Notes on how a recession might impact giving and EA

by abrahamrowe4 min read13th Mar 20202 comments

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While the ideas are much older, Effective Altruism has mostly been around since after the Great Recession (Giving What We Can was founded in 2009 and 80,000 Hours in 2011). This means that it has pretty much existed entirely without going through a major economic downturn. I was curious about how a recession might negatively impact EA and associated charities, and thought giving some thought to how EAs can recession-proof or protect the movement seemed worthwhile. This is a pretty light review of a topic that probably deserves a lot more thought, and these thoughts are really loosely organized.

Past thoughts folks have posted on this:

https://forum.effectivealtruism.org/posts/cRNrGDDAErbiZwrHE/should-effective-charities-prepare-for-a-recession

https://forum.effectivealtruism.org/posts/NasdMzQfx2yT7AE9r/increase-impact-by-waiting-for-a-recession-to-donate-or

Top-level thoughts:

  • A major recession will probably negatively impact smaller EA charities, especially those not funded by OpenPhil.
  • Donors ought to tell charities early if they expect to not be able to give as much as they have historically
  • OpenPhil will probably either have to decrease giving, or decrease potential for future giving to navigate a recession.
  • If EA Funds currently have an excess of funding compared to last year, they might consider not increasing giving levels to navigate a recession.
  • It seems possible that donating during a recession is a good opportunity for donors saving money to give later.
  • EA organizations might be especially vulnerable to recessions because their donor base is not particularly diverse economically, and because they might have relatively few donors compared to similar sized charities.

Likelihood of a recession happening

The likelihood of a recession happening sometime in the next decade seems extremely high. There have been 13 in the 87 years since the Great Depression, or on average one every 6.7 years (which makes our current 11 years since the last one an above average period of economic growth).

The likelihood of a recession happening in the next 12 months also seems very high:

How have past recessions impacted charities?

Rob Reich and Christopher Wimer in “Charitable Giving and the Great Recession” (2012):

  • The Great Recession reduced charitable giving by 7.0% in 2008 and 6.2% in 2009.
  • As of 2012 charitable giving was well below the 2007 level, but growing.
  • Giving only fell slightly as a percentage of GDP. I.e. Americans gave almost the same proportion of their income as before the recession.
  • Charitable giving moved toward local poverty related causes, such as food banks, etc.

Melissa S. Brown, Brice McKeever, Nathan Dietz, Jeremy Koulish, and Tom Pollak in “The Impact of the Great Recession on the Number of Charities” (2013)

  • There was a slight uptick in the number of charities greater than $50,000 that closed during and immediately after the Great Recession than in the preceding four years.

Other things:

What charities are most vulnerable during a recession?

The Reich and Wimer analysis suggest that EA charities are possibly vulnerable during recessions, as they generally do not immediately serve people experiencing poverty in the countries where most donors live. Probably most vulnerable are longtermist related charities and animal charities, especially those not currently supported by OpenPhil (i.e. wild animal suffering organizations), as OpenPhil tends to give multiyear grants, while other EA sources give on very short cycles (like the EA Funds).

EA charities also seem very reliant on few donors. I don’t have data on this, but as a point of comparison, I’ve worked on the founding and building of two charities, only one of which was in the traditional EA space, both of which are now similar in size (by budget). The EA charity has less than ¼ of the donors that the non-EA charity has, and the average donation size is much larger at the EA charity. If this is typical (and I wouldn’t be surprised if it is, since EA is relatively small and there is a focus on giving more), then EA charities are more vulnerable to donors decreasing giving. It would be much worse for the EA charity if 100 donors stopped giving than it would be for the non-EA charity.

Additionally, EAs who earn-to-give seem heavily concentrated in the technology sector and a few other industries. This is probably a vulnerability, as a more diverse donor base might be more resilient to a recession, since industries might not be impacted the same way by economic downturn.

Many EA charities are reliant on the EA Funds for a significant portion of their funding, and many donors donate exclusively through the EA Funds. While this is a great way to give, it also is potentially a weakness for charities during a recession. Charities can’t build relationships with those donors individually, or directly communicate more dire financial need to them. Donors might feel removed from the charities they are giving to, so they might be more willing to stop giving.

Many EA charities would be vulnerable if OpenPhil decreased giving during a recession. OpenPhil continuing to give at pre-recession levels would almost certainly be a tradeoff on future giving. As of writing, Facebook stock is down around 25% over the last month, which I presume is approximately the same as the decrease in OpenPhil’s ability to give. If a recession happens, and this lowered potential for giving is maintained, OpenPhil will either have to drawdown the funds available, limiting future giving, or will have to decrease giving, potentially shrinking the size of some EA charities.

Finally, if people have less money to give, or are focused on local causes, growth of EA might decrease during a recession.

How should donors behave during a recession?

Outside the obvious answer of continuing to give at the same levels, if able, how should EA donors respond to the recession?

A few actions seem warranted:

  • If you are a major donor, you should probably tell a charity early if you are unable to give at the same levels as previously, so that they can better plan for the future.
  • Donors ought to be somewhat forgiving of charities reducing impact during a recession. If in order to survive a recession a high-impacted charity needs to significantly decrease programming, it seems warranted to tolerate it as a donor, and continue giving, even if it isn’t immediately the best giving opportunity.
  • Giving during a recession or a donation winter might be a good thing to do for donors who have been saving to give later to better charitable opportunities than currently available.
  • If the EA Funds have an excess of funding, it might be wise not to increase disbursements, in case a recession leads to smaller amounts of funding being added throughout the year. This would allow EA Funds to maintain current giving levels.

Is it bad for a charity to close?

One other question is whether or not it is bad for a charity to close (because it doesn’t have funding), assuming the project is a worthwhile one. I think generally that it is bad - there is a fair amount of administrative work needed to start and grow a charity, so closing means that all has to happen again. A skilled founder might not be interested in starting the same project again later, leaving a talent gap. And generally losing mailing lists / donor lists / staff knowledge seems bad too.

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EAs are probably more likely than the general public to keep money they intend to donate invested in stocks, since that's a pretty common bit of financial advice floating around the community. So the large drop in stock prices in the past few weeks (and possible future drops) may affect EA giving more than giving as a whole.

I think Open Philanthropy probably would not reduce it's grantmaking because of a recession. It seems Open Philanthropy is recommending around $200 million in grants per year. Forbes estimates that Dustin Moskovitz has a net worth of around $10 billion. So they're only spending down a mere 2% of Moskovitz's net worth each year. If Moskovitz's net worth declined to $5 billion that would still only be 4% of Moskovitz's net worth. In addition, better funding opportunities for Open Philanthropy may arise during a recession as other large funders pull back.