Here’s a claim to supplement the replacement effect:
The flat margin effect (FME): If you take a job that seems to have a strong (positive or negative) impact on the economy, the actual difference it makes to social welfare will be minimal.
So who is this relevant to? And why should you believe it?
On the first question, it’s relevant to any effective altruist thinking of taking a job in something like finance, which they’re concerned will contribute to an industry that harms the wider economy. Perhaps you don’t agree with the replacement effect, or perhaps you think it doesn’t apply in your case for some reason (maybe you’re going to be such an effective banker that you’ll actually make a big difference to the industry’s success).
It might also apply to people considering startups whose product would contribute to the economy (for example business-to-business services), who are wondering how much the positive value from doing so weighs against a higher income than they might get from following another path.
Unlike the replacement effect, it doesn’t apply - or at least not as much - to jobs where you directly improve people’s welfare (such as becoming a doctor). It will still be relevant to any economic effects these jobs might have beyond the direct good (or bad) they do.
As for why you should believe it, let me explain with an example. The New Economics Foundation estimates that bankers remove £7 from the UK economy for every pound they earn.(1) But using money as a metric only works if you have a sense of where the money would have otherwise been spent.
To answer that question, we need to consider where this economic damage is inflicted. Two likely answers to this are on the public and on the government - on current (UK) tax rates, at about a 63:37 ratio on average. First, let’s consider the impact that a loss of income can have on individuals.
A case study of individual spending
Suppose Karl has a weekly income (after tax) of £500, which he typically uses something like this:
- £100 on rent
- £30 on bills
- £30 on transportation
- £90 on food for home preparation
- £40 on eating out with friends
- £100 into long-term savings
- £50 into saving for a forthcoming skiing holiday
- £20 on clothes
- £80 on books, music and other minor luxuries
Now I’ll disrupt this rosy picture by introducing a destructive banker. Via the magic of thought-experiment vagary, he damages the local economy to the extent that Karl’s company, while still solvent, has to cut his income by 10%. Accordingly, he has to subtract £50 from his weekly expenditures
Assuming Karl’s a faintly rational sort, he’s going to find the expenditure that brings him the least satisfaction - presumably his luxuries - and subtract it from there. So while losing the money might inconvenience him, rather than doing so to the tune of the average £50 he spends, it’s going to inconvenience him to the equivalent of the worst £50 he would otherwise have spent.
Marginal government spending
So how would a comparable loss of income affect the government? Much the same, for exactly the same reason. If we assume the government is fairly rational and benevolent (choke back your mirth; I’ll revisit this hypothetical in the objections below), any money that comes out of its budget is going to come from its least effective spending.
My assumptions so far are are quite damning toward banking - I’m supposing bankers are taking large sums of money from an organisation that would otherwise have spent them wisely. So just how bad would it be?
Let’s have a quick look at real numbers. We know the NHS spend up to £30,000 to buy a QALY - because they tell us.
So even if we also assume (with no particular reason to) that the NHS is the worst of the UK government’s expenditures, our antisocial banker only needs to donate 4p per £10 he earns to make up the difference,(2) so long as he does so to the best causes - and that’s ignoring the replaceability effect. Everything after that is of net benefit to the world.
Hang on a second…
This is a controversial claim, so I’m going to anticipate a few objections - and concede some ground to one of them:
1) Why not just get a job that doesn’t do any harm?
If you can find a job that pays the same as a finance role and does less harm (or more good, depending on your perspective), then great. But most jobs pay far less, and as an effective altruist, the value you can get from the extra money would be enormous.
Even a moderate-sounding difference in the income from two jobs can make a big difference to your positive impact. As your income rises, it becomes easier to give away a higher percentage of your salary, effectively volunteering yourself for progressive taxation.
A banker on £500K a year can easily give away 80% of his income, effectively gaining £394,000’s worth of £50-QALYs on the above estimation (and still not accounting for the replaceability effect, which would make it almost a round £400K’s worth of QALYs). A nearly-as-successful businessman whose job’s social impact was neutral would clearly struggle to do anywhere near as well on an annual salary of, say, £400K.
2) Are you kidding? The government isn’t rational or benevolent!
Everyone will have a different view on this objection, and I’m not going to argue the point. But if anything, it makes my case for me: the less benevolent or rational the government tends to be, the less problematic it is to take money from them in the first place. Under a truly irrational rule, had your job not destroyed that £7, it might have been used to plant teddy bears in the Thames.
The same idea holds for individuals - the worse Karl is at using his money to satisfy his life-goals, the less he’s harmed by losing some of it.
3) This is all very well in theory, but I know that my government is cutting spending in areas that aren’t the least efficient.
I’m very cautious of such claims, on the grounds that I think politics is the mind-killer. If that argument is right, all of us should have much lower confidence in our political views than we usually do.
That said, assuming you do have reliable information to this effect, a couple of factors might mitigate it.
Firstly, how much worse are the cuts than they might be? We needn’t assume every cut will be perfect (indeed, that would imply a perfectly rational government who would spend the money even better than effective altruists).
Assuming a human government, it would be incredible if the cuts were to come from precisely the most efficient areas. It would be like trying to peel an orange without removing a single bit of the pulp - requiring so much effort it would ultimately be counterproductive. But as long as we can expect the cuts to tend toward the edges, the overall effect is much the same.
Secondly, governments don’t allocate all spending centrally. They tend to cut from departments, local councils etc, who then have to reallocate the remaining budget internally. And departments, like governments, have cause to behave broadly rationally. For example, if the NHS were to lose a sizable proportion of its budget, we would expect it to come from the treatments that cost £30,000 per QALY, rather than those which cost only a few hundred pounds .
Thirdly, if your information is about a specific policy the government is planning to implement, odds are the decision will have been made long before you can make a career change.
So for the FME not to apply (given that you’re contemplating a career where it might), you need to be able to predict a long-term government tendency to make particularly inefficient cuts iff the annual GDP warrants it, and otherwise to leave the status quo untouched. If you can predictably their irrationality but not the form it will take then the comments in 2) apply.
4) It’s wrong to harm people, regardless of whether you’re doing it to benefit others.
A full response to this would be far too large for this blog post, since it would need to address the underlying assumptions about morality. In lieu of a full argument against it, I would argue that most people don’t really behave as though this is true:
If you think it’s wrong ever to harm (or collude in harming) people for others’ benefit, do you agree that war is ever justified?
If so, obviously in some cases it’s permissable to harm others.
If not, do you minimise your income in order to minimise the funding your national military receives from your tax?
If so, then I can only admire your dedication and respectfully disagree on this issue.
If not, then you are already colluding in harm for prudential reasons, but for far less humanitarian benefit.
5) You seem to be assuming any damage to the economy will be evenly spread. What if it’s the poorest people whose livelihood suffers the most?
I actually think this is a valid objection - if this happens, it could substantially weaken the FME. I’ll say two things against it, though:
Firstly, it’s unlikely that that high a proportion of the wealth will come from the poorest people’s pockets, simply because their pockets are relatively small to begin with. Trivially, someone with no income can’t suffer from a proportionate income reduction. This capping effect probably isn’t that large, though - the relative poor in the UK have enough wealth between them to account for fairly large economic losses. However, it does scale well enough for us to draw an a priori probability inference: any loss to the economy is most likely to come from the area of median salary (approx £22,800) since that’s where the biggest pool of money is (PDF).
I’ll go into more depth in a subsequent post, since it seems too much of a digression here, but for now I don’t think we should assume the poor are hit disproportionately to the middle classes - in fact we should think it quite unlikely, unless we have strong evidence to the contrary. (In the next post I’ll argue that even if they are, the negative effect is less than we might think, but again that’s too much of a digression here)
For now, I’ll concede that some further research on where economic damage tends to hit would help give a sense of how big a factor this is.
Secondly, my argument isn’t that the FME completely cancels economic harm, only that it shows it to be substantially less pronounced than one might think. Given that the government receives over a third of the value of UK GDP (and similar amounts in other developed countries), that alone makes the effect quite powerful. If the spread of damage does turn out to be relatively even, the effect will be huge.
(1) Plenty of people would argue that banking has a positive effect. This is broadly irrelevant to the argument for the FME - the margins look flat in both directions - though obviously it means you might apply it differently.
(2) This is a slightly simplistic calculation, only considering the governmental aspect:
£10 earned subtracts (on the above estimate) £70 of value of the overall economy. If 30K-per-QALY treatments on the NHS are the worst government expenditure, then I assume the £70 comes from there, in which case the banker’s job costs 0.0023 QALYs in economic harm. The current best cause as judged by Giving What We Can and Givewell buys one QALY for approximately US$25, or £15.56 at current exchange rates, so an effective altruist could buy back the 0.0023 of a QALY for slightly less than four pence.
I had a lot of useful feedback when putting together this argument - thanks to Ben Todd, Ryan Carey and Patrick Brinich-Langlois for some very useful comments, and to Rob Wiblin for prompting me to think about the subject in the first place.
Comments
Elegantly Argued!
Firstly, I’d like to say that your main point is true, and merits being said.
I think, as Eliezer is fond of pointing out, your knowledge of biases can harm you if you use them only to attack the views of others. Politics is the Mind Killer doesn’t mean you get to ignore the views of those who think that the government doesn’t behave in accordance with Marginal Utility Theory. It shouldn’t change your mean estimate for how inefficiently the government chooses which items to drop - just increase your variance.
This is especially important in this case, because foriegn aid - possibly the best part of the budget - is also a quite vulnerable target - perhaps not under the coalition, but under future governments.
On a different note, can we stop with the absurd banker-bashing? I realise you never explicitly say “bankers are harmful”, but it’s hard not to walk away with this impression. For example,
“Now I’ll disrupt this rosy picture by introducing a destructive banker”
doesn’t actually imply that any bankers are destructive - but if we substituted “banker” with a protected minority group, the result is so painful we’d never publish it.
Linking to the absurd New Economics Foundation doesn’t help. 80k already has a “far-out” message - we should stick to sound mainstream economics, rather than endorcing the Iron Law of Wages. NEF is painfully bad.
Hi Lip,
Point taken. It’s difficult to promote pro phil without angering both left and right. This is one example. If you pretend certain high earning careers, like banking, are not harmful, then you anger the left. If you consider the fact that they might be, then you anger the right.
In practice, we talk so much about banking because it’s the most salient example of a high earning career that is widely regarded as ‘unethical.’ If you can make the case for pro phil with banking, then it follows for all the other (legal) high earning careers.
Good point about foreign aid. GWWC recently did some research that suggested the cost-effectiveness of US health aid could be better than NTDs. We suspect there’s a serious problem with the estimate, but nevertheless, it’s looking like it might be pretty cost-effective. Then, cuts to health aid would be difficult to offset by donations to health charities.
Ben
Ben, is that GWWC research on US aid online anywhere?
Zander, I think I’ve understood your argument, but I’d like to clarify. The FME is basically saying, “Whatever positive or negative externalities your job has, they will be completely swamped by the good you can do as an effective altruist.” Is that the core of it? If so, I think it is worth mentioning explicitly in the introduction that it applies to effective altruists (present or future). As it is currently written, it took me quite a while to work out what I think is the overall structure of the argument.
I should possibly google before asking this, but is there an 80k blog post (or other resource) listing the strongest arguments for why banking would be considered harmful? It’s never seemed obvious to me, even though I know many people who seem to think it (alas I can’t simply ask them to explain why at the risk of looking politically incorrect :( )
Re Lip:
‘your knowledge of biases can harm you if you use them only to attack the views of others’
I don’t mean to attack any particular views with this. Many 80K members won’t have come across that sequence before, so the argument that we should take a step back from traditional politics might be genuinely new to them. (I should also point out that Ryan advised I delete that comment from the piece, but I decided it was an important enough point to be worth retaining)
Your point about foreign aid is a good one - governments might predictably act in favour of their constituents. I think the points in my third response still apply to some degree, but it seems likely to be one of the main factors working against the FME.
‘can we stop with the absurd banker-bashing?’
I didn’t mean to assume banking is harmful, but the argument is primarily relevant to 80K members who do think they’re harmful, so I was addressing the piece to them. I’m sceptical of the NEF claim too, but it’s the only attempt I know to formally quantify the supposed harm of banking, hence it being the one I chose. What’s your reason for dismissing them as absurd, though? As Ben says, sticking to one particular political view (however justified you might think it is) risks alienating half our members, and part of my purpose in writing this piece was to try to reduce the left/right divide by showing that (one of) the typical differences in opinion between them is far less important than people make it out to be.
Re David Barry
That’s basically it (strictly speaking what you say is a consequence of the FME when combined with the separate argument that EAs can do huge amounts of good with money), although I’d restrict it to economic externalities. Obviously if you pollute a local water supply, the harm it’s going to do won’t be spread out over as many people, nor so irrelevant to their wellbeing. I’ve adjusted the phrasing of the ‘who’s it relevant to’ paragraph re your suggestion.
Re Tog
The NEF study I linked to is all I know of, and it’s maddeningly vague. Ben seemed to know more about their methods, so hopefully he’ll comment.
Hey David, it’s basically just this atm: http://www.wikicharities.org/index.php?title=Advocacy_for_Health_ODA It’s pretty rough stuff and not kept updated. One of the priorities for GWWC is to properly write up the interesting stuff they’ve thought about!
Tog,
Note: none of these are the opinions of 80k
There’s lots of reasons. The main one is that in the lead up the financial crisis, bankers took on large amounts of leverage in search of short term profits and sold products without making their risks clear (sometimes in activities that were borderline illegal). The combination lead to a very unstable financial system, resulting in the financial crisis, leading to the recession. I think the NEF estimate is based on assuming that some significant fraction of the costs of the financial crisis was due to bankers.
Of course, there were lots of other reasons for the financial crisis e.g. central bank low interest rate policies, the housing bubble, chinese monetary policy, etc. It’s controversial how much is due to bankers.
What really angers people is that the bankers who made these bad decisions didn’t financially suffer. The accusation is that they manipulated the system to their advantage. Indeed, the financial lobby seems to have quite a bit of influence over congress.
More socialist minded people would say that (financial crisis aside) bankers fundamentally exploit people, and act to prevent social reform that would remove this exploitation.
Ben
We should distinguish at least four questions about the effect of banking:
1) Does the banking industry as it harm the economy?
2) Do people in the banking industry tend to do harmful (or at least less good things than the average person) with their money (eg lobbying govt for self-interested reform)
I suspect the answer to 2) is ‘yes’, at least to the weaker parenthetical version (if nothing else high earners tend to donate smaller proportions of moneyref=”http://www.cgap.org.uk/uploads/Briefing%20Papers/CGAP%20BN7%20How%20generous%20is%20the%20UK.pdf”>http://www.cgap.org.uk/uploads/Briefing%20Papers/CGAP%20BN7%20How%20generous%20is%20the%20UK.pdf</a>)); I don’t really have a view on the other three questions.
The FME and the replacement effect both imply that all four questions are basically irrelevant to EAs, though.
Yes.
To be clear, I was talking about the ‘direct harm’ done by bankers.
The point of replaceability, the flat margin effect and other compensation effects, is that the harm done by becoming a banker can be completely different from the harm done directly by bankers.
re: Politics is the Mind Killer
People who claim they know their government is cutting the most important thing should be warey of their biases. But the burden of proof is not on them; you need to show that the government does cut the least important things first. In this case, Politics is the Mind Killer affects you; you should reduce your confidence that the government acts rationally and altruistically.
re: NEF
The NEF, in their analysis of bankers, assumed that all culpability for the economic crisis fell on bankers (rather than policymakers, or it being an endogenous shock), yet didn’t take into account any of the benefits of finance - raising capital for firms, reducing risk through hedging, etc. The NEF are not, in general, credible economists.
The first google hit for “banking value added”, http://www.voxeu.org/index.php?q=node/7400#fn , gives a much better surview of some of the literature. I’m concerned if 80k’s research in this area involved reading NEF reports before googling “banking value added”.
re: politics
There’s a world of difference between starting a post with “In this post, I’ll argue that even if you believed banks did net harm, this shouldn’t affect your decision making much” and blithely suggesting that this is relevant to “any effective altruist”. Nor does it justify the continued use of negative language.
It is possible to be politically neutral, rather than simply hoping to annoy both sides in equal measure.
re: Politics is the Mind Killer
‘People who claim they know their government is cutting the most important thing should be warey of their biases. But the burden of proof is not on them; you need to show that the government does cut the least important things first. In this case, Politics is the Mind Killer affects you; you should reduce your confidence that the government acts rationally and altruistically.’
I’m assuming you’re (something along the lines of) a Bayesian? In which case I don’t really know what place the burden of proof concept is supposed to have in such a worldview – one ‘simply’ takes all relevant data and updates their belief with them, granting arguments weight according to their persuasiveness. So if you don’t find the FME convincing, or if you have reliable data showing it doesn’t apply in full, you simply discount it accordingly.
To be clear – I’m certainly not claiming that the FME is a replacement for perfect knowledge of what deleterious effects on the economy will be, only that for those of us who lack such knowledge (which I would argue is all of us), it’s a useful approach that grants us some possibility of comparing economic harm vs the gain of pro-phil. Perhaps I should have called it the flat margin tendency.
The argument doesn’t rest on the government being rational and altruistic – if they were perfectly so, the FME would be irrelevant to the money that went to them, since then they’d be doing the same (or more) good with their money as you would be with yours. It rests a) on them being at least irrational enough that you can do better with money than you expect them to, and b) on the manner in which they’re irrational being difficult to predict. I think we agree on a), and your point about foreign aid is well taken as a criticism of b), but unless you think 100% of the harm you do will reliably come from the foreign aid budget and that the foreign aid budget is at least as cost-effective as you, the FME still applies to a slightly reduced extent; partly because money taken from other departments will be taken from those which the govt views as least efficient, partly because the departments it’s taken from will take it from the sub-fields they view as least efficient, and partly because c67% of any lost money will be lost by individuals rather than government, who are (as a group) reliably nowhere near as altruistic as you.
re: NEF
‘I’m concerned if 80k’s research in this area involved reading NEF reports before googling “banking value added”.’
Before anything else, I’d like to point out that I’m not an 80K researcher, nor is everything that appears on the blog sanctioned by the 80K research team (which, at the time of writing, consists solely a probably overworked Carl Shulman). It’s a venue for proposing and discussing ideas of interest to the effective altruism community.
As for the NEF, it was an example on which to test the effects of the FME, not a part of the argument for the latter. Perhaps I should have looked further into alternative views, but my main reason for not having done so was just that it didn’t really matter. I have subsequently done a little more searching, and still haven’t found anyone else who a) claims banks are detrimental to the economy and b) tries to quantify the amount to which they are – anyone who doesn’t do both is of no relevance, since I’m basically making an argument for going into banking (or at least for increasing the value we think doing so has). Accepting the sources you’re recommending would only be preaching to the choir.
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