aligned with those of any given country because they don't represent or prioritize the survival of the country.

As with anything, some national governments operate differently but not without consequences. As the US stock market is seeing record highs, the Chinese economy is experiencing the worst stock market in years.

While it is beneficial to incentivize consumer choices consistent with the longer-term societal good, individual decisions alone should not be relied on to overcome structural problems. A fair playing ground is needed where individual consumers and organizations alike are incentivized to make decisions good for them which are also consistent with longer-term societal good.

Group Incentives and Outcomes Summary Table

Investors

This brings us to an additional group of stakeholders worth describing:?

• investors.

Consumers, organizations, and even government agencies can all be investors. And although each decision can be considered an investment, here we refer to financial investment. Investor time frames are typically measured in years, though some engage in public stock day-trading, commonly underperforming their longer-term counterparts.

Consumers most commonly participate as financial investors in residential real estate when purchasing a home and in the publicly-traded stock market. Consumer stock market participation of any kind has almost doubled since the 1980s, but still just over a half of consumers own stock in these companies and most of the shares are owned by the richest 1% of the consumers.

Private company investors are less common. Fewer than 1 in 5 households in the US are in a position to invest in private companies. Angel investors tend to use their own money from savings or previous investments to help companies create value and find product-market fit. As a company matures, venture capital investors can provide money from their limited partners to grow the company quickly. Private equity investors can also play a role in helping to make a larger, more mature business more efficient, often by cutting costs or raising prices. This extracts a lot of value from the business, but also prepares it for the public markets which incentivizes business profitability and shareholder value.

Finding product-market fit is fraught with pitfalls. Because mature organizations have to sustain their own existence, they can get more risk-averse to revenue-cannibalizing product innovation, which can delay consumer value. Alphabet famously held off releasing consumer AI tools to preserve their search business until about a year ago when OpenAI and Microsoft forced their hands, though consumer safety may have also been a consideration. Mature companies also have to consistently monetize customers to survive. Amazon reinvested almost all of its earnings into product development in the first couple decades of its existence. It was an investment in their longer-term growth and market leadership positioning. At the time it was not a common business move and they were criticized heavily, but it worked.

The commodities Amazon and newer tech companies have been arbitraging have been consumer attention and trust. This represented a relatively newer longer-term organizational strategy (famously championed by Silicon Valley and Amazon, to an extreme) to grow quickly and become the market leader in any given category susceptible to network effects. The venture investment ecosystem had been doing this at scale until the last 2-3 years when ZIRP suddenly stopped and revenue models wouldn't work without dramatic cost increases, passing down meaningful pain and sticker shock to the customers. Even Amazon, the quintessential consumer-obsessed company built on having the lowest prices of its competitors, had to noticeably increase prices on their customers to survive into the next phase of its life.

6 - Behavior Incentives

By design, both consumers and organizations make the right choice for themselves on some value spectrum and time frame they can foresee and afford. By design, they are selfish.

By design, governments are for their people, national democratic governments, in particular. (This applies less to dictatorship, fascism, monarchy, and oligarchy due to increased likelihood of corruption and misrepresentation of the constituent body.)

Mature, stable governments aspire to last decades, centuries, even millennia, making their decision time frame much longer than either consumers or organizations. The role of government, then, becomes clearer, as government's incentives are aligned with those of its constituents to ensure indefinite peaceful, prosperity of its people.

Given the larger set of constituents, government's job is also much more difficult. This doesn't mean government must be large, but it must be large enough to create and enforce the correct incentives for consumers and organizations to operate prosperously and sustainably. Governments must be more consumer-centric in the long-term, not less. Not any policy will do. Many policies can be harmful. We are just beginning to witness what it can do to provide endless financing for the purchase of real estate and education. During this time, both have inflated faster annually than commensurate income growth at a combined estimated 6% (2-3x the fed's inflation goal). Top investors and employers are starting to see we are approaching the tipping point where the dynamics flip and sustainability ceases.

Runaway Industry

Currently, the monthly mortgage for the privilege of owning a starter home in southern California costs roughly double the average monthly rent. This means even at 7%-10% annual value appreciation, it would take 7-10 years to start to break even in the sense that essentially a new homeowner would be paying a 50% tax to the previous owners for those years, if all goes well, and barring another historic correction. The rest of the country is quickly catching up. The median house in the US in 1953 cost $18,080 ($207,781 adjusted for inflation) and in 2023 cost $505,300, more than twice as much. Similar dynamics are seen across the world.

The 20th century has spawned a century-long real-estate experiment. By making home-ownership a goal, as opposed to sustainable living, we have back-stopped a runaway industry with endless funding, further increasing the incentive by making residential real estate a critical part of government revenue generation and personal retirement savings for its citizens, both in terms of the equity value of the real estate but also the pensions and retirement investment accounts on which most retirees rely for capital after retirement.

Again, not any policy will do.

7 - Behavior Outcomes

"show me the incentive and I will show you the outcomes"

Business organizations, much like biological organisms, behave and adapt in response to incentives defined by the environment in which they operate. The incentives drive the outcomes. The late Charlie Munger once advised, "show me the incentive and I will show you the outcomes." Keeping that in mind, it's possible to frame the effective altruism dynamic in the following way:

• If for-profit organizations can only be trusted to seek and create profit, government remains as the only force able to define aspects of the business landscape, the environment, which reflects the values and needs of its constituents, to create the incentives needed for net prosperity.

One might counter to point out, as all profits go to zero over time due to competition, we may be best served to leave market forces alone as the least damaging option. And people like Mark Cuban believe they can do good by doing well leading organizations of entrepreneurs and investors. Indeed this should be encouraged. And this is fine as long as it aligns with their particular value spectrum and decision time frame those organizations can foresee and afford.?

But at some point, as incentives misalign between either consumers or organizations and the broader good of society, and conflict between their values and survival, both the consumer and organization eventually either runs out of resources as profits are competed away and risks ruin or compromises its values. The time frames are very short for consumers and relatively longer for organizations, but both much shorter than the time frame of the government as a whole. Doing good while doing well can and does hit real competitive walls where incentives are misaligned.

Could individuals and organizations define the ecosystem themselves directly? Both groups have had and will continue to have tremendous influence on the ecosystem. Henry Ford did it with Ford and the Model T. Steve Jobs did it with Apple and the iPhone. This happens in nature, as well. Coral create the ecosystem for other animals. Trees create canopies which create and delineate ecosystems. That said, consumers and organizations are not positioned to establish law which represents society. They are selfish by design. Left unchecked they would put the ecosystem at risk of becoming unstable and unsustainable. Also, they are not positioned to enforce and interpret law. Furthermore, in the absence of government, a government-like entity fills its space, often one which is more selfish or not as representative of the broader constituents.

"True market forces lead to just two outcomes - either the participants in the ecosystem find equilibrium or one or more goes extinct."

Another nuance is that our governments have already created a regulated environment in defense, biotechnology, healthcare, transportation, and other areas where individuals and organizations can otherwise encroach on the rights of other constituents and cause disproportionately bad outcomes.

True market forces lead to just two outcomes - either the participants in the ecosystem find equilibrium or one or more goes extinct. This happens in nature across species and has potential to destabilize the food web. Business mirrors this dynamic, where a recession or depression is the large-scale destabilization event. Democratic government is based on the school of thought which says humans can keep equilibrium better than anarchy can. By incentivizing the propagation of a healthy ecosystem, good government can create the conditions where competition can thrive and market forces can operate without the need to hand-pick winners and losers.

Maintaining a healthy ecosystem includes preventing computer chip and energy supply chain disruptions, something the US government has become better at in recent years. It also includes minimizing foreign subsidized commodities in areas like retail and solar and propaganda from wreaking havoc on our revenue models and national identity, an area where the US government is still woefully underperforming.

"Why should the government do anything??One of the most important jobs of our governmental institutions is to avoid the conditions which would otherwise drive its constituents to extinction."

In order to maintain a healthy ecosystem, therefore, it is critical to incentivize participation in public service by individuals who can contribute thoughtfully to our governmental institutions to foster environments where humans can thrive in relative prosperity and peace. Why should the government do anything??One of the most important jobs of our governmental institutions is to avoid the conditions which would otherwise drive its constituents to extinction.

8 - Challenges to a Healthy Government

Unfortunately, incentivizing public service for the public good has not been without challenges. Whether elected office or hired employees, government work can have considerable downsides, which limit the pool of otherwise great candidates. The government workforce is aging. It's possible some of these candidates are finding a home working in the private non-profit sector. Nonetheless, new generations bring new ideas, and government must continue to evolve and adapt to its ecosystem, especially as it is shaped by new technology.?

And perhaps a culture of almost irrational fear of government rings in the minds of a generation. Distrust of government may come from fear of government waste or unchecked power. But not all governments are created equal and neither are all policies. Examining the Laffer curve for tax policy helps to garner appreciation for the potential dangers of bad policy.

In a way, EA may be a response to ineffective government. A key feature of government is stability, but for many, government moves too slowly and ineffectively to meet the needs of present-day challenges steeped in ever faster-moving technology.

Nonetheless, true democratic institutions have checks and balances limiting consolidation of power rather than putting faith in any single individual to pick winners and losers. The mechanism is reminiscent of market forces in the sense that multiple signals are factored, which creates a more just and stable society.?

9 - Limits of EA and Free Market Forces

Market forces are indeed a powerful algorithm with maximum data points integrating toward the most logical outcome. No single thing works better... that is, until it doesn't. In the likely eventuality the market force algorithm falls out of equilibrium and faithfully executes an extinction event, we would have much to lose. In that way, it's a roll of the dice, entropy, disorder, chaos, a ticking time-bomb.

But new organizations and new industries in particular benefit from the ability to move quickly to establish themselves with less stifling regulation. Therefore it is to their benefit to regulate themselves to stave off attention from government regulators. Effective altruism (EA) can be a way to reduce the need for government regulation in the short-term whether in the US or abroad. Self regulation is good strategy and can also prevent hasty, bad, or stifling over-regulation.

Interestingly, more established organizations can actually get a competitive advantage from more regulation because they can afford it more easily than their less-established competitors with respect to product-market fit and revenue. But in general, organizations operating in the free market are a healthy part of the ecosystem.

That said, once the net impact of an unchecked industry shifts negative, EA is no longer sufficient and good government policy can be a better mechanism for societal good because its incentives are aligned with those of society.

10 - EA, Solution or Problem?

To bring the points home, effective altruism (EA) is a potential way for organizations to regulate themselves first. EA can be a smart solution to the problem of missing, slow, or harmful government regulation, especially when it comes to technology, which just means daily human existence in today's modern world. Software technology (ie. tech) is no longer an industry but a key piece of every other industry.

And like technology, EA gets a bad rap. Although it is not bad in and of itself, it is also not sufficient by itself in the longer term. Therefore, instead of condemning EA, it is in the best interest of consumers to elect government representatives to instead focus on building on what EA is trying to achieve. Furthermore, advocating against both EA and government leaves the well-being to unfettered market forces - as described earlier, they work great, until then don't.

Because neither consumers nor organizations make free market decisions to prioritize the financial well-being and survival of the country over themselves, it becomes hard to ignore how the dynamics of their misaligned or conflicting incentives play out with respect to societal good in the longer term. But they can vote for government representatives who could level the playing field for them so that they and their peers don't have to choose between themselves and the greater good of society. It's such a simple but powerful first principle analysis. We need both market forces and aligned incentives to succeed.

"EA past its prime can mask the lack of aligned incentives between those of the group and the constituents of the broader ecosystem."

The United States reinvented the modern democracy, but we are falling behind investing in the team needed to continue its innovation. EA past its prime can mask the lack of aligned incentives between those of the group and the constituents of the broader ecosystem. Therefore governments should take note to learn and understand the technologies and dynamics of increasingly fast-moving industries like software, artificial intelligence, and biotechnology, which also happen to be increasingly converging, and know when to apply regulation for alignment of financial incentives for societal good. Timing is key.

Each stakeholder group plays a crucial part. Not surprisingly, consumers too have a critical role, in particular to elect representatives sufficiently sophisticated in these fields of technology to keep government accountable, performant, and sufficiently large without being too big, slow, wasteful, or counterproductive. Collectively, we need the right incentives to keep the ecosystem healthy, playing fields level, and society relatively peaceful and prosperous indefinitely...

Medium-length Summary

The article explores Effective Altruism (EA), its role in society, and addresses questions about its effectiveness, concluding well-aligned incentives for individuals and organizations are crucial for a healthy society.

Key points:

• EA under scrutiny: While aiming to do good, EA faces criticism for its impact and motives, particularly related to technology and potential harm.
• Underlying dynamics: The article identifies misaligned incentives as a core issue. By design, consumers and organizations prioritize themselves over longer-term societal good.
• Government's role: With their longer time scales, governments are positioned to create incentives for sustainable societal well-being.
• Effective Altruism's limitations: Although well-intentioned and even needed, EA as practiced by organizations is limited in its ability to address systemic problems because of misaligned or conflicting incentives in the longer term.
• The right solution: A combination of government action - with proper understanding of technology - and aligned incentives for businesses and individuals is necessary for a healthy society.

Take-home message:

Effective Altruism, while aiming for good, cannot solve all societal problems alone. EA can serve as self-regulation where practical, but we need well-designed incentives for all stakeholders by government to level the playing field where needed to ensure societal good in the form of longer-term survival of society, peace, and prosperity.

One-sentence Summary

Effective Altruism can be a short-term solution to misaligned incentives for consumers & organizations to make choices consistent with longer-term societal good.

Need more context? See article above :)