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Doing the math

Quite a few people in the replies to Dan Pallotta's talk have noticed that the math shown is somewhat odd from time to time.

So let's discuss this in a seperate conversation rather than in the video thread.

My personal opinion (in this post) is irrelevant, I'll take a possition myself in the debate though but want the starting post to be as neutral as possible.

Because I would like everyone to use the same numbers I've went through the vid and wrote down all numbers he uses on his slides (I made the 'topics' of the slides myself as his slides didn't have any topics):
12% poverty in the USA

Salary in profit vs non-profit organisations:
Stanford MBA (at age 38) = 400.000 $
CEO of a medical charity = 232.658 $
CEO of a hunger charity = 84.028 $

AIDS rides bicycle (over a course of 9 years):
182.000 cyclists raised 581.000.000 $

Charitable giving in USA:
2% GDP (300 billion)

organisations crossing the 50M $ annual revenue barrier since 1970:
144 non-profit
46136 profit

Launch AIDS rides:
50.000 $ (risk capital)
108.000.000 $ after 9 years (and after expenses).

Breast Cancer 3 days:
350.000 $ investment
194.000.000 $ after 5 years (and after expenses).

5% overhead for a bake sale.
40% 'overhead' (or investment in growth) in a company.
(would anyone know what a non-profit organisation spends on average on 'overhead'?)

Current charity balance (where the 2% GDP goes to):
20% of charity goes to Health and Human services. (60Billion $)
80% of charity goes to Religion/Education/Hospitals. (240Billion $)

3% GDP (450Billion or an added 150Billion ontop of the before mentioned 2%).

Topics: charity math

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  • Mar 13 2013: I guess I should give a good example.

    One of the things that struck me as odd is that if you compare the overheads and his own ambition. That there is hardly any difference in eventual money going to 'the cause'.

    As I also wrote in the main post I am not sure which % of regular non-profit organisations leads up as overhead but I'll assume it's 10% (just because I assume that it's more than a 'bake sale').

    However if we take 10% overhead over 2% of GDP. (which is to say we add all overhead of 'old fashioned' non-profit over all non-profit spending)
    We obviously spend 30Billion in overhead on a total of 300Billion.
    So (300 - 30 =) 270Billion goes to 'The cause'.

    Say that if we use 40% of that which leads to an increase of 1% GDP to a grand total of 3% GDP.

    If (in the best case one could think of) we use 40% of the 300Billion in order to get 450Billion.
    We would use (300*0.4 =) 120Billion in overhead to get 450Billion. In this situation (450 - 120 =) 330Billion goes to 'The cause'.

    This is obviously a (330 - 270 =) 60Billion increase but it seems a lot less impressive than the addition of 150billion.

    If we would actually use 40% of the 450Billion (as some people do in their calculations) it would be even more grim as 40% of 450Billion is 180Billion in which case you would even end up on (450 - 180 =) 270Billion which is exactly the same as you had before with just 10% overhead and 2% GDP.

    So what basically happens is that a shitload of people can go into marketing jobs... who would all be funded by people who support a good cause. Which will lead to an maximal increase of (60 / 270 =) 22.222% more money on the cause while expenditure for the whole organisation goes up 50% (2% GDP to 3% GDP)
    • Comment deleted

      • Mar 14 2013: Well ZX Style,

        I'm not so much fiercely against the ideas in this TED talk.

        I do however feel that a major part of it is based on thin air and/or wrong ideas on the economic system (or wrong ideas on marketing).

        There are however also a few points which should make sense to people... for instance that it's insanely stupid to not allow non-profit organisations to make a profit off of certain projects.

        For instance say that a non-profit organisation would teach Africans how to best maintain their land and help them to grow stuff on there. Why not "re-use" that knowledge of those who you thought in order to further your cause?

        Why not say to the "farmer" we will take 20% of everything that our help and knowledge adds on your production for the next 10 years. And we will use that money / those products to help erradicate hunger while teaching more people how to farm.

        Then he has a choice if he wants to parttake in the project and while he does most of the work... you get a 'profit for the cause'.
        This way the organisations who are "better at helping people" will gain revenue through the economic markets.

        Now we go there... help a few... and leave when the money runs out. Which is a rediculous way of thinking.
      • Mar 14 2013: yep that's a lot better concept for 'charity'.
        Although in my view they can keep the 2% and re-invest it in themselves (they could even keep more for a certain time).

        Main concept is though that you can use the markets for good.
        It's why green energy will be abundant in the near future... markets will be able to make a profit (or well they make less loss) by using green energy over certain other types of energy.
    • Mar 18 2013: Well, you forget the idea of exponential growth (edit: sorry for my wrong wording, should be closer to what I mean now): even if the amount spend on the cause in the first year is the same as it is now, it will be bigger in the years to follow. This is mentioned by Pallotta with the example of amazon, which didn't make any profit in the first years.
      I think the only thing that could be problematic lies in the question why is spending on charity stuck at 2%? Palottas answer obviously is because charities do not have the means to grow (i.e. they can't take the money from the competitor, the for-profit-sector). But it also could be that this number won't grow no matter what you do - it could be a constant (under current ethical standards etc.). We can't know unless it is tried - a community-based experiment would be really interesting. I actually doubt that it is a constant.
      • Mar 18 2013: Hello Juliane,

        Thanks for your reply.

        However you have a strange idea of what the term inflation is (don't be discouraged). Because say that inflation is 1% that means that to buy the same thing you bought exactly 1 year ago, you now need 1% more money to buy.
        So if your salary goes up by 1% then you can buy exactly the same stuff you could last year (given that you do not have any savings and spend all the money you make... which I know sounds silly but otherwise the explanation becomes needlessly complicated :D).

        What inflation means is that the total value represented by your amount of money drops as time passes. That is if you have 1000$ now you can buy 1000$ of products now. Then in 1 year from now (given the 1% inflation) the same products would cost 1010$.

        What you probably mean is that (in general) the growth of GDP > inflation. And therefor the value gained by the charities is slightly higher even though it is still 2% of GDP.
        Which is often true. But is not the point I'm making.

        To get to the point I am making:
        You say that "the for-profit sector" is the competitor of the "non-profit sector".
        What I say is that ALL evidence I can see in his talk points to the "non-profit sector" being the competitor of the "non-profit sector".
        Added to that it seems like competition between charities is heavily skewed towards the charity spending most on advertisement (that being almost equal to "Least on helping people!").

        Also the "for-profit sector" is what makes up the GDP.
        So the relationship between the for-profit and the non-profit sector is complex.

        Now Dan does not say ANYTHING about this in his talk... which strikes me as odd.
        • Mar 18 2013: short answer first: I just confused wording - I didn't mean inflation - I meant exponential growth (the concept that growth induces more growth etc.) - I somehow seem to connect that with inflation :S

          for the rest, let me try to sort this a bit: the GDP is the total income of the population (it we put it simple), which can be spent in different ways. thus it can either be spent on non-profit or profit (e.g. you can either buy a coke or donate the same amount of money). in this way profit and non-profit-sector compete. what makes it complex is the fact that the money you donate does not directly contribute to the economy (even though indirectly a lot of charities do).
          and of course he did not talk about this as he does not have any data supporting thesis 1 that non-profit-sector and profit-sector compete. however, there is also no data supporting thesis 2 that more advertisment leads ONLY to competition among charities (I think there already is a minor competition among charities). Both of theses theses are logical and he supports the first. as I said it should examined experimentally. I think he just did not consider this. The data he gives lead neither in the one nor in the other direction.
      • Mar 18 2013: Well the data he gives is that "his charities did awesome" while "spending on charities remained on 2% GDP".
        His conclusion then is "More charities should do what I did".
        While if spending remains at 2% (which he sais it does) it basically means that you must be getting the $ from your competitors.
        Which then means that nobody should do the stuff he did.

        Now I'm not saying which it is.... I'm just saying that it needs to be thought of.
        He can say he's the new messiah of charities... but he won't convince me untill he can show where I'm wrong.

        First things last ;)
        I kinda figured you meant growth of GDP. So I guess I answered that.

        Second point on that though.
        If you buy a coke then that coke had to be produced, if it was produced in your own country then your money actually adds to the GDP of your country.
        Now if you give money to a charity... then it becomes more complex, part of that will also add to GDP as they have to buy stuff themselves. But a lot of money actually gets spend in the countries that need the aid.

        Now ofcourse you only spent your money once... But when you poor it into the GDP then it pretty much only moves within your country.

        Say that you buy a piece of furniture in your home town. The guy who sold you the thing takes a % the country takes part of it as well. Then the guy who made it gets a piece and then eventually whoever made the fabrics used in it gets something (this is usualy in another country).
        So let's say that 60% of the money you spent actually attributes to the GDP (assuming that most products you buy are from your own country).

        Then all these guys get an income... and the economy forms a somewhat closed loop. (the usa is fairly open and I don't really know the %'s.. I'm not some professor in economics or anything).

        But I really do not see how the "non-profit sector" must compete for your money with the "profit sector", as the profit sector means that money is added to the GDP.

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