Should We All Just Give Cash Directly to the Poor?

Silicon Valley heavyweights like Facebook co-founder Chris Hughes and Google have a new favorite charity: GiveDirectly, an organization that makes direct transfers (via M-Pesa) to poor people in the developing world. From Forbes:

“Instead of building hospitals, why don’t we just give poor people money? Research shows it’s effective,” [Hughes] said. Hughes, who purchased The New Republic magazine in early 2012 and serves as publisher, also joined the board of GiveDirectly.

Backing up Hughes’s point was Jacquelline Fuller, Director of Giving at Google. She told the crowd Thursday night that one of her superiors at Google was extremely skeptical when Fuller first suggested that Google back GiveDirectly. “I was told, ‘You must be smoking crack,’ ” Fuller recalled. But GiveDirectly had exactly what Google wanted: lots of data on how the recipients of cash used it to improve their nutrition, their health and their children’s education. After looking at the data, Google donated $2.5 million to GiveDirectly.

GiveDirectly stems from economist Paul Niehaus‘s research in India, where to limit corruption the government  makes direct cash transfers via mobile phones.  “A typical poor person is poor not because he is irresponsible, but because he was born in Africa,” says Niehaus, adding that GiveDirectly’s transfers have had positive impacts on nutrition, education, land, and livestock — and haven’t increased alcohol consumption.  The charity is also No. 2 on Givewell’s list of recommended charities.

(HT: Marginal Revolution)

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  1. Fabio Akita says:

    I’m very against this idea. It does alleviate immediate problems right away. The main point is “time”. Giving money directly to people is not something new (here in Brazil we have just such a program, called “Bolsa Familia”, you may want to research that). First and foremost in practice it is an effective mean to buy election votes, whether one designed that goal or not.

    Second, it feels “good” because people will indeed use that money to improve their lives. But the bottomline is that they become dependent of that income very fast. Cut it off and they just don’t know what to do.

    I can’t even imagine how life is in Africa and I won’t attempt to assume I understand it, but I will speak on the basis of principles. Giving money away because governments are corrupt is just postponing the inevitable: the country will remain in crisis.

    If any government does indeed have a legitimate will to help its people, than it should invest in infrastructure and help independent entrepreneurs to build the rest. It takes an awful long time, many generations, but this is what can guarantee future growth.

    Giving money away makes the people donating feel good about themselves, it shows short-term “results” and immediately creates a generation of dependent people that can’t survive on their own. Most people don’t like the other approaches because they won’t see big results on their lifetime. But education, better regulated bureaucracy, freedom to trade, investment in making sure people can keep their earnings (police, justice system) are what makes a country strong. Any other approach is volatile and will fade way over time.

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    • Duggo says:

      Undernourished people will become just as dependent on a food distribution program as they would a cash handout.

      Why not let the principles of utility maximization apply in this case?

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      • John K Lunde says:

        When your current and future income is dependent on being/appearing poor, the one thing we can be sure is that most people will want to continue to be/appear poor.

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    • Michael Peters says:

      Who says these are steady, reliable cash payments that would foster dependence? The article didn’t mention it, but what if they were more random? It wouldn’t create dependents because it wouldn’t be a reliable income. But it would inject cash into local economies and let individuals best decide how it would benefit them and their families. It would also limit the influence of corrupt 3rd parties who might touch the money or decide who gets it.

      Not saying this is how they do it, but would be an interesting idea to explore.

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    • Dan says:

      “…where to limit corruption the government makes direct cash transfers…”
      As to your first point – you are exactly correct. Which is why politicians talk about “social justice”, “fairness”, ect… I think most people are willing to help out those in need, but compassion is not provided “at the point of a gun” (i.e. the IRS).

      “When the people find that they can vote themselves money, that will herald the end of the republic.” B. Franklin

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    • John says:

      The article makes it clear that Google thought the idea equally ridiculous until they saw the data on how the recipients were spending the money.

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    • Joby Elliott says:

      So what you’re saying is that generations of other human beings should suffer more to avoid offending your delicate neo-libertarian sensibilities?

      Why are the two options you propose here mutually exclusive?

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    • Ben says:

      This is a universal principle, not just applicable in Africa. This is precisely the reason I’m so against food stamps and entitlement programs in the US.

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    • Enter your name... says:

      i second your thought,give directly makes people dependent instead of making them strong.

      Thumb up 0 Thumb down 2
  2. bob says:

    I prefer the idea of microloans to the poor, the likes of which Kiva offers. Private citizens loan money to people in need around the world, and you get to see how they use the money to improve their lives. They eventually pay back the money, which can be used on another person and so on until you decide you no longer want to loan.

    What I like about this idea is that you get to see how your money is being used, and the recipients know they have to repay the money, so you give them a better sense of responsibility than if you had just given them the money.

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  3. Eek565 says:

    My experience working with homeless Americans is that they do not make good choices with money and tend to repeatedly fall on hard times.

    Hot debate. What do you think? Thumb up 11 Thumb down 10
    • Steve says:

      This is primarily aimed at people in poor countries/regions, where you’re poor because everyone is poor, not because you have a mental illness/drug/alcohol problem.

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  4. Dru Stevenson says:

    I agree with the economic logic, and also think that “giving alms” has the pedigree of history – direct, person-to-person aid is the longest-standing practice for social relief endeavors worldwide.

    In answer to the question “Why not just give directly to the poor?” – in the United States, you probably cannot claim a tax deduction for this type of giving, whereas you can claim a deduction for contributions to a 501(c)3 entity.

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    • Michael Peters says:

      How do you get rich Americans to give millions of dollars person-to-person to people in rural Africa?

      Thumb up 0 Thumb down 1
  5. David G. Johnson says:

    We should try getting back to this in the U.S. as well… we could cut out the “middle man” known as the federal government (and the IRS). It worked for many decades… would be far more efficient!

    Thumb up 6 Thumb down 8
    • Phil Persinger says:

      David–

      In a pure world, your idea would work. But having the poor rely on charity has proven unreliable and inadequate in the past– especially in times of general economic distress.

      You might consider there would always be some sort of middle-man when it came to big-ticket items like hospital care which require a good deal of organization: the Red Cross, Catholic Charities, churches, unions, even unions formed by the poor (shades of community organizing!). Why any of these organizations, or private industry for that matter, would necessarily be more efficient or innovative is debatable in light of the examples of Enron, BP, GM, Chrysler, etc. At least there is a measure of accountability in public programs.

      I think that at a fundamental utilitarian level we have to consider structures like Medicare, Medicaid, Social Security, SNAP, WICS, etc., as social insurance against the kind of unrest we’ve been seeing in Egypt and Syria (and to a lesser extent Greece and Spain). It’s too easy to forget the upheavals the US itself experienced in the 1890s and 1930s– from which reliance on charity did not spare us– which we didn’t have so much in 2008-2010 in part because of these social programs.

      Thumb up 6 Thumb down 2
  6. K says:

    I think we all need helping hand sometimes whether it be from parents , inheritance, in this case, charity.

    I dont see anything wrong with giving sonething for nothing at all.

    Perhaps when basic needs are met it at least raises morale and makes for environment conducive to possibilities.

    I agree other approach(education, etc) is good as well. But giving directly is just as good. Let s unburden ourselves from thinking of whether they d be dependent or not. No one says it will be mandatory. When u give just give with good intention and let the individual make their own decisions.

    I feel this is most beneficial to people who are really ready to be helped. That if with some help they could possibly have transportation money to get to interviews.

    Or this could help a mom who needs money for sick child. Once child is healthy mom
    Can go back to work again.

    If u r against this, u probably have not experienced being hungry or poor. Or you have been poor but have forgotten what it s like.

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  7. no not all says:

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  8. JoKyR says:

    @Fabio, Eek: “A typical poor person is poor not because he is irresponsible, but because he was born in Africa.” Direct, no-strings-attached monetary donations to individuals do not necessarily lead to dependence if they are used to fund growth. And, in Africa, that is what most of this money is being used for. The people that receive these donations tend to make one-time investments in things such as education, business startups, or home renovations (one of the requirements to enter the program is that the recipient live in a mud-floor home) which improve their quality of life in perpetuity.

    This same concept does NOT necessarily work for poor people here in the US. People here tend to be homeless or extremely impoverished due to things like mental illness or addiction. Direct cash donations will not solve those problems.

    There is one sector of the US, however, that could stand to benefit from this philosophy: non-profit corporations, in general. In the US, nonprofits are extremely hamstrung (primarily by antiquated attitudes of private donors and the general public) in what they are allowed to spend money on. Nonprofit activists like Dan Pallotta are making a strong case for why we need to allow nonprofits more flexibility (and less earmarking) in their spending practices.

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