Should we give the poor money with no strings attached?
It doesn’t seem so real of an idea when a book called ‘Utopia for realists’ wants to give money to the poor, no strings attached. It feels like an ideological decision, fuelled by moral high ground or emotion. Still, I wanted to give it a try.
Now, why was I hesitant to believe that it would actually work? Well, the contrary seems quite natural and logical to me and probably to you too. One of the key understandings of economics is that people have got to have incentives. Without incentives, nothing moves. If someone hard working gets the same benefit as someone who does nothing and gets the money for free, the hardworking one has no reason to work. Also if you start giving free money to poor people, I thought they’d just never work again and would feed off the free money indefinitely. I also thought of it as an inevitable Achilles' heel of welfare states.
The author then started presenting studies.
The British government conducted a study on homeless people. The government was spending as high as 400,000 pounds each year per single homeless person (for police and legal works, social services, etc). Then an aid organization took an experimental measure, they started giving out free money to 13 homeless persons who were on the street for many years. 3,000 pounds to be exact and later it turned out that all of them used the money to better themselves. They took classes, learned new skills, rehabilitated themselves to back to their friends and families, and generally took initiatives to solve their financial problems.
https://www.jrf.org.uk/report/providing-personalised-support-rough-sleepers
I was skeptical. It could be a cultural thing. These homeless people were living in a city beaming with modern facilities. They were used to seeing the good lives passing by all around them. What about the parts of the world where abject poverty is an everyday thing and not a random misfortune?
In rural Kenya, a man was handed out 500 dollars by an aid organization, no questions asked. He used to earn 2 dollars per day and starvation was an everyday company. With the money, he jumped in joy, bought a used motorcycle, and started as a taxi service for his fellow villagers. He was earning 6 to 9 dollars a day.
https://www.nytimes.com/2013/08/18/magazine/is-it-nuts-to-give-to-the-poor-without-strings-attached.html
But this seemed not to be an isolated case among the extreme poor in Africa. The Ugandan government granted about $400 to some 12,000 people (age group 16-35) and they were asked to come up with a business plan. After five years, the total assets were increased by 57% and the earnings of the people who took part in the program by 38%.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2268552
He cited some more studies but I think these will be enough to say that this approach does work. If you’re having a hard time believing this, you’re not alone.
The author made a case that, when you try to decide what the poor want and try to help them with assets or other things that come with a lot of paperwork and strings—such an approach will unlikely make any change.
It is important to note that the studies I mentioned gave poor people the money without forcing them to dance this way or that. In the case of the London study, even though they were not given the money directly, all the spending decisions have been theirs—NOT the decision-makers who think what the poor needed. The poor know best what the poor want. Just because they’re poor, doesn’t mean they have a limited cognitive capacity to improve.
If you go into hard statistics you’d see that through conventional methods only a fraction of the money intended as aid goes to the people who actually need it. The rest goes to many pockets being channeled through many governments and non-governmental aid organizations. And that is, when the money is truly going to the poor—not the money masquerading as an aid to secure a policy from amenable govts.
The problem lies within the system itself. The system (as was I) firmly believes that the poor cannot make sound financial decisions on their own so the system wants to make those decisions for them. Maybe the time calls for a change. Maybe the answer is to facilitate a method to establish universal basic income. We’re living in an era of drastic changes after all.
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Interesting post. Ubi does have a lot of benifits and should in theory help a lot of people. There are always the ones with addiction issues that will never improve but I think that in this country the system is just not fit for purpose.
People working minimum wage can barely survive while people on benifits get everything for free. If there was a basic minimum for everybody that could be topped up witg wages it would be a lot fairer for everybody. It would also cut out a lot of governments departments and save money that way too.
I do think there could be huge improvements to the current system that makes it fairer to everybody and creates a better lifestyle for the people.
I absolutely agree. And in that way, you could incentivize people who are working as well.
I was surprised to know that the US almost passed a UBI system back in Nixon's time. Perhaps the US would be a very different place if that bill had passed and so would be other countries.
Giving with strings isn't really giving.
True, it's also condescending.
Ah, agreed. That word was on the tip of my tongue as I commented, actually.
That is incorrect. As you eluded to yourself. Sound financial decisions are often random. I can mathematically prove that. So rich and poor have equal probability to make or not make them.
The trouble is something that you didn't point out. In all the examples of success that you decribed a lumpsum money was given at once. That is a key fact. If you need a needy 10 bucks as a handout as we often do, that doesn't help. That only contributes to an immediate need which for a lot of poor people in the United States can be food (for better) or drugs (for worse). It doesn't give them enough room to think about betterment.
So yes, we should give the poor money directly. But not in small sum. A substantial amount and all at once.
I see that now and stand corrected. Small handouts usually cannot give enough purchasing power to take life-altering steps.
The author does go into the topic and makes his case for Universal Basic Income. If that can be incorporated all over the world (his ideas for a utopia), that does go according to the lump sum you're talking about.
No it can't be implemented everywhere but it can to implemented on one person. Small wins Amor.