Matt Yglesias echoes my general take on poverty in the developed world
Poor people, by definition, don’t have much money. And lack of money leads to a lot of problems. Oftentimes, these problems are best attacked at the source.
He then repeats the story of a British program in which the homeless were simply asked what they wanted and then those things were bought for them The average cost of their requests was $1277.
Yglesias concludes
lots of people might like $1,277 worth of stuff. I, for example, got a notice in the mail today from the Internal Revenue Service suggesting that I owe approximately that much in back taxes due to some improper filing in the past. So why should that money go to homeless people when I could use it too? Current spending on the homeless is already much higher than that, but it overwhelmingly consists of the in-kind provision of services—shelter beds, addiction treatment, incarceration, frostbite relief—that most of us don’t actually want. From a rationalist perspective we can see that helping people in cheaper but more dignity-respecting ways will ultimately end up with all of us having more money in our pockets. But to get there you need to move past the impulse toward scolding moralizing.
A lot of the intellectual push back I get against redistribution is based on the idea that there are lots of unfair advantages in the world and there is no particular reason to focus on a lack of money. For example, we don’t try to redistribute beauty, athletic talent or height.
Yet, one of the insights of economics is that money is special. Money allows us to direct resources towards our most acute needs. Conversely when people don’t have money acute needs can pinch in really dramatic ways.
There can be enormous gains in human welfare from giving people who are short on cash the means to address the acute needs that they see for themselves.
Will some people abuse this, of course.
The question, however, is does it do more good than harm. We aren’t going to find the program that works perfectly, has no abuse and solves all social ills. We can try to reduce human suffering bit by bit where we find it.
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Wednesday ~ March 9th, 2011 at 3:53 pm
IVV
Would this simply be a further story in support of the position that bailouts should have targeted the bottom 99% with trickle-up effects recapitalizing the banks naturally?
Wednesday ~ March 9th, 2011 at 9:46 pm
OGT
I think there are multiple reasons to possibly favor in-kind benefits over cash. One is on the recipient side having to do with issues like hyper-discounting and agent-principal issues with aid to families with dependent children.
On the ‘giver’ side, I think it’s very revealing that there almost no direct “Money to the Poor’ charities, but are an abundance of in-kind food, medical care and shelter charities. That shows a strong revealed preference for in kind ‘necessity’ benefits. This suggests that there may be a wedge between giver and recipient utliity even in a cash transfer system, money maybe less special than is generally held to be the case by economists.
So it’s quite plausible that benefits will be underprovided due to utility loss on the giver side, making a well defined in-kind benefit program preferrable to pure cash transfers. A second option is something like Bolsa Familia which involves a cash transfer but with sensible, but not overly onerous requirements on the recipient’s part, which can both build trust for the givers and leverage the transfer to improve outcomes for the poor and their children.