What’s the most effective way to help the poor? With benefits-in-kind, such as food vouchers and housing benefits? Or cash? And if we give cash should it be a little bit at a time or a lump sum?
Conventional economic logic says cash transfers are better. Recipients, knowing their own needs better than any central planner, spend the resources in ways that more fully enhance their personal welfare. There are lower administration costs from cash transfers. And lump sums enable recipients to plan ahead.
This isn’t a left-right dividing line in the economics profession. In 1962, Ronald Reagan’s adviser Milton Friedman proposed abolishing all of America’s benefit-in-kind welfare programmes and replacing them with a single basic cash transfer.
Some evidence from the developing world suggests paying families international aid in cash has decent results. In Africa, families have tended to use the lump sums for agricultural investment.
So why don’t we see more of it? The answer is political. Taxpayers and the media don’t like no-strings transfers to the hard-up. The assumption is that it will be squandered. While we don’t like the idea of poor people starving, we also cling to the old categories of the “deserving” and “undeserving” poor.
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