Why Not Just Give Poor People Money?

Not long ago, a Chinese millionaire decided to invite some homeless people for a fancy free meal, with $300 checks as a post-dessert treat. The operators of the shelter he contacted agreed to supply the guests, but only if he donated the money to the shelter instead.

Some of the guests might use their cash gifts to buy alcohol and drugs, the executive director reportedly said.

The story provoked some sputtering and muttering, as you might imagine. It also gave rise to a New York Times op-ed that teed up an idea that’s been around for awhile. Why not just give the poor cash?

This, in fact, has been done, to a limited extent, in some developing countries. Professor Christopher Blattman, who wrote the op-ed, provides examples, including some trial programs he and colleagues had assessed.

For the most part, recipients used the money to improve their lives. Some extremely poor women who were given $150, plus a few days of business skills training nearly doubled their earnings, invested in some “durable assets” and, on average, tripled their savings.

Even homeless men and drug users in Liberian slums bought themselves some clothes and “ate and lived better.”

In most of the trials, people worked more after they got the grants, though the trials apparently didn’t impose work requirements, as our major cash assistance program does — and SNAP (the food stamp program) for people like at least some of the Liberian slum-dwellers.

Would handing out cash, with no strings attached, work here — and on a large scale? We don’t know. The U.S. projects Blattman mentions required families to set goals and report on progress, make efforts to “build up their human capital,” etc.

What we do know is that private donors, public officials and nonprofits like the New York City shelter are likely to take a dim view of addressing poverty in the simplest, most direct way, i.e., by giving poor people money.

Even one of the projects that linked cash to goal-setting and the like encountered “mistrust from donors and other nonprofits who held hard to the view that poor people can’t make good decisions,” Blattman says.

This is a commonly held view, I think. In some cases, it’s a form of blaming. People are poor because they made bad decisions — didn’t finish high school (or go on to college), had children before they were married, etc.

And how many stories have we read of the extravagant and/or unhealthful things people buy with their food stamps? How many proposals to keep them from using their benefits this way?

We see something of the same view in widely-reported experiments designed to show that poor people make bad decisions through no fault of their own, but because their brains are overloaded with worries about not having enough money. Note the assumption here.

Awhile ago, blogger Matt Bruenig figured that we could cut poverty in half by giving every American about $3,000 a year, which we could each use however we chose.

This was perhaps more a thought-provoker than a serious proposal — a way, as he said, of showing that the obstacle to “dramatic poverty reduction” is politics, not the inherent complexity of devising effective solutions. Nor the cost.

Yet he’s not enthusiastic about simply giving everyone who’s poor enough money to lift them over the poverty line. This, he says, “would probably cause intolerable numbers of people to drop out of the labor market.”

Reihan Salam at the National Review objects to “unconditional income support” — and for somewhat similar reasons. “[I]t might help the most motivated poor people with the strongest social networks to raise their earnings potential,” he says. But it would harm the rest because they wouldn’t engage in gainful employment.

The biggest worry for him, it seems, isn’t what this would do to our economy, but rather that the poor would miss out on the personal benefits work provides.

Brink Lindsey, a “bleeding heart” libertarian whom Salam cites, elaborates on this point at length. “Joblessness,” he says, “means not only lack of income, but also lack of status, lack of identity, and lack of direction. It is the path … to anomie and despair.”

I suppose, in our society, this is generally true, though we can all think of exceptions — just as we can all think of jobs that, if anything, impair one’s sense of personal identity.

What’s interesting to me is that both Salam and Lindsey assume that poor people will make a decision that’s bad for them. They’ll forgo personal fulfillment and chose “anomie and despair” instead.

I doubt that giving no-strings cash to poor people is the solution to poverty. Among other things, it’s unimaginable that we’d give them enough. But, as Blattman says, “why not try” and see what happens?



5 Responses to Why Not Just Give Poor People Money?

  1. nilknarf1940 says:

    We already give the poor an annual lump sum amount in the form of the “earned income tax credit”. How do poor people use this?

  2. Kathryn Baer says:

    As you know, the Earned Income Tax Credit is available only to people with income earned by working. So some of the poorest Americans aren’t eligible. And even those who are get very little if they’re childless. On the other hand, the EITC is not for poor workers only.

    That said, some research tells us that high percents of recipients use their refunds to pay bills, including those past due. Other common uses include buying or repairing cars and purchasing other “durables,” e.g., home appliances, TVs, computers.

    Here is a long, wonkish attempt to answer your question: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2008/ep_2qtr2008_part2_goodman_etal.pdf

  3. nilknarf1940 says:

    my point was that most people receiving EITC don’t just fritter away the money. As you point out they pay bills, etc which are important to stay afloat. Also, persons who are undocumented do not receive EITC since that work under the radar. And my under the current set up we’re not going to get the congress to pass a comprehensive immigration law which then would make them eligible for EITC. Keep up the good work. Your blog is very informative an useful to the discussion.

  4. Kathryn Baer says:

    Thanks for clarifying your comment, Nick—and for the boost. One further point. Some undocumented workers do pay income taxes. That’s why we’ve had the flaps over the money they get from the refundable Child Tax Credit. But, as you say, they’re ineligible for the EITC. So they pay more than other workers with comparable wages, dependents and the like.

  5. nilknarf1940 says:

    yep, right now we here in Texas are trying to keep the kids from being shot by the crazies.

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