A nugget in the idea of giving poor people money

Sheilla Kennedy has a piece on welfare recipients receiving cash assistance and not actually, as Doug Masson put it, spending it “sinfully or whatever we’re afraid of”.

This reminded me of a story from NPR a few years ago on a similar experiment in Kenya through GiveDirectly, a charity that just straight up hands cash, no strings attached, to poor people. The thinking being, “poor people know what they need, and if you give them money they can buy it”.

But to some veterans of the charity world, giving cash is worrisome. When we first reported on this we spoke with Carol Bellamy, who used to run UNICEF, and who said people might spend the money on things like alcohol or gambling.

To see whether this was actually happening, researchers did an experiment. They surveyed people in Kenya who received money from GiveDirectly, and a similar group of people who didn’t get money.

The results from the study are encouraging, says Johannes Haushofer, an economist at MIT’s Poverty Action Lab who was one of the study’s co-authors.

“We don’t see people spending money on alcohol and tobacco,” he says. “Instead we see them investing in their kids’ education, we see them investing in health care. They buy more and better food.”

People used the money to buy cows and start businesses. Their kids went hungry less often.

Back at UNICEF, they were surprised and “impressed” at the results. Though there are two caveats: people were just as sick as they always were, and school attendance and results didn’t dramatically change. And to add to that: researchers are skeptical this will actually help in the long run. Short term, yes, this sort of thing does do well. Long term, maybe not so much.

This leads me to two philosophical nuggets. The first: how annoying is it that someone from a different culture, background, experience, and place in life would be so inclined to tell other people how to live and what’s best for them, and actually be in a position to influence that?

Before I get to the second philosophical nugget, a brief interlude:

I do not know how to make a million dollars in a year. I theoretically know from a mathematical expression that it would require earning $2,739 a day, or about how much a lot of people make in a month. But I do not currently possess a mechanism for earning that much money in a year. Though I intend to be in my golden years thanks to investments and savings that I hope will someday pay off.

I am, however, keenly aware of how I can earn between $0 a year and $80,000 a year in 2016. On a slightly loftier scale, I know how I could probably earn $100,000 a year within a few years.

Which leads me to this conclusion about myself: I am not yet worth a million dollars. I can hear someone out there opining that my life has more value, how could I possibly put a dollar amount on my existence, and why would I even think such a thing. But the practical side of me plainly recognizes this.

The world is neither better nor worse for having me in it. Most everyone, including myself, are just not that special, and the marketplace agrees accordingly by delivering to you and me the wages we currently earn. I make exactly what I’m capable of, apparently, and while I continue to try and learn and grow and be better, that takes time, energy, and a concerted plan on my part. As we go along, we learn what it takes to earn $20,000, $40,000, and so on per year. Plus, we come to value the effort it took to go from $30,000 to $40,000.

Now back to my aforementioned second philosophical nugget: could it be that giving money to people doesn’t work in the long-term because recipients don’t know what to do with it? That their intentions are entirely incorrect?

I can now hear someone out there groaning because they think I think poor people don’t know what to do with money. That’s not necessarily true, but this does raise logical questions:

  1. How much money should a person receive?
  2. For how long?
  3. Doesn’t it seem logical that some people will just choose to “give up” and live off such a payment?

I say number 3 knowing people, alive today, who do exactly that. You probably do, too. And those people are aggravating. Because you know your money is just being thrown at them in the current hodge-podge of pre-specified “relief buckets” we have today with minimal effect.

And we do have a body of research on what happens when you reward one group with a tremendous windfall: lottery winners. And that frequently fails them, largely because they don’t know how to handle it, it overwhelms them, and in some ways, ruins their life. As the NY Times put it, people “lose their values”.

The advice our grandparents gave us still holds true: remember the value of a dollar, how hard it is to earn it, and be humble. This is the crux of a lot of fiscal conservative thinking: I worked really hard to earn this dollar, and I will gladly pay for the effective, efficient use of a portion of it for things that helped me along the way (schools, clean water, etc.), but I and I alone will decide what to do with the rest. If that means being generous with it (as people should be), by donating it to a church, a nonprofit, or my pet cat, that is my decision. And I am closer to the decision to know the impact and effectiveness of that dollar.

So when I hear ideas about giving cash to people, sure, $30,000 is a far cry from $2 million, but the values stay the same. The root of the problem still exists. The people you’re around are still there. Like operating a needle exchange without ensuring treatment options for drug addicts, nothing really changes in the end, does it? Except maybe some slightly higher or lower polls or statistics in a couple spots.

2 Comments

  1. I think it’s like the difference between adding currency to the economy in a way that stimulates the economy versus doing so in a way that causes inflation. I’m not an economist, but the way I see it, if you have too much currency in circulation, you get inflation. If you have too little, the market is artificially depressed. If you get it circulating at just the right speed, then people can use money like a little battery that stores the value they create for the economy until the person finds something they want to trade that value for.

    Give the loafer $2 million, and you’re causing inflation on a personal level. However, underpay the person who is actually creating value or is able & willing to do so, and you are causing a depression on an individual level.

    Also, assuming that the market accurately values economic contributions and distributes wealth accordingly is an unwarranted assumption. The market rewards leverage. Creating value through hard and smart work are forms of leverage, but certainly not the only kinds; and often not sufficient.

  2. From my related reading on the subject, much of the benefits come from relieving decision making pressure. In a given day, each individual has a certain amount of “strength” to make decisions (sometimes it is also called willpower).

    If you have $80,000 a year to spend, your need to exhaust your supply of willpower or your need to decide is not all that necessary (relatively speaking). Within reason, you can live in a good neighborhood, find transportation, eat food you like, and spend your extra time and energy on things like working out and relaxing.

    For someone who makes below the poverty line, every decision could make or break them. Food or bills? Diapers or a bus pass? Can you have a job and take care of your kids and go to the doctor/grocery/etc? By the time you’ve worried and willed yourself through a normal day, it would be easy to make what some people would consider a bad decision. You worked two jobs for 16 hours and didn’t see your kid, so maybe you spend most of your wages on a pair of Air Jordans for him that Mr $80k wouldn’t think twice about, but you’ll be judged poorly by a self-righteous rich person.

    I think the long term decline in the effectiveness of cash payments probably is just regular standard of living stuff. When I made $49k and knew I was going to make $52k next year, I started spending like I had the $52k now.

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