In recent years, a growing number of people have decided that the smart way to tackle poverty is with cash.
Rather than try to solve these crises and problems, why not just plug the money hole? If people are groaning under medical debt, buy up the debt at pennies on the dollar, as the nonprofit Undue Medical Debt (formerly RIP Medical Debt) does, and then forgive it. If people are stuck in bad neighborhoods or bad jobs because they can’t save up enough for an apartment deposit or a better vehicle, why not give them a chunk of cash? Better yet, why not a universal basic income (UBI) that would provide the security of knowing that, no matter what, some money will be coming into the kitty every month.
Opponents of this strategy retort that, if you pay people simply for breathing, they will stop working and become burdens on the public fisc. Theoretically, though, the opposite could happen: People could use the breathing room to invest in things that help them earn more money — things such as a reliable car, more education or a new business. At least, people might have more money or time to spend on child care or elder care.
This vision of poverty assistance has many virtues: It treats people with money problems as fellow citizens rather than science projects. It empowers them to make their own decisions. And the programs are easy to administer compared with complicated schemes to incentivize personal improvement; all that’s needed is a check.
The trouble is, much recent evidence suggests that giving people cash doesn’t actually solve their problems — at least not in the way it’s intended.
For instance, when economists Raymond Kluender, Neale Mahoney, Francis Wong and Wesley Yin partnered with Undue Medical Debt to study the effect of debt forgiveness on its recipients, they found no improvement in utilization of health care, no relief from financial distress and no improvement in overall mental health. In fact, the most indebted people appeared to become more distressed, not less, after their debt was forgiven. Another group of researchers looked at the effect of unconditionally granting people one-time cash grants of up to $2,000 (two months’ worth of household income, on average) and found that, while the recipients’ consumption increased, they experienced no improvement in their financial health, their psychological well-being, their cognitive capacity or their physical condition.
Meanwhile, in a test of UBI, low-income households were given up to $1,000 a month — a roughly 40 percent income boost — and here, too, the benefits were exceedingly modest. While the recipients’ savings increased somewhat, so did their debt, so that their household worth improved very little. Other measures of financial health such as credit delinquencies, bankruptcies, foreclosures and credit utilization were unchanged, and a temporary increase in self-reported financial health eventually evaporated.
Nor did recipients, as was hoped, use the cash cushion to find better jobs, invest in their own ability to earn, or pursue entrepreneurship. What did increase significantly was their consumption, while their work hours decreased — so that participants ended up earning about $1,500 less per year, net of the transfer, on average. Most of their extra time was spent on leisure, not care work.
When this study was published in July, a valiant effort was made to spin the findings positively. They provide new insight into what people value, economists said, as though a study were needed to reveal that people prefer relaxing and socializing to punching a time card. Anyway, proponents of UBI argued, isn’t it good when people can work less and enjoy more leisure? Everyone loves leisure! Yes, they do, but I doubt this can persuade taxpayers to fund other people’s time off.
Of course, one can always point to the limitations of a single study, and the reasons that more assistance nevertheless might help. Perhaps, paying off medical debt failed to produce measurable benefits because much has already been done to ease that burden (for example, by leaving it out of credit scores). Or perhaps the problem is that people with a lot of medical debt are quite sick, which makes them unhappy and less able to earn the money they need to be financially stable.
Maybe handing people a chunk of cash that is large but still not adequate to cover all their unmet needs only creates new stress — as it forces them to decide which hole to plug in a very leaky boat. And maybe the reason that $1,000 a month didn’t generate more benefit is that people got the money for only a few years. Would permanent payments have longer-term positive effects?
Or did these ideas just not pan out?
Taken together, the new findings are a blow to the just-give-people-cash school of thought. Willing as they are to give the needy a helping hand, Americans would like to know that the money is actually, you know, helping — with something other than a chronic shortage of leisure time.
The problems these programs aim to address are real and worth fixing. But throwing money at them, it seems, isn’t enough.
