Why Not Just Pay the Poor?

Tina Rosenberg’s opinion piece in the New York Times, “To Beat Back Poverty, Pay the Poor” argues in favor of direct payments to poor people as a strategy for reducing income equality. This is a controversial viewpoint, and many arguments can be made for or against this type of system. Supporters argue that giving the poor direct access to discretionary funds results in less money being lost to corrupt governments and middlemen. Additionally, recipients will be able to use the money to attend to their most pressing needs rather than having aid agency make those decisions for them. Each family’s situation is different, and giving them direct access to money will allow them to better their situation in a way that would be impossible for even the most well-intentioned donor to achieve.

It could be argued that without regulation, much of the aid could be misused. While families in the programs mentioned in Rosenberg’s article must meet minimum standards to receive the stipends, there do not seem to be any requirements outlining the way in which the money should be spent. With no regulation on expenditures, questions arise over whether families use their designated funds in an optimal manner or squander them on more nefarious pursuits. To me, this argument is condescending at best. While there are certainly a small subset of individuals who will abuse the money, their initial level of wealth has nothing to do with their ethics. If anything, a poor family will be more inclined to spend the money on the basics—food, education, shelter—than the average individual.

The one issue I do see with the idea of direct payments is the question of sustainability. Dependency on handouts goes directly against the goals of economic development. If there is no requirement to spend a portion of the allotment on job-training or education, what incentive is there to start building a personal income base rather than rely on automatic payments? Certainly being better off will allow more people to pursue schooling that was otherwise unfeasible, but it is unclear if this gain will be large enough to offset the issue of dependency.

There is no way to accurately determine the potential unforeseen benefits or consequences of a program without actually implementing the program, at least on a trial basis. In a TedTalk, Esther Duflo argues for this type of experimentation to determine a social innovation’s viability. Watch her talk below:

Is this idea of social innovation experimentation feasible? How can we continue to test possible solutions to determine the long-term impact of different policies?

Sources:

http://www.youtube.com/watch?v=0zvrGiPkVcs
http://opinionator.blogs.nytimes.com/2011/01/03/to-beat-back-poverty-pay-the-poor/