The City of
Pittsburgh operates a program similar in some ways—but different in others—to Brazil’s Bolsa Familia program analyzed in the
article “To Beat Back Poverty: Pay the Poor.”
The Pittsburgh
Promise offers $ 40,000 to any child who meets the following criteria
- Graduate from the Pittsburgh Public Schools or one of its charter high schools;
- Be a student in the district and a resident of Pittsburgh continuously since at least the 9th grade;
- Earn a minimum of a 2.5 GPA;
- Maintain a minimum attendance record of 90%;
- Earn admission to any accredited public or private post-secondary school located in Pennsylvania.
In
sharp contrast to BF, the program isn’t means tested. A student’s financial background doesn’t affect
their eligibility. However, the Promise
was conceived within the context of severe racial and socio-economic
achievement gaps among students in the city.
$40,000 is quite an incentive to stay in school and keep the grades
up.
I
would argue that the program would be more efficient in meeting graduation and
dropout goals if it only targeted lower-income students. Or, perhaps someone could create a matrix
that incorporated the numerous variables that cause a student to be more likely
to drop out and target the program based on that criteria. If we could eliminate the set of students who
would graduate anyway (without the $40K incentive,) we could spend less money
and achieve the same increases in graduation rates! Why pay someone to graduate when they will
graduate whether you pay them or not?
Why give anyone of us a scholarship to CMU when we would have come here
anyway?
The
Promise has other goals besides decreasing achievement gaps in the Public
Schools. They want to attract families
with children back into the city and the into city schools. UPMC, the main funder, wants to generate
goodwill and thereby lessen the threat of the city pushing to make the $600
million “retained earnings” per year generating ostensibly non-profit behemoth pay
property taxes on their considerable holdings in the city.
Let’s
pretend that the Promise’s only goal is reducing the socio-economic and racial
achievement gaps, measure by graduation rates and GPA. Spending money on students who already get
high grades and will graduate and go to college regardless if they get $40K is
wasted money! So why pay it?
It
wouldn’t work politically any other way.
Despite ambivalent empirical evidence regarding the validity of the
moral hazard, American political discourse focuses on the moral hazard of
welfare payments. The reasoning goes
like this: if you only offer the Pittsburgh Promise to, say, families under the
poverty line, it gives families who are marginally above the poverty line an
incentive to earn less in order to qualify.
Or, let’s say another criterion is that the student’s GPA has to be less
2.5 in middle school. We have just
created an incentive for students to underachieve in middle school.
Programs
like Medicaid (insurance for the poor,) food stamps, housing subsidies and TANF
(Temporary Aid to Needy Families) cash transfers are more controversial because
they are means-tested and therefore create a moral hazard. They create so-called “government dependence.” In 1996, Bill Clinton and the Republican
congress reformed welfare with the express goal of making poor people less
dependent on government and incenting them to seek, find and hold down a
job.
Social
security and Medicare are much less controversial. Why?
Because every senior is eligible.
Unlike the Pittsburgh Promise, which gives each student the same amount
of money, regardless of their exact GPA, regardless of what school they are
going to, regardless of other scholarships they have been offered, Social
Security and Medicare scale their payments based on how much the individual has
contributed into those programs via their income taxes. This increases these
programs’ brand of fairness.
Is
the Promise inefficient (according to some wooden assumptions about its
goals?) Yes. Would it have even been created if it was a
means-tested program? Probably not, at
least not on such a large scale of $40,000 for every eligible student.
One last note: the (libertarian-leaning) economists who are most likely to emphasize the power of the moral hazard are also in strong agreement that cash transfers are more efficient than in-kind transfers. From a utilitarian point of view, cash transfers enable the greatest good for the greatest number by giving the recipients more choice—I can only spend food stamps on food, but what if my sister can help out with the groceries and need to repair my car instead?
