Central Planning is a Problem for Charities

I keep seeing articles where millionaires and billionaires describe how they are trying to donate their wealth to good works. This is noble, but the articles make it clear how difficult it actually is for one person, trust, or fund, to give away money. And the more money given away by one entity (i.e. the more concentrated the wealth among the charitable), the less efficiently and effectively the money can be spent.

The market for charitable goods is sprawling and complex. There is a large amount of information that only the workers “on the ground” even have, which is why the best charities tend to be those like parishes, mosques, fire departments, private initiatives to renew the school roof, local emergency aide following national disasters, the regional children’s hospital, etc. There, the people donating the money, the people spending the money, and the people receiving the goods or services, are intimately aware of the situation and have a clearer understanding of it. And the smaller size of the charity reduces the amount of money that can be misappropriated or simply mispent.

This charitable subsidiarity also leads to more equitable charitable giving. Lots of individual people spending small sums of money can add up to the same amount as a large grant, but the spending will tend to be spread around to a larger number of recipients. In fact, the recipients that would have gotten the large grant might receive few donations if the number of people “voting” on (donating to) the various recipients is larger. That one person might have a specific cause they want to promote, that the majority of givers don’t care about or even find destructive.

It is also that large, individual gifts that seem relatively small to the person giving them, can actually end up destroying or skewing a small, charity market (like Nostr), with the person trying to do something positive facing constant criticism. A grant of $100k or even $1m is not an awful lot, in the larger scheme of things, but if the competition is running on $1k or $10k, it seems grotesquely outsized and unjustified. The market that grant is landing in is too small to absorb it, so the grant can destroy the market’s pricing mechanism and give the charitable consumers the false impression that there must have been a 100x or 1000x difference in quality between the one recipient or the other, when the difference was perhaps negligible.

This is the classic example of how wealth inequality skews absolutely everything, even when the person receiving the wealth also finds it problematic and is attempting to extricate themselves from the money. Once inequality exists, it is invariably painful to unwind it because central planning is based upon less information than decentralized planning.