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There is this idea in some circles that you shouldn't give cash to poor people. Poor people, the reasoning goes, don't always know how to spend money. They may disipate it, wasting it, and then still need money for essentials.

Indeed, this is the reasoning behind many food aid schemes throughout the world, but of governments (e.g. India) and traditional aid organizations.

But is this an efficient means of lifting the poor out of their poverty? What about corruption? Or waste? Does the "overall lot" (defined as you choose) of the poor improve when aid is given as cash assistance, or is it their overall well-being improved by targeted in-kind assistance directed by better informed organizations, like the government?

  • Updated to define "best" as whatever outcomes seem compelling to the answerer. Yes, I've given an answer, but I think other good answers exist. – Affable Geek Aug 12 '13 at 13:51
  • I suspect some use the rationale of preventing welfare recipients from buying harmful items (eg alcohol) with their payments. – Andrew Grimm Aug 13 '13 at 5:01
  • Only comparing 2 means of lifting people out of poverty, you miss the biggest one Capitalism " Initial reforms in decollectivising agriculture and allowing private businesses and foreign investment [...] China's GDP rose from some 150 billion USD to more than 1.6 trillion USD" world bank 1981-2001,[...] population living in poverty in China fell from 53% to just 8% percent." – user1873 Aug 14 '13 at 12:39
  • On the private side, there has been some random control studies, but the results aren't conclusive – user1873 Aug 16 '13 at 6:33
3

In-kind Aid is more efficient, but only by a small amount. The Census compared the number of people raised out of poverty by excluding individual programs, then dividing those numbers by the cost of individual programs gets you the average cost / person raised out of poverty. The average efficiency of In-kind Aid is ($17,000-19,300)/person. The average efficiency of Cash Aid is ($20,000-$21,500)/person.

This is a difficult question for multiple reasons. Poverty has different measures. Absolute Poverty that is used in developing countries and is usually defined is living on less than $X per day ($1.25 is considered extreme, and $2 is considered moderate). Relative Poverty is used in OECD and European Union nations, and is defined as a level of income below some percentage of the median income (60% usually). These definitions lead to your second problem, how do you define in-kind transfers and cash aid transfers?

If you don't measure in-kind transfers based upon their dollar value worth (i.e. the goods have $0 value), then you cannot increase the $X per day that someone is living on nor increase their income. Cash aid transfers on the other hand might be considered gifts if they came from a private individual or as in many instances aren't included as income in official poverty estimates. (i.e. the Earned Income Tax Credit (EITC) and Child Tax Credit in 2011 could result in a $5,751/$3000 respective tax grant for a family with 3 children)

Luckily, the Census Bureau adopted a Supplemental Poverty Measure (SPM) based on research by the National Academy of Sciences to address these weaknesses, the new poverty measure changed the definition of both the thresholds and family resources (pg. 2, pg. 3 table showing differences between Official and Supplemental poverty measures).

The SPM thresholds should represent a dollar amount spent on a basic set of goods that includes food, clothing, shelter, and utilities (FCSU) [...] reflect the needs of different family types and geographic differences in housing costs [...] at the 33rd precentile of the expenditure distribution.

SPM family resources should be defined as the value of cash income from all sources, plus the value of in-kind benefits that are available to buy the basic bundle of goods (FCSU) minus necessary expenses [...] In-kind benefits included nutrition assistances, subsidized housing, and home energy assistance. Necessary expenses that must be subtracted include income taxes, Social Security payroll taxes, childcare and other work related expenses, child support payments to another household, and contributions toward the cost of medical card and health insurance premiums, or medical out-of-pocket costs (MOOP).

Under the SPM definition, there were 49.7 million poor in 2011 (46.6 Official definition), or 16.1% (+/- 0.3%) of the population. Table 5a. (pg. 15) breaks down the effect on the SPM rate by excluding individual elements from the SPM. I have included the calculations for millions of persons in poverty when excluding individual elements (Column 3), the difference from the SPM (Column 4), the cost in millions of $US (Column 5), and the cost per person (Column 6).

    Supplemental Poverty  |  All Poor Persons   | Cost   |Cost/  |
           Measure        | 90% C.I.   Millions |        | Person| Source
   Elements               |(+/- 0.3%)     Diff. |($mil)  |       |
   -----------------------+-------+------+------+--------+-------+--------
   Research SPM           | 16.1% | 49.7 |      |        |
   Social Security        | 24.4% | 75.3 | 25.6 |$724,923|$28,317| OMB-Mandatory Prog
    -Social Security(OASI)| 24.4% | 75.3 | 25.6 |$612,400|$23,921| Census
    -Social Security(OASI)| 24.4% | 75.3 | 25.6 |$595,619|$23,266| OMB-Outlays Indiv.
   Refundable tax credits | 18.9% | 58.3 |  8.6 | $80,828| $9,399| IRS
   SNAP                   | 17.6% | 54.3 |  4.6 | $82,885|$18,018| USDA
   Unemployment Insurance | 17.2% | 53.1 |  3.4 |$117,226|$34,478| OMB-Mandatory Prog
    -UI(Census)           | 17.2% | 53.1 |  3.4 |$132,700|$39,029| Census
    -UI(OMB)              | 17.2% | 53.1 |  3.4 |$118,607|$34,884| OMB-Outlays Indiv.
   SSI                    | 17.2% | 53.1 |  3.4 | $55,885|$16,436| SSA
    -SSI(Census)          | 17.2% | 53.1 |  3.4 | $49,300|$14,500| Census
    -SSI(OMB)             | 17.2% | 53.1 |  3.4 | $49,562|$14,577| OMB-Outlays Indiv.
   Housing Subsidies      | 17.0% | 52.5 |  2.8 | $26,728| $9,545| HUD
    -Housing Sub(Census)  | 17.0% | 52.5 |  2.8 | $59,200|$21,142| Census
    -Housing Sub(OMB)     | 17.0% | 52.5 |  2.8 | $45,869|$16,381| OMB-Outlays Indiv.
   Child Support received*| 16.5% | 50.9 |  1.2 |  $4,159| $3,466| HHS
    -Child Support(prelim)| 16.5% | 50.9 |  1.2 |  $5,700| $4,750-$30,750 | HHS-Pre
   School Lunch           | 16.4% | 50.6 |  0.9 | $17,324|$19,249| USDA
   TANF/General Assistance| 16.4% | 50.6 |  0.9 | $17,285|$19,205| HHS
   WIC                    | 16.2% | 50.0 |  0.3 |  $6,734|$22,447| USDA
   LIHEAP                 | 16.2% | 50.0 |  0.3 |  $4,701|$15,670| HHS
   Workers compensation   | 16.2% | 50.0 |  0.3 | 
   Child support paid     | 16.0% | 49.4 | -0.3 | 
   Federal income tax     | 15.6% | 48.2 | -1.5 | 
   FICA                   | 14.8% | 45.7 | -4.0 | 
   Work expense           | 14.4% | 44.6 | -5.1 | 
   MOOP                   | 12.7% | 39.2 |-10.5 | 
   -----------------------+-------+------+------+

Sources:

-Social Security: Social Security OMB-Table8.4-Outlays for Mandatory and Related Programs(AZ28)

-Social Security, Unemployment, Supplemental Security Income, Housing Assistance: Social Security Census-Table474-Outlays for Payments for Individuals ...(pg. 1)

-Social Security, Unemployment, Supplemental Security Income, Housing Assistance: Social Security OMB-Table11.3-Outlays for Payments for Individuals ...(pg. 252)

-Refundable Tax credits: IRS-Table3.7-All Returns: Tax Liability, Tax, Credits ...(CX10 + CZ10)

-SNAP/Food Stamps: USDA-Budget Summary and Annual Performance Plan(pg. 61 pdf)

-Unemployment Insurance: OMB-Table8.4-Outlays for Mandatory and Related Programs(AZ18)

-Supplemental Security Income: SSA-Supplemental Security Income Program-Table2.3 (pg. 6)

-Housing Assistance: HUD-Budget Authority by Program (Total, TBRA. pg. 75 & Subtotal, Housing Program 78)

-Child Support (enforcement): HHS-Adminstration for Children and Families(pg. 97)

-Child Support (collected): HHS-Office of Child Support Enforcement FY2011 Preliminary

-School Lunch: USDA-Budget Summary and Annual Performance Plan(pg. 61 pdf)

-TANF/General Assistance: HHS-Adminstration for Children and Families(pg. 97)

-WIC: USDA-Budget Summary and Annual Performance Plan(pg. 61 pdf)

-LIHEAP: HHS-Adminstration for Children and Families(pg. 93)

Notes regarding calculations: The Cost ($mil) for "Child Support received" is the cost to the government to enforce Child Support payments. As noted in the HHS-FY2011 preliminary report, the cost of child support enforcement was $5.7 billion (Chart 4), which collected $31.2 billion (Chart 2) in child support. The enforcement costs differ between the HHS-Budget in Brief and the preliminary report, so both calculations are presented. It also might be unfair to not include the "cost" to the person whose wages are garnished, so I have included that as well. Several elements have multiple Cost ($mil) (indicated by an indented dash '-'). This was due to large discrepancies between the Office of Management and Budget, the Census, and the reporting agency. Workers' Compensation was not included in the analysis. Although coverage is mandated in most states, I had difficulty finding good data (except for federal employees, this function is privatized) and didn't feel that this was a targeted anti-poverty program.

Cash Aid - Social Security, Refundable tax credits, Unemployment Insurance, Supplemental Security Income (SSI), Child Support received, TANF/General Assistance

The most efficient of these programs is Refundable tax credits. At a cost of $81 billion in FY2011, they were able to help out 8.6 million people out of poverty, at a cost of about $9,399/person. The least efficient is the Unemployment Insurance, with a $117 billion FY2011 budget, they helped 3.4 million people, at a cost of about ($34,000-$39,000)/person. The average efficiency of Cash Aid is ($20,000-$21,500)/person depending upon using Census/OMB/agency figures. If you include child support enforcement costs only, this becomes about $18,000 (+/- $500), and $22,500 (+/- $500) if you include the child support recovered dollars.

In-kind Aid - SNAP, Housing Subsidies, Women, Infants and Children Program (WIC), Low Income Home Energy Assistance Program (LIHEAP), School Lunch

The most efficient of these programs is Housing Subsidies. With an $27 billion budget in FY2011, they were able to help out 2.8 million people out of poverty, at a cost of about $9,500/person (Note: If you use the Census or OMB measures, LIHEAP is more efficient at about $15,500/person). The least efficient is the Women, Infant and Children Program (WIC), with a $6.7 billion FY2011 budget, they helped 300,000 people, at a cost of about $22,000/person. The average efficiency of In-kind Aid is ($17,000-19,300)/person.

Conclusion

These figures indicate that In-Kind aid is slightly more efficient than Cash Aid when implemented by the government.

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  • "They also indicate that the government is very inefficient" = compared to...? – user1530 Aug 16 '13 at 5:46
  • 98% poverty reduction seems pretty efficient. Even at the over inflated cost of government schooling, it is only about $11k a year. – user1873 Aug 16 '13 at 13:59
  • And this is just my opinion, mind you, but I think the conclusion's first sentence is excellent, as is directly answers the question. The rest of the conclusion reads as editorial to me. – user1530 Aug 16 '13 at 16:22
  • No, I don't disagree with the numbers. One can certainly compare the numbers. I just don't see what that has to do with capitalism and minimum wage proposals. While possibly related, they aren't apples and apples. – user1530 Aug 17 '13 at 0:36
2

Indeed, there is a growing consensus that it would be more efficient to Just Give Money to the Poor and let them decide how best to use it. Doing so increases choice, which allows the poor to figure out how best to improve their own economic well-being best.

Some surprisingly successful expirements show this to be a remarkable efficient, empowering, and corruption-free way to lift people out of poverty, or at least make their lives better. To wit:

  1. The success of the Earned Income Tax Credit in the United States

    Credit took about $60 billion from wealthier Americans and gave it to the working poor. And here's the surprising thing: This redistribution of wealth has been embraced by every president from Ronald Reagan to Barack Obama.

    "This program worked," says Richard Burkhauser, an economist at Cornell University and the American Enterprise Institute. "And there's not a hell of a lot of these programs where you can see the tremendous change in the behavior of people in exactly the way that all of us hoped it would happen."

    When he says it worked, he means it helped single mothers on welfare find work and get out of poverty.

  2. The success of Brazil's Bolsa Familia

    Their experience does not mean Bolsa Família has been a failure. On the contrary. By common consent the conditional cash-transfer programme (CCT) has been a stunning success and is wildly popular. It was expanded in 2003, the year Luiz Inácio Lula da Silva became Brazil's president, and several times since; 12.4m households are now enrolled. Candidates for the presidency (the election is on October 3rd) are competing to say who will expand it more.

    (Note: The article is intentionally one on the limits of its effectiveness, but the point of the article is that overall, while it has fixed many, many problems, it is not a 100% silver bullet)

  3. Mexico's Opportunidad program - here contrasted with Bolsa Familia

    Several factors contribute to Brazil’s astounding feat. But a major part of Brazil’s achievement is due to a single social program that is now transforming how countries all over the world help their poor.

    The program, called Bolsa Familia (Family Grant) in Brazil, goes by different names in different places. In Mexico, where it first began on a national scale and has been equally successful at reducing poverty, it is Oportunidades.

    The World Bank and the Inter-American Development Bank are working with individual governments to spread these programs around the globe, providing technical help and loans. Conditional cash transfer programs are now found in 14 countries in Latin America and some 26 other countries, according to the World Bank.

    The program fights poverty in two ways. One is straightforward: it gives money to the poor. This works. And no, the money tends not to be stolen or diverted to the better-off. Brazil and Mexico have been very successful at including only the poor. In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap.

    The idea’s other purpose — to give children more education and better health — is longer term and harder to measure. But measured it is — Oportunidades is probably the most-studied social program on the planet. The program has an evaluation unit and publishes all data. There have also been hundreds of studies by independent academics. The research indicates that conditional cash transfer programs in Mexico and Brazil do keep people healthier, and keep kids in school.

  4. SEWA Bharat's expirement in India that is proving more successful than the Mahatma Ghandi National Rural Employement Scheme and way more effective than subsidies on rice and propane

    Supporters say that of direct cash benefits - on a conditional or unconditional basis - will allow the flow of money to dent the cycle of poverty and debt, and it will also reduce corruption by cutting down the layers of intermediaries involved in the public distribution system. The study, which started transferring 200 rupees ($4) for adults and 100 rupees ($2) for children, found that beneficiaries primarily spent on schooling, health, food and nutrition, as well as housing and construction.

    Guy Standing, professor of development studies at the School of Oriental and African Studies in London, who led the SEWA-UNICEF study, said that cash transfers had a “capacity of having a transformative effect on local communities, household and individuals” by “unlocking constraints” to development.

    Standing said that this survey, which is more comprehensive than any recently conducted study, found that the majority of people preferred cash transfers to food subsidies. “Those people who have experience of receiving cash actually become more prone to support cash,” he said. “This is important because there aren’t many figures out there on people’s preferences.”

  5. Oxfam, citing its experience in Malawai, has a really good article about why the poor should just get cash too.

    Oxfam’s own programming results prove otherwise. Back in 2005, when Oxfam surveyed cash grant recipients in Malawi (who received them in lieu of food assistance), we found they mainly bought staple foods with the grants. Where they didn’t, the results were interesting. Some bought vegetables rather than cereals (better nutrition). Some bought soap (better hygiene). A few bought tools (livelihoods investments). The bottom line is that they made smart trade-offs with the money, sacrificing some food for other really important goals. - See more at: http://politicsofpoverty.oxfamamerica.org/2013/05/30/giving-cash-to-people-why-the-attention-now/#sthash.ZqE7dtxd.dpuf

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  • 2
    The EIC has about 30% fraudulent claims, "IRS has paid about $30 billion annually to about 20 million EITC recipients. However, the EITC program has long experienced high rates of noncompliance. IRS’s most recent EITC compliance study estimated that between $8.5 billion and $9.9 billion of the EITC claims filed for tax year 1999 should not have been paid." It also noted that about 4 million of that 20 million are helped out of poverty...so 20% all EIC recipients, a third of which are fraud, I hope efficiency isn't your measure of best – user1873 Aug 12 '13 at 13:37
  • I don't understand your second article? "Child labour in cities is different. Children earn money selling trinkets, working as maids and so on, and their earnings are often greater than the modest benefits from Bolsa Família. [...] treat Bolsa Família as magic bullet—in Brazil and beyond. Once a country has a Bolsa Família-type programme, it thinks it has dealt with the problems of poverty. It has not." Isn't Child Labour a better solution to poverty? – user1873 Aug 12 '13 at 14:17
  • -1 - this doesn't show that in-kind is more or less efficient than cash. Merely that a lot of people cheer the fact of cash programs. EITC is especially out of place - it's goal is specifically to ease welfare-to-work transition, not to serve as the substitute for food werewolf. The fact that it was successful on some level doesn't affect the comparison to in-kind. – user4012 Aug 12 '13 at 15:42
  • So, originally, this was "Do economists say that the poor better know how to handle their money better than people in Washington?" :) – Affable Geek Aug 12 '13 at 15:47
  • 3
    Can I suggest, rather than turning this into your standard Skeptics.SE "Let's criticize everything but build nothing" approach, instead, WHY NOT TRY TO ANSWER THIS ON YOUR OWN! – Affable Geek Aug 12 '13 at 15:48
-1

There could exist an argument that it is WORSE to give goods in kind, because how can an outside judge exactly what a person needs compared to the person themselves buying it directly?

And even IF you could pick out exactly the right goods for a person that they need to give them instead of cash, there would be certain overheads involved in the logistics of that selection and delivery. Which would reduce the amount of money available for them, when compared to if they're just been given straight the cash.

However there is obvious downsides to giving cash too. ("oh no, it might be spend on drugs!" That kind of response people could use)

I think maybe the best answer is a compromise between cash and gifts of physical goods, where you give gift cards which gives credit in a range of stores.

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  • An under-appreciated benefit of in-kind goods is that they can be designed to be unpleasant, and such unpleasantness may encourage people to avoid reliance upon them. Unexpected charity can benefit the giver and recipient, but expectations of charity can be highly toxic; making charity be something people won't want to receive if they can avoid it can help temper such toxicity. – supercat Feb 19 '14 at 0:27

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