You cannot cherry pick a single year (a pretty non-representative year given the recession) in which the growth of a few sub-Saharan African countries was faster than the average growth of the stock market.
I didn't cherry-pick anything; that was the first google image result, so it's the one I linked to. I didn't think it's any different from a typical year. Is it? If so, what was special that year? If you're concerned that the US was in a recession, you can simply compare sub-Saharan Africa to the typical 6-7% stock market returns instead of comparing to the GDP growth of the US in that year.
So what you are arguing is that the most efficient use of money to gain QALYs (not the average) has decreased exponentially and faster than the growth of capital over time?
Yes!
That seems very difficult to argue while taking into account increased knowledge and technology. But I have no idea how to calculate that.
I don't claim to be able to exactly calculate it, but some quick back-of-the-envelope calculations suggest that it is true. For example, consider this from slatestarcodex:
http://slatestarcodex.com/2013/04/05/investment-and-inefficient-charity/
[...] in the 1960s, the most cost-effective charity was childhood vaccinations, but now so many people have donated to this cause that 80% of children are vaccinated and the remainder are unreachable for really good reasons (like they’re in violent tribal areas of Afghanistan or something) and not just because no one wants to pay for them. In the 1960s, iodizing salt might have been the highest-utility intervention, but now most of the low-iodine areas have been identified and corrected. While there is still much to be done, we have run out of interventions quite as easy and cost-effective as those. And one day, God willing, we will end malaria and maybe we will never see a charity as effective as the Against Malaria Fund again.
While I don't have the exact numbers, this seems to me to be self-evidently true if you know any history (to the point where I would say it is the onus of the "invest instead of donating" camp to prove this false).
Epistemic status: 90% confident.
Inspiration: Arjun Narayan, Tyler Cowen.
Moses Maimonides.
Background
Effective Altruism (EA) is "a philosophy and social movement that applies evidence and reason to determine the most effective ways to improve the world." Along with the related organisation GiveWell, it often focuses on getting the most "bang for your buck" in charitable donations. Unfortunately, despite their stated aims, their actual charitable recommendations are generally wasteful, such as cash transfers to poor Africans. This leads to the obvious question - how can we do better?
Doing better
One of the positive aspects of EA theory is its attempt to widen the scope of altruism beyond the traditional. For instance, to take into account catastrophic risks, and the far future. However, altruism often produces a far-mode bias where intentions matter above results. This can be a particular problem for EA - for example, it is very hard to get evidence about how we are affecting the far future. An effective method needs to rely on a tight feedback loop between action and results, so that continual updates are possible. At the extreme, Far Mode operates in a manner where no updating on results takes place at all. However, it is also important that those results are of significant magnitude as to justify the effort. EA has mostly fallen into the latter trap - achieving measurable results, but which are of no greater consequence.
The population of sub-Saharan Africa is around 950 million people, and growing. They have been a prime target of aid for generations, but it remains the poorest region of the world. Providing cash transfers to them mostly merely raises consumption, rather than substantially raising productivity. A truly altruistic program would enable the people in these countries to generate their own wealth so that they no longer needed poverty - unconditional transfers, by contrast, is an idea so lazy even Bob Geldof could stumble on it. The only novel thing about the GiveWell program is that the transfers are in cash.
Unfortunately, no-one knows how to turn poor African countries into productive Western ones, short of colonization. The problem is emphatically not a shortage of capital, but rather low productivity, and the absence of effective institutions in which that capital can be deployed. Sadly, these conditions and institutions cannot simply be transplanted into those countries.
A greater charity
However, there do exist countries with high productivity, and effective institutions in which that capital can be deployed. That capital then raises world productivity. As F.A. Harper wrote:
That is because those tools increase the productivity of labour, and so raise output. The pie has grown. Moreover, the person who invests their portion of the pie into new capital is particularly altruistic, both because they are not taking a share themselves, and because they are making a particularly large contribution to future pies.
In the same way that using steel to build tanks means (on the margin) fewer cars and vice-versa, using craftsmen to build a new home means (on the margin) fewer factories and vice-versa. Investment in capital is foregone consumption. Moreover, you do not need to personally build those economic tools; rather, you can part-finance a range of those tools by investing in the stock market, or other financial mechanisms.
Now, it's true that little of that capital will be deployed in sub-Saharan Africa at present, due to the institutional problems already mentioned. Investing in these countries will likely lead to your capital being stolen or becoming unproductive - the same trap that prevents locals from advancing equally prevents foreign investors from doing so. However, if sub-Saharan Africa ever does fix its culture and institutions, then the availability of that capital will then serve to rapidly raise productivity and then living standards, much as is taking place in China. Moreover, by making the rest of the world richer, this increases the level of aid other countries could provide to sub-Saharan Africa in future, should this ever be judged desirable. It also serves to improve the emigration prospects of individuals within these countries.
Feedback
Another great benefit of capital investment is the sharp feedback mechanism. The market economy in general, and financial markets in particular, serve to redistribute capital from ineffective to effective ventures, and from ineffective to effective investors. As a result, it is no longer necessary to make direct (and expensive) measurements of standards of living in sub-Saharan Africa; as long as your investment fund is gaining in value, you can rest safe in the knowledge that its growth is contributing, in a small way, to future prosperity.
Commitment mechanisms
However, if investment in capital is foregone consumption, then consumption is foregone investment. If I invest in the stock market today (altruistic), then in ten years' time spend my profits on a bigger house (selfish), then some of the good is undone. So the true altruist will not merely create capital, he will make sure that capital will never get spent down. One good way of doing that would be to donate to an institution likely to hold onto its capital in perpetuity, and likely to grow that capital over time. Perhaps the best example of such an institution would be a richly-endowed private university, such as Harvard, which has existed for almost 400 years and is said to have an endowment of $32 billion.
John Paulson recently gave Harvard $400 million. Unfortunately, this meant he came in for a torrent of criticism from people claiming he should have given the money to poor Africans, etc. I hope to see Effective Altruists defending him, as he has clearly followed through on their concepts in the finest way.
Further thoughts and alternatives
Conclusion