The Sunday before last I woke up to a couple of articles in the New York Times Magazine and The Economist. In the first article, the New York Times ethicist was asked a question about Halloween candy: Are dentists who purchase candy from kids (thus protecting their teeth) and donate it to poor families engaging in “thoughtless, unethical and unprofessional” behavior? The Economist article summarized research on cash transfers to the poor, concluding that “Giving money to poor people works surprisingly well. But it cannot deal with the deeper causes of poverty”. In both articles, the fundamental question is how we measure and judge improvements in welfare based on what people consume. But while the ethicist takes the question head on, The Economist does not even get the question right.
To see this, recall that in welfare economics there are two rationales for government interventions to make people better off. First, governments fix market failures. If the market does not produce efficient outcomes, the government can use taxes and subsidies to make things better. Externalities are classic examples. I don’t worry that my pollution makes others worse off and therefore “over pollute”. But the government can tax that pollution to the point where I behave “as if” I care about others.
Second, governments redistribute income by giving cash to the poor. If, in society’s judgment, an alternate distribution of consumption is better, government could achieve that distribution by redistributing “endowments” or cash from one party to another.
Within this framework, giving cash always increases the welfare of the recipients; what we also worry about is the extent to which market failures circumscribe the ability of society to do better.
My main problem with the article in The Economist is that the framing question “Does giving cash to the poor work well?” is meaningless and devoid of substance. The fundamental problem in posing the question this way is that you have to immediately ask: “work well for whom?” Depending on whose preferences we are interested in, maybe the program worked terribly (Oh no! Households did not buy more soap) or maybe it worked superbly (whatever they bought, people given the cash must have wanted to buy that stuff and were therefore better off). Unless we are willing to pre-specify the preferences of poor Kenyan farmers and make very clear that this is what we want them to do with the cash, the question cannot be falsified.
If you are worrying that The Economist’s question takes us back to a situation where those sitting outside poverty and far away from the daily grind of the poor decide what is good for the poor, you should be. And, not surprisingly, it leads to ridiculous conclusions. For instance, The Economist notes that giving cash increases enrollment by (only!) 23%, but cash conditional on enrollment raises it by 41% and therefore concludes that conditional cash is better for raising the human capital of the next generation. That is an error.
Apart from the problem that conditions may get more kids into school, but not make them learn more, what if households spent the money on medicine for a sick parent who can now earn more? What if they spent it on food for their children so they ate better for a while? Or on bed-nets? What about a toy so that their children could have a little fun? Each of these could have raised the human capital of the next generation even more than being sent to a school where children learn little and face the constant fear of physical abuse. To be sure, you may claim that there are particular market failures that make cash a less attractive proposition, but the evidence for such market failures cannot be based on relative comparisons of enrollment changes under different programs. Who decides that an increase in enrollment from additional cash of 41% is “good”? Why not 20%? Why not 80%? If it were 500% and the adults stopped eating, would we be satisfied? And this does not address political economy issues that Shanta raised in his previous blog: Cash can create greater incentive for political accountability around the delivery of quality services.
And (gasp) what if they spent it on a bottle of beer at the end of a 12-hour shift or working in the field so that they could relax? Is that really so bad?
To be clear: The answer “does giving cash work well” is a well-defined question only if you are willing to say that “well” is something that WE, the donors, want to define for families whom we have never met and whose living circumstances we have probably never spent a day, let alone a lifetime, in.
Has our hubris really taken us that far? What happened to respect for the poor?
From there The Economist article degenerates, with “findings” that CCTs “work well” when the conditions are on things that people would not purchase without the conditions (I am serious; cut through the jargon, and that’s what it says). If by now you are tearing your hair out, join the club.
Or you could read the New York Times Ethicist, Chuck Klosterman, whose answer to the candy question is compassionate, ethical, and fine economics. Here is the bit that is required reading:
“It’s not difficult to imagine a similar situation wherein a cardiologist offers to buy tobacco from his at-risk teenage patients, only to donate the cigarettes to a homeless shelter. But even that doesn’t strike me as sinister. Adults have the right to decide what they put into their bodies, even if it’s not to their advantage. A degree of shared knowledge about the consequences must be expected. If someone shopping at the food cupboard sees free Twix bars, he needs to realize that cookies coated in chocolate and caramel are not going to make his (or his children’s) teeth stronger. That’s not a remotely unreasonable expectation, regardless of social class. It would be different if this was the only food available, or if he and his family were forced to eat it — but that’s not what’s happening here. What’s happening is that candy is being made available to people who might not have it otherwise. Medically, you would argue that this is negative. But that’s not the only factor to consider.
If someone is frequenting a food cupboard, it can be assumed he’s not in a position to spend a lot of money on small luxuries; free candy isn’t going to change anyone’s life, but it might make it better for 10 minutes. Obviously, this practice (very slightly) raises the likelihood of people getting cavities and gaining weight and finding themselves at risk of diabetes. Some would insist that society has an ethical responsibility to stop people from harming themselves in any way (and to any degree). I am not one of those people. I think it’s O.K. for the dentists to donate this candy. They should, however, also donate toothbrushes and floss. But they should be doing that anyway.”
That’s exactly right. Health is not welfare, neither is education. So, can we please stop making judgments about what poor people should and should not do with money that is redistributed to them? Look, I understand that donors are worried about people not using the money “responsibly”. But, as my colleague Paul Niehaus, a professor at UC-San Diego, a fine theorist and one of the founders of Give Directly told me, “Substance abuse is a real issue that we shouldn’t trivialize, but it is pretty ironic the number of conversations I have had with development people about the poor and their drinking—over drinks.” This debate caters primarily to the fears of rich donors, all paragons of virtue who top the charts in the world’s leading beer drinkers. If we can stop the waste of resources and brainpower on answering questions that stem from a purely elitist mindset, we can start (again) by asking: What are the market failures, and how do we fix them? Because redistributing cash was one of the two things that governments were supposed to do, fixing market failures was the other. So yes, cash is not a panacea for poverty, and that’s something we have known for a long, long, time. But it also goes a long, long, way.