
To help poor people, give them money - akbarnama
http://crookedtimber.org/2015/06/16/to-help-poor-people-give-them-money-draft-excerpt-from-economics-in-two-lessons
======
ianferrel
The best way to help poor people who make reasonably good decisions is to give
them money.

People who make bad decisions often end up poor. Giving them money will not
help them make better decisions, and may make them worse off.

How you think those two effects interact, and how much you value efficiency of
donation vs. enabling people with poor decision making skills to waste
probably determines where you stand on this issue.

~~~
taurath
Poor decision making skills? I don't think you understand what it is to be
poor. People are more rational than you think - when people experience long
term problems and generally a very inconsistent world (food/money/resources
come by sporadically), they make decisions that help them in the short term,
because to their experience there is unlikely to be a long term.

If someone below the poverty line wins $10,0000 in the lottery they'll buy a
few luxuries, spend a lot of money on short term things for a little while and
then go right back to being poor. If you tell them they'll get $10,000 for the
next 4 years no matter what they do, I'll bet their attitudes change. What
people need to make rational decisions is to be able to develop confidence
that tomorrow will not be another disaster - of course, that is a much more
difficult thing.

As long as we continue this meme that people that are poor have poor character
poverty will be allowed to continue and fester.

~~~
pdeuchler
>>> "they make decisions that help them in the short term, because to their
experience there is unlikely to be a long term."

This is also known as "poor decision making skills". Granted, it's very
understandable in many situations, but let's call a spade a spade

~~~
clavalle
No, it is making decisions based on information you aren't considering.

Poor people are making economic decisions not to come out ahead but to
mitigate their losses. They aren't doing this because they want to, it is
because it is the best decision they can make given their constraints. For
example, they can either sell their time for minimum wage, far less than the
value they create, or they can starve or go homeless. The person they are
selling their time to knows that the alternative to taking the deal on the
table is pain or death -- that the poor person cannot walk away from the
bargaining table without making themselves worse off. So they are free to
ignore the value those people create and, instead, offer the least amount
possible for the poor person to avoid the fate they'd suffer if the walk away
from the deal. In a word, exploitation.

So, the poor person makes a deal that looks terrible to people who have the
luxury of being able to walk away from a potential trade with no loss. People
that must be enticed, that must leave the table with more than they brought,
people who are on an upward spiral, who do not generally have to make a deal
or face loss. People who are used to all parties leaving the table with more
value.

They are, as much as any human can, making the best decisions they can in
their situation.

Are there people that are simply too dumb to figure out what is best for
themselves? Yes, but that number isn't anywhere close to the 45 million people
we have living below the poverty line in the US.

~~~
csentropy
Minimum wage is an artifact of economic folly. If you are voluntarily selling
your labor, it means that you are getting the best value for it. If you could
get more for your labor, you would. If no one else wants your labor, it means
that the price you get is the most for your labor. It does not mean that that
is all you will "ever" get. It just means that is all you can get until you
can figure out a way to be more productive and be paid more for your labor.

~~~
dragonwriter
> If you are voluntarily selling your labor, it means that you are getting the
> best value for it.

If you assume (as do most Econ 101 models) that humans are pure rational
actors in the sense of the rational choice model, which there is considerable
empirical evidence that they are not. And also assume that the market for
purchase of the kind of labor that the subject is selling is perfectly
competitive on the buyer-of-labor side, rather than distorted by monopsony or
oligopsony (which may be more frequently true than the former assumption --
though subtle collusion make it false even when it seems to be true
superficially -- but certainly is not universally true.) [The second condition
is necessary because if it fails, minimum price regulation will _change_ the
best price, since in the absence of competition, the purchaser of labor can do
so at artificially depressed prices.]

~~~
clavalle
Perfectly rational actors are not strictly necessary. Often it is enough to
assume people will act in their own best interest as best they can in
aggregate more often than not.

~~~
dragonwriter
Perfectly rational actors are necessary for the claim that was made. The kind
of aggregate best-effort utility maximization you offer is not sufficient for
the blanket universal claim made upthread, which requires that every (not the
average) voluntary labor exchange is inherently for optimal (not best-effort
given the laborers current information) value.

~~~
clavalle
Which is the more reasonable assumption, then: that people will choose an
option that will leave them worse off or better off assuming viable and known
alternatives?

Is it not worth asking why they would choose less for themselves? And, if so,
doesn't the act of asking why suggest that we assume there must be an
explanation that makes sense? Or do we assume that one out of eight human
beings are simply not as rational as the rest of us?

I don't know. I wouldn't let the requirement for perfection completely
override the reasonable. The alternative is that there is an underclass of
irrational human beings. I think we'd be living in a much different world if
that were the case.

~~~
JoeAltmaier
Absolutely folks are not rational. The entire existence of the 'payday loan'
industry proves that.

Rationality is also subjective. What you'd do, with your safety net and well-
off family and house with no mortgage, is entirely different from what someone
one check from homelessness may choose to do. And it may look irrational.

~~~
clavalle
>Absolutely folks are not rational. The entire existence of the 'payday loan'
industry proves that.

Not necessarily. It can also mean that there are fates worse than dealing with
usury. Car break down that you need for your job and you need $1200 bucks and
you have $27 that's supposed to pay for your groceries for the next week? A
payday loan starts to look like a very good option considering the
consequences of not taking that deal.

>Rationality is also subjective. What you'd do, with your safety net and well-
off family and house with no mortgage, is entirely different from what someone
one check from homelessness may choose to do. And it may look irrational.

Which is my point. Even though what that person that is one short paycheck
from homeless does may look irrational, it likely is not considering the
information they have and the choices available to them. When someone is
making decisions with what amounts to a gun to their head, those decisions are
going to look irrational to those that don't consider the gun.

Many people see the decisions the poor make and say "Oh, well I would have
just negotiated based on my value to the business rather than settling for
minimum wage." Which is a good response and perfectly valid if you can walk
away from a deal with no negative repercussions. But the poor are negotiating
with a gun to their head. They either have to take the deal or go hungry or
homeless or not pay for their medication or what have you. Their decision is
rational when all of the information is taken into account. It just looks
irrational to people who generally don't have to deal with negative utility
when they walk away from a given deal.

As a society I think we should strive to minimize how many of these life and
death or pain on the line financial decisions people have to make. I'd like to
see us strive for a nation where no one is negotiating for their life. I'd
like everyone to have the freedom to walk away from a deal that doesn't create
value for them. Simple as that. It will be better for everyone because it
removes value destroying distortions.

------
PythonicAlpha
The income of people has diverted more and more in the last decades.

It is a fact, that countries really flourished (USA, Germany, other countries)
with a bigger part of the society in the middle class and having a better
living and education, when those countries managed to bring better income also
to working-class people.

Today's wealth in the US is for a big part because of the flourishing middle-
class of the country shortly after the 2nd World-war. The same holds for
Germany and other countries.

Today, all over the world, the income diverts and education already is going
down for normal people in many countries. Middle classes are melting away.

Wealth of a society is not only to be measured by the wealthiest people in the
society, but by the wealth of the middle class (and worker) people.

Today, we waste the wealth created after the war and give it away to the <1%
of people.

Everybody should see this film: _Inequality for All_ [1] that shows, the
connections, that many are just ignoring today.

To my opinion, to help poor people, raise wages of workers in all the world
(thus making an end with a Globalization that just helps the rich).

By raising the wages, you will not have people that just live on welfare, but
that can be proud again for their work they do.

[1]
[http://www.imdb.com/title/tt2215151/](http://www.imdb.com/title/tt2215151/)

~~~
peterfirefly
> The income of people has diverted more and more in the last decades.

diverged.

(In the hope that it helps another non-native speaker.)

------
alejohausner
I think a lot of folks here are missing the big question: charity involves an
exchange. When you give to the poor, you get something back.

It's subtle:

The issue is not about eliminating poverty. It's about how to motivate rich
people to part with their money. After all, aid to the poor comes from taxes,
and the rich pay more taxes. So any kind of welfare has to give the donors of
the money something in exchange for their donation. But the poor have nothing
to trade for what they receive. Right?

Wrong.

The poor have their dignity. That's what they trade for donations. Every
scheme for wealth distribution is informed by that fact. Rich people give
money, and poor people abase themselves in exchange. That's why every welfare
scheme always involves humiliation.

That's why government housing for the poor looks different from ordinary
houses: so the poor will stand out, so they can be shamed.

That's why poor people have to endure long lineups at the welfare office: so
they can be reminded that they are less worthy of decent consideration.

That's why poor people have to endure invasion of their most private aspects
of their lives, through visits by social workers: so they can be reminded that
they don't deserve privacy.

And that's why the rich don't like giving out cash: because cash is anonymous,
and enables dignity, equality, and privacy.

As long as this implicit bargain (money in exchange for dignity) goes
unexamined, the cruelty of the social welfare system will seem mysterious.

------
thedevil
This article seems naive, at best.

Time after time, when I've helped family members with cash, it winds up
getting wasted horribly and helping them less than it hurt me to give it to
them. When I help them with what they need, their situation improves.

And logically, if the poor as a group were good with money, they wouldn't be
poor.

Yet the article asks me to abandon reason and experience because there's some
"a growing body of evidence" somewhere out there which are not provided by the
article.

~~~
blacksmith_tb
Just as logical as saying that if the wheelchair-bound were better at walking,
they wouldn't be in wheelchairs. Poor people are often living anxiously one
emergency from total bankruptcy, eating cheap, non-nutritious foods, living in
uncomfortable or dangerous housing, etc. They'd need to be more than just good
with money, they'd need to be brilliant.

~~~
zo1
This doesn't make sense. I pay a quarter (or more) of my total income so that
government can take care of these individuals. Food, basic nutrition, basic
safety, etc.

This should be a solved problem.

~~~
alejohausner
Most government spending benefits the middle class, not the poor. Roads for
your car, schools for your kids, basic research for your devices, police to
keep poor people from stealing your stuff, subsidies to keep your company
profitable: the typical taxpayer gets a lot of benefit from taxes.

------
walsh-cloonagh
It is possible to save a life for $3,340 by donating to the Against Malaria
Foundation [1].

Helping desperately poor people is a surely virtuous thing to do and helping
them efficiently by giving them money via GiveDirectly, as suggested in this
article and the linked 2003 NYT article, is all the better.

But, right now there are worse things to be than desperately poor: like being
a kid in Africa who dies of malaria for want of a malaria net.

Given the poor state of medicine and public health in places where people are
dying for want of a few thousand dollars, optimizing poverty relief programs
seems premature.

And for what it's worth the people you'll save are also desperately poor.

[1] [http://www.givewell.org/international/top-
charities/AMF#Cost...](http://www.givewell.org/international/top-
charities/AMF#Costperlifesaved)

~~~
Mikeb85
Malaria generally kills only the young and weak. It's like the flu over here.
The problem is malnutrition. Hence why a large amount of mosquito nets are
never used to sleep under, but rather as fishing nets.

I know people who have had malaria (family that lives in a tropical 3rd world
country). All survived.

Giving out mosquito nets to conquer malaria makes as much sense as giving out
medical masks to conquer the flu. The answer of course is to be in good
health, and to have access to medicine.

But we don't live with malaria, so feel-good gestures are as far as we go.

~~~
JoeAltmaier
Confused: you can't 'have had' malaria, its a lifetime affliction isn't it?

~~~
zo1
You can get re-infected. As far as I know, it doesn't stay dormant in your
body (like say Herpes). But I'm not a doctor, just had it a few mild times as
a kid.

~~~
JupiterMoon
> it doesn't stay dormant in your body

Yes it does.

> just had it a few mild times as a kid.

Nope you have it. When you are in poor general health it will probably
resurface. Good luck.

------
pdeuchler
Giving money to the poor merely elevates those who received the money over a
new generation of "poor" and does nothing to actually stop the systems that
create poverty in the first place. If you would like to actually reduce the
net amount of "poor people", instead of simply creating a revolving door for
individuals, you give money to the middle class.

Or, phrased differently: Give a man a fish and he eats for a day. Teach a man
to fish and he feeds himself _and_ his family while selling the excess for
discretionary income :)

~~~
mangeletti
+1, and if some of that discretionary income is saved, he can lease it out for
rent (make loans). This trend can continue for generations until the snowball
effect is such that majority of the world's wealth has been accumulated by
about .001% of the population; but then, people will start talking about
things like transfer payments[1] and basic income, etc.

1\.
[https://en.wikipedia.org/wiki/Transfer_payment](https://en.wikipedia.org/wiki/Transfer_payment)

~~~
pdeuchler
I get what you're saying, but you are also ignoring my point about bolstering
the middle class.

A large and healthy middle class not only precludes unhealthy amounts of
poverty (please keep in mind there will always be a "bottom 16%" [aka falling
below < -1σ] no matter the level of wealth) but also precludes large
concentrations of wealth by the upper class.

 _EDIT_ : replied before you finished your edit, I see we're actually in
agreement. Carry on...

------
kaa2102
Conservatives, progressives, and libertarians call it different things. Basic
income, negative tax rate, social safety net, etc. Milton Friedman advocated
for a negative effective tax rate for low income folks. Rand Paul recommended
not taxing (Federally) folks who make less than $50k USD.

We also need to consider micro and macro-economics. Folks with less money have
a high marginal propensity to consume or likelihood of spending most or all of
the extra funds they receive. Also, consumer spending is a factor of economic
output or GDP. Increasing consumer spending increases economic output. Q.E.D.
Give people with no money enough money to not fall through the cracks.

~~~
vezzy-fnord
Negative income tax is certainly a very interesting idea, but it is virtually
unheard of as a position in any mainstream U.S. political compass.

It's generally considered that you either want to expand the current, highly
convoluted system, or that you loathe welfare entirely as a matter of
principle.

~~~
rrss1122
I think tax credits already accomplish this to a degree. The poor are more
likely to have children, and they can already claim those children for tax
credit, for example.

~~~
joshuapants
It seems that you only get $1000 tax credit per child. That probably eases the
burden on people who are going to have children in the first place, but is
still net negative and doesn't do anything for people who aren't going to have
children.

------
gesman
When some people ask money to buy the food and you give them food - they are
quite often disappointed and turn away.

When some people ask money and you give them some money - they are quite often
disappointed because you are not giving them enough.

~~~
alexnking
This is like a company saying "I know employees need food, but instead of
giving you money, you'll be compensated in hamburgers".

I'm tired of this stereotypical judgement that poor people are so bad with
money that we'd be better off generously making purchasing decisions for them.

------
mangeletti
This works in small experiments because when you give money to a small group
of poor people (A) within a larger group of poor people (B), group A gains
leverage compared to their prior position and compared to group B.

When you give money to all poor people, the net result is simply inflation[1].
If transfer payments were made to taper up from max(wealth) (receives $0) to
min(wealth) (receives $average(wealth)), disparity would be brought to 0,
which would naturally lead to everybody doing what they wanted rather than
what earned them income. This would be a lot of fun, but it would
unfortunately reduce the developmental value of humans to zero[2], and
machines would evolve to replace us all (could be gray goo, could be the borg,
etc.).

The true path to freedom from work is to work collaboratively on a humanoid
robot with some basic rules for human interaction: 1) A robot may not injure a
human being or, through inaction, allow a human being to come to harm. 2) A
robot must obey orders given it by human beings except where such orders would
conflict with the First Law. 3) A robot must protect its own existence as long
as such protection does not conflict with the First or Second Law. Those
should suffice for a while, but I know not what will come of them down the
line.

That's all for now :) Have a great weekend, everyone!

1\.
[http://www.physicsclassroom.com/class/newtlaws/Lesson-4/Newt...](http://www.physicsclassroom.com/class/newtlaws/Lesson-4/Newton-
s-Third-Law)

2\.
[http://econlog.econlib.org/archives/2011/05/robots_of_the_f....](http://econlog.econlib.org/archives/2011/05/robots_of_the_f.html)

~~~
dragonwriter
> When you give money to all poor people, the net result is simply inflation

Obviously, redistributive tax + BI schemes that result in some group having
more money than previously increases demand and market clearing prices for
goods disproportionately demanded by that group (and does the reverse for
goods disproportionately demanded by the people who are net payers.)

So, clearly, the increase in effective buying power _won 't_ be as much as the
increase in income compared to the pre-policy price levels would indicate.

But that _isn 't_ sufficient to make the case that BI won't mitigate poverty,
however. Just that the _degree_ of mitigation will be less than the most naïve
analysis conceivable might suggest.

(Also, the link to Newton's third law to support this position was amusing.)

~~~
dllthomas
Moreover, there are a number of agricultural products where we're already
keeping the price artificially high. Shifting demand toward these shouldn't
see any increase in price for a while.

------
Shivetya
Have to chastise you for one example, giving them money so they can buy a cell
phone? Why? To be further in debt with monthly fees? There are programs for
poor people to get a limited cell plan for free and government offices keyed
to assisting the poor do direct them there.

I would never give them cash. While you certainly cited all sorts of needs;
this is not hard and runs along the lines of "for the children, no one is
against children are they?" it doesn't solve the problem.

There are two categories than need help and both can be helped the same way.
First are the truly poor, they just cannot get past Go. Second are those whose
decisions are making or keeping them poor. This usually involves getting tied
in revolving credit, auto loans, lottery, and monthlies. Catastrophic causes
that lead to the poor house need to be treated wholly separately; medical and
death.

So give them money the same way food stamps are administered. They are
provided an allowance for specific expenditures. This cannot be converted to
cash. No system is too complex to implement, the government already manages
thousands of assistance programs and sends out tens if not hundreds of
millions of checks for such each month.

Basically the idea is to create purchasing groups which have similar expenses.
Within these an amount is contributed monthly upto a maximum held for paying
such expenses at approved retailers, service providers, etc. This covers the
need side as well as hopefully teaches management of funds.

Cash cannot be tracked, it can also be easily stolen, meaning its near
impossible to verify it used as intended nor determining if the assistance is
the proper type.

~~~
roel_v
"Have to chastise you for one example, giving them money so they can buy a
cell phone? Why? To be further in debt with monthly fees?"

I feel what you're saying, but in 2015, one _needs_ a phone to get (and
usually to hold) a job. Especially low-wage jobs. E.g. a temp agency might
start calling at 7h30 because they're looking for someone to fill in. Don't
pick up your phone? We'll just give the job to someone else, oh and we won't
call tomorrow, because you don't pick up anyway.

~~~
analog31
Anecdote: I meet quite a few people from lower income levels in my side job as
a musician. Once, we were chatting about our cell phone plans, and I cracked a
lame joke, like "the cell phone will truly liberate the homeless."

One of the other musicians said, in all seriousness: "Hey, my cell phone is my
lifeline when I'm homeless." Another guy chipped in: "Me too."

It used to be cited that lack of a mailing address was a real impediment to
the homeless getting back into a normal economic life, and the cell phone may
play a similar role today.

