An Obvious Idea in Danger of Working: Giving Poor People Money

Some things are self-evident. If you want money to be spent, give it to somebody who is likely to spend it. For example, when the Congressional Budget Office ranked the most effective stimulus strategies, it named unemployment benefits number one. Pay a jobless person a portion of his old salary, and those dollars are more likely to go back into the economy quickly than if you let a millionaire keep more of her money after taxes.

In an interview with Michael Kinsley, he struck a similar note when I coaxed out of him something like a general unified theory of government activity. His words here:

Gross oversimplification: I favor federal programs that, on average, redistribute money from the rich to the poor, and am against federal programs that redistribute from the poor to the rich, which many do [Ed: especially tax deductions, eg for mortgage interest and employer health insurance].

You want two things from the economy: (1) efficiency/growth/productivity and (2) fairness. In other words, you want to produce as much stuff as possible, and you want that stuff to be spread around as evenly as possible. The government is very good at the second and lousy at the first. So I'm against anything that smacks of industrial policy: ie, anything that is based on the assumption that the government knows better how to run the economy. That would include everything from small business loans to agricultural price supports, to tax credits for automobiles, etc. It would not include money for schools, food stamps, etc. Although even here I always think handing out cash and letting people spend it as they choose would be wiser.

Zoom out from US anti-poverty policy, and consider the international argument for handing out cash to improve foreign economies. The last few decades have seen a proliferation of "cash-transfer programs," which are what they sound like: programs like give cash to families rather than "invest" the money to improve roads and schools. Cash-transfer programs apply a kind of Kinsleyan approach to international development -- hand out cash and let people spend it as they choose. The programs seem to be working, according to Newsweek's Christopher Werth:

Putting cash in the pockets of the poor also directly improves their health and well-being. Brazil's Bolsa Familia, which is now the world's largest cash-transfer program, has cut child malnutrition by 45 percent. Mexico's Oportunidades is credited with adding more meat, fruit, and vegetables to the largely grain-based diet of the country's poor. In South Africa, a study by MIT's Esther Duflo found that cash transfers can reduce the kind of stunted growth in young children that results from inadequate nutrition.

To be sure, there is a "to be sure" paragraph:

Cash-transfer programs are hardly a magic bullet. Giving money to poor mothers may increase school attendance, but it has yet to show it can improve dysfunctional schools or actual learning. Developing countries and international donors will have to find other ways to improve the quality of both health care and education. Obviously, larger economies such as Mexico, Brazil, and South Africa find it much easier to fund cash transfers than many of their poorer counterparts elsewhere across the globe. But what's becoming clear is that developing countries can decide what's best for them, and so can their citizens.


* I don't mean to suggest that Mike agrees with these programs, which he might, or might not. I mean the programs adhere to the philosophy of his quote, which I hope he still agrees with.