The old bromide “whatever goes up must come down” applies as much to markets as to objects tossed in the air, which is to say that while economic downturns may not be wholly predictable, they are absolutely inevitable. That inevitability poses a challenge for philanthropic organizations whose financial resources are in an endowment: when a downturn happens, should they reduce spending to preserve capital for future grantees and beneficiaries, or should they maintain spending to preserve the work of present grantees and beneficiaries?

The onset of COVID-19 has led some observers to up the ante still more. When a big crisis hits, they say, just maintaining spending isn’t enough: philanthropic funders should spend more. In the United States, some backers of this position have even gone to Congress, pushing legislation that would require foundations to double their payout rate for at least the next three years.

The public debate has been largely one-sided, with skeptics of increased payout remaining quiet. This is partly because, while some proponents of giving more have been thoughtful and balanced, others disparage the values and belittle the motives of funders who aren’t taking their advice—jeering sarcastically that they lack “boldness” and cling to “archaic” concepts by mindlessly letting inertia govern their decisions. Such funders, they say, put payout over people and “math over mission” by prioritizing the size of their endowments rather than the needs of dedicated nonprofit organizations and the communities they serve. Thinking one should preserve capital for future needs, we are told, is “a paternalistic, narcissistic notion” held by people who “live in a bubble of privilege wrapped in another bubble of delusion.”

With some trepidation, then, I will try to explain why a funder might credibly think it wiser not to increase payout during an economic downturn, even a severe one. I hope to show that this is so not only because people might reasonably disagree about the right thing to do, but also because there might actually be more than one right thing to do.

Read the full article about foundation payouts during COVID-19 by Larry Kramer at Stanford Social Innovation Review.