Tim Worstall looks at a recent book on an Indian experiment that investigated how to improve poverty relief programs:
In terms of the Indian experience one of the reasons that these trials worked well was because they were trials. Effort was put into making certain that those who were supposed to be receiving the cash were in fact receiving it. Such care and attention to people getting what they’re supposed to get is not an outstanding feature of the various welfare systems currently in use in India, as the book makes clear. So, just making sure that people were getting those modest amounts that they were supposed to get is going to be an advance. And it wouldn’t be possible to simply roll out such a scheme across the country, however beneficial, without a lot of preparatory work to make sure that the right people really would be getting the money.
It’s also true that the current systems fail badly in other ways. Purchasing grain to ship it around to special shops where it will be sold hugely under the market price is always going to be a leaky system. Some number of the middlemen will be sorely tempted to divert produce to sell onto the market and there’s considerable evidence that some succumb to that temptation. If people simply have money to buy on the standard market in the normal manner then it’s a lot easier to keep a control on that sort of thing.
However, the most important thing for the design of the American welfare system is the points they make about how the poor value being given goods as against being given money. $100 (far in excess of the amounts being discussed here) is worth more than $100 of food for example. Or $100 worth of medical care. There’s two reasons for this. One is simply that everyone values agency. The ability to decide things for oneself. And money does that. It’s possible to decide whether you want to purchase food, or to save a bit and buy a goat next week, or more fertiliser for the fields and so on. What the peasant on the ground would like to do with any increase in resources is most unlikely to accord with what some far away bureaucrat thinks said peasant ought to be doing. So, the choice itself increases value.
[…]
So, we could actually make poor people richer by abolishing food stamps. Assuming, of course, that we just gave them the same amount of money instead. The same would be true of Medicaid and housing vouchers of course. Yes, I’m aware that there are arguments against doing this. But it is still true: converting goods and services in kind into cash would make the poor richer at the same cost to the rest of us. So it is at least something we should consider, no?
And the main reason switching to cash from the current system is … paternalism. Governments really do think that they are better equipped than the recipients of aid in how to spend that money. And it’s quite true that some welfare recipients would blow the payments on booze or drugs or what-have-you, but the majority of peoples’ lives would improve if they got cash rather than food stamps or other in-kind assistance.
