You have $1. Where to spend it?

You have $1. Where to spend it?

You have $1. Where to spend it?

Making government work better.
Feb. 14 2006 12:30 PM

Bang for Your Buck

You have $1. How should you spend it to do the most good?

The other night my wife and I had a big fight in the bathtub when a long-standing cause of trouble in our marriage bubbled to the surface: Once again, she said she wanted to buy an automated external defibrillator for her dental practice.

The idea is that somebody someday might have a heart attack in the office. Even though there is a defibrillator across the street in the fire station, time would be of the essence. The device would cost "only" $1,000.


The problem is that this well-intended purchase makes no sense to me. In 20 years of practice, my wife has never lost a patient to a heart attack, so I can't see spending $1,000 to avert a one-in-a-zillion chance of death for some stranger. Aged members of our own family do not have a defibrillator, after all, and one of them has actually had a heart attack. The same $1,000, meanwhile, would buy several mammograms for low-income women who couldn't otherwise afford them or might enable Doctors Without Borders to save somebody's life in a bloody region of Africa.

My wife vehemently disagrees with this line of reasoning, but getting in hot water with her brought up an important question that's been nagging at me since the end of December, when we hurriedly scribbled some checks to a few favorite charities in order to beat a tax deadline: What is the best way to spend $1 to make the world a better place?

This turns out to be a complicated question that naturally raises another: why the best way? Doing some good, after all, is vastly better than doing none, and figuring out the very best target is bound to be as costly and unsatisfying as most maximizing behaviors—especially if you're really dealing with a single dollar, a sum best spent on a cup of coffee for a homeless person. But the heated defibrillator debate suggests, to me at least, how much better most of us could do in this department. The money I give with the express intention of doing good, moreover, isn't all mine; by deducting charitable donations from my state and federal income taxes, I'm redirecting some of your money, too.

So, where should you give? Let's review some of the options:


The environment. The problem here is one of scale. Spending a buck to somehow ameliorate global warming, for instance, would seem silly. I once asked Robert N. Stavins, director of the environmental economics program at Harvard, about purchasing carbon offsets to negate my output of greenhouse gases, and he argued that problems like global warming can only be resolved by concerted international action, so anything I could do privately is an exercise in futility, if not self-delusion. I disagree with him on this (see my earlier story on Terrapass and, but unfortunately global warming is probably not the most cost-effective place to put your money (see Copenhagen Consensus below).

Religion. If crowds really have any wisdom, we have to consider putting our dollar in the collection plate. Religious organizations receive something like 60 percent of all the individual giving that occurs in this country, and that's not counting religious schools or faith-based social services. Unfortunately, it's unlikely that these donations do much to help the needy. Churches put most of their charitable receipts into ongoing operations—buildings, salaries, and the like—spending that essentially helps the giver by keeping his church going. "In this sense," writes Rob Reich, a Stanford political scientist who is writing a book on ethics, policy, and philanthropy, "religious groups look less like public charities and more like mutual benefit societies."

Politics. Giving $1 to my favorite political candidate would support Marx's critique of charity: We should be working for a more just society, not merely tossing crumbs to the poor. By replacing the current administration in Washington with more enlightened leadership, the vast resources of the federal government could be leveraged for positive change. My $1 today could lead to better environmental and educational policies in 2008. The problem is that my donation might just exacerbate an electoral spending arms race that benefits no one except consultants and TV stations. Pouring additional money into the system might worsen its corruption.

Education. Schools, particularly universities, are another major beneficiary of individual giving. Should my $1 go there? Unfortunately, there is not a lot of evidence that additional inputs of money will produce additional outputs of learning. Giving to your alma mater, moreover, strikes me as likely to fuel runaway costs, low productivity, and over-investment in gold-plated student centers. In some cases, such as Harvard, adding $1 to an already-bulging endowment in the face of so much global need is ludicrous. If I wanted to spend in this area and had enough money, I'd pay Catholic school tuition to liberate some poor kid stuck in an inner-city public school.


Science. If you have a few million dollars to play with, by all means consider funding some "inducement" prizes for achieving a scientific breakthrough. These prizes are not awards for work someone has already done or might someday do, like the Nobel, but for accomplishing something worthwhile that no one has yet achieved—an AIDS vaccine or practical fusion. A decent prize will attract lots of attention and seduce contestants to invest irrationally in winning. Burt Rutan and his team, for example, spent $20 million to win the $10 million Ansari Prize for privately financed space travel. And this is to say nothing of what the losers spent.

Better yet, you can leverage virtue by establishing prizes worth several times what you can afford to pay. This is because insurers will sell you "hole-in-one" coverage in the presumably remote event that someone wins, and the premium is much less than the prize. The Ansari Prize was covered by just such insurance, which reportedly cost not much more than $1 million and yielded an amazing payback. But of course, $1 is no help here.

Culture. Public radio and the local opera company are worthy causes, but it's hard to pretend donations in this area are altogether charitable, since I and my fellow bourgeois are the main beneficiaries. I could argue that these donations make our society a better, more well-informed place, but I wouldn't want to tell this to a refugee in Sudan.

Global poverty. I know there are plenty of unfortunates right here in America, but as business learned long ago, an awful lot of things can be accomplished for less in India, to cite one example, than in this country. I can eradicate more misery per dollar by far over there than over here. It's clear that if the goal is to buy the most good with the few dollars I have to spend, I'll need to shop where things are cheapest. A useful start might be the Copenhagen Consensus, in which a panel of eight distinguished economists (including three Nobel Prize winners) prioritized the world's needs in terms of bang for the buck. In other words, given that the developed world might spend some billions in aid in the years to come, how could it best spend that money to do the most good? The best bets, the economists said, were battling AIDS, providing micronutrients, liberalizing trade, and combating malaria. Fighting malnutrition, funding various water projects, and lowering the cost of starting a business came next.


Even armed with cash, though, doing good in the Third World isn't easy. Well-meaning European efforts to purchase greenhouse gas reductions in places like Brazil, where it can be done cheaply, have run into trouble. And without understanding local circumstances, your carefully prioritized donation could be doing more harm than good, like the well-intentioned American relief efforts in John Updike's The Coup (which culminate in a lethal bonfire of donated breakfast cereals).

Business as usual. One way around this problem is to take what might be called the Ayn Rand approach, which is to invest the dollar in whatever business seems most promising because capitalism produces the greatest good for the greatest number, and the marketplace rewards those things people need and want most. Thus, a successful investment by definition does the world all kinds of good—and throws off funds for doing more good still. In this day of globalization, that good is increasingly likely to be shared by workers in China and Ecuador and Bangladesh because so many products are manufactured in such places.

As a capitalist, I'm drawn to this approach, but ultimately I can't buy it. Self-interest may be the best philanthropy in the aggregate, but the system leaves behind lots of people—victims of rare diseases, residents of benighted countries—who are either beyond its reach or unable to play along without help. Besides, it's absurd to assume that markets can solve every problem or that no other mechanism (love? duty?) could make the world a better place.

Make like Shylock. Given all this, it seems to me that the best way to spend a little money helping the world's poorest citizens is not to spend the money at all, but to lend it. A variety of nonprofit (read: tax-deductible) organizations, such as Acción International, make small loans—perhaps $100—to individuals in Third World countries who use the money to start or expand tiny, often home-based businesses. This has all kinds of virtues: It's cost-effective, puts small sums to good use, has none of the potential for harm that comes with giant hydroelectric projects and the like, and promotes the only real solution to global poverty, which is economic development. Measuring results is easy: If you get repaid, it's working. Then you can turn around and do it all over again. Interest rates are high by our lights but not by local standards (or in view of the credit risk and labor-intensive loan-making process).

And the default rate isn't so bad. Although the high repayment rates claimed by some micro-lenders invite skepticism, the field is drawing increasing scrutiny as well as capital, which will only make things better. Outfits like Microrate have begun rating micro-lending organizations, and a nonprofit called Unitus is bringing to bear First World capital and business expertise in helping promising micro-lenders grow fast. Micro-lending funds are even cropping up, promising a modest return to their investors—returns I expect will grow over time, in every possible sense of the term.