
GiveDirectly Gives Poor People a Year's Income - bcx
http://www.huffingtonpost.com/2015/06/04/givedirectly-cash-transfers_n_7339040.html?
======
tempestn
This sounds great, and I'm certainly interested in following their progress.

I am curious what the effects are on those who don't receive the transfers.
(Those who don't meet the requirements, or live in neighboring towns, for
instance.) While I'm certainly not saying it outweighs the positive effects,
there must be some negative unintended consequences. Someone uses the funds to
start a business, which is enough to make an existing business in the field
unprofitable for instance. I wonder how much research has gone into those
types of side effects.

My understanding is also that direct cash infusions can have undesirable macro
effects - basically Dutch Disease caused by aid money instead of natural
resources. Again I'm curious to what extent those effects are understood.

If anyone has knowledge or links to resources along those lines, please share!
I did find this somewhat more critical review[1] but it still just focuses on
the recipients, rather than knock-on effects.

[1]
[http://www.ssireview.org/blog/entry/givedirectly_not_so_fast](http://www.ssireview.org/blog/entry/givedirectly_not_so_fast)

~~~
MichaelDickens
Lots of research has been done on GiveDirectly's effects. See here:
[http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-
directly#Dothecashtransferscauseproblemsandcomplicationsthatoffsettheirpositiveimpact)

~~~
tempestn
Thanks. From that page, the part that most directly addresses my concerns is
this:

> Do grants distort local markets? It seems possible to us that a large
> infusion of cash into an area could alter economic opportunities for both
> recipients and non-recipients. Such effects could be positive (for example
> by spurring investment and job creation or by increasing the availability of
> retail goods) or negative (for example, by leading primarily to local
> inflation). The limited evidence addressing this issue in the RCT of
> GiveDirectly's program in Rarieda[1] and the broader literature on cash
> transfers points to no distortion. There is an ongoing RCT[2] of
> GiveDirectly's program that is testing for macroeconomic effects.

Not a ton of concrete results as yet, especially for the larger macroeconomic
effects, but at least from that one study the local effects appear to be
minor. Certainly more research would be valuable.

[1]
[http://www.givewell.org/international/technical/programs/cas...](http://www.givewell.org/international/technical/programs/cash-
transfers#Whatarethepotentialdownsidesoftheintervention) [2]
[http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-directly#GE)

~~~
notahacker
The big problem with these studies and local economies is that results are
likely to depend very much on localised factors such as proximity to larger
markets, not to mention what proportion of the village actually receives the
handout, and how much of the existing village economy revolves around people
with more wealth than the handout recipients. I think it's pretty much
impossible to give a definitive yes/no answer.

It's also worth pointing out that the "minor effects" are minor because
they're not statistically significant for the sample rather than because
they're not necessarily there. Haushofer and Shapiro, for example, finds that
whilst recipients spend $36/month more, comparably poor non-recipients in a
village spend $7.5 per month _less_. The sample size and volatility means the
latter part of result isn't statistically significant, but on the other hand
it is more consistent with the effects on the poor that didn't receive
handouts in these particular villages being negative, and indeed if only a
fifth of the village received the subsidy it's even consistent with the
benefits being _entirely_ positional, even though the dispersal of the losses
amongst a larger population makes it difficult to precisely gauge.

------
GFischer
Very interesting, and a stark contrast to the article about the Red Cross
relief:

[https://news.ycombinator.com/item?id=9664983](https://news.ycombinator.com/item?id=9664983)

jbniche points out: "Just think the impact that would have had if it had been
divided up and given directly to each Haitian adult. The adult population of
Haiti is roughly 6 million, so we're talking about almost $100 per adult
Haitian. Roughly, it's about 1/8 of the per capita GDP of Haiti. Imagine what
you could if you were a poor American and received 1/8 of the American per
capita GDP after a disaster (~6000 USD). That's a new roof, or a replacement
vehicle, etc. It's not life changing, but it would have been very significant,
and massive in scale."

[https://news.ycombinator.com/item?id=9666390](https://news.ycombinator.com/item?id=9666390)

and the article supports his point, saying that "A 2013 study in Uganda found
that people who received cash enjoyed a 49 percent earnings boost after two
years, and a 41 percent increase after four years, compared to people who
hadn't gotten a transfer. Another study in Sri Lanka found rates of return
averaging 80 percent after five years. In Uganda, not only were the cash
recipients better off, but their number of hours worked and labor productivity
actually increased."

But for smaller amounts (like the U$ 100 proposed), "One program gave $200 to
at-risk Liberian men who were either homeless or who made their income from
dealing drugs or stealing. The lead researcher, Chris Blattman, summarized the
findings in an op-ed in The New York Times:

"Almost no men wasted [the money]. In the months after they got the cash, most
dressed, ate and lived better. Unlike the Ugandans, however, whose new
businesses kept growing, the Liberian men were back where they started a year
later. Two hundred dollars was not enough to turn them into businessmen. But
it brought them a better life for a while, which is the fundamental goal of
any welfare program. We also tested a counseling program to reduce crime and
violence. It worked a little on its own, but had the largest impact when
combined with cash.""

~~~
nmrm2
Development and emergency response are very different problems. $100 or even
$6000 isn't useful if there's no way to get to the things you need to buy, or
if local scarcity pushes prices for bare necessities obscenely high.
Vaccinations, blankets and tents, food, etc. can be hard to find in a
disaster-stricken area. Heck, even finding a way to get at the money can be
difficult if the roads and electricity are out.

(I'm not defending the Red Cross, but I would unsurprised if "just give them
money" is less effective in the case of disaster relief than in the case of
development.)

~~~
rosser
_I 'm not defending the Red Cross..._

Probably a good thing, because AFAICT, they're pretty much indefensible at
this point.

~~~
pvaldes
I'm not having any problem and not feeling ashamed at all defending the Red
Cross instead.

If you just give poor people any money in Port au Prince after the earthquake,
you simply atract predators that will beat and steal those people living in
the streets easily, collecting all this money in the blink of an eye. Rich
people in Haiti did not seem to care much for the bad luck of the poor people
either.

------
nether
An American architect tried building a school in post-earthquake Haiti. He
struggled for a while with growing cost estimates, finding materials, and
cutting through corruption and bureaucracy. At the end he thought that just
giving them cash would have been better.

> If you could turn back the clock would you just write a check to all the
> parents of the kids who go to that school?

> “Definitely,” Meyers said.

[http://thebillfold.com/2013/05/giving-money-directly-to-
poor...](http://thebillfold.com/2013/05/giving-money-directly-to-poor-people/)

------
javajosh
A detail popped out at me: that they picked people based on the material of
their roof. Organics get money, metal doesn't.

I predict a "fashion" trend in the poor architecture of the region to eschew
better roofs even if you can afford one.

I also think that an editor of a newspaper in Kenya and Uganda should do a
cartoon where a villager uses his GiveDirectly money to buy a better roof, and
then the company takes the money back and accuses the villager of fraud.

~~~
savanaly
What is being done to address the perverse incentive this creates to not
upgrade your roof if you have non-metal?

As economists I know they know this, thanks to the Lucas Critique ;) But I
didn't see what was being done about it.

~~~
nandemo
Change "roof" to "food". Giving money only to people who don't have enough
food to eat isn't a perverse incentive: there's little point in going hungry
to get money; any money you get will be spent on food before anything else.

~~~
TeMPOraL
Not that easy. Roof was picked up probably because it's obvious and
unambiguous - you literally only have to take one look at a house to know
whether or not it's eligible. "Food" is not a well-defined metric, and
whatever particular proxy for "food" you'd use, it seems to me that that proxy
is much easier to manipulate than roof material.

As for perverse incentives, GP is right that as the news spread, people may
save the money they have instead of investing it in a roof in a hope of
getting additional money from GiveDirectly in the near future. That's,
unfortunately, human behaviour 101. So in time, they'll have to change the
criteria they use for distributing grants, and the article hints that they're
thinking about it already.

~~~
nandemo
Uh, that's not what I meant, though I guess my comment wasn't clear enough.

I'm not saying they should change the criteria to food
security/malnutrition/etc. I'm saying that,

1) suppose the criteria was food-related; people wouldn't likely game the
system by voluntarily not getting food because, well, eating is pretty high on
people's list of desires.

(there are food-related metrics like "reported food consumption" and
"malnutrition" that are used to assess the performance of GiveDirectly and
charity/aid/welfare programs in general. They are well-defined, even if
subject to manipulation. In any case, I understand that the roof criteria is
more practical at the enrolment phase)

2) analogously, people aren't likely gaming the system by keeping non-metal
roofs, as having good shelter is also very high on most people's list. In
fact, one of the most common ways recipients spend the grant money is getting
an iron roof.

Also, it's not like having a non-metal roof automatically entitles you to a
grant, as this is isn't a nation-wide government program.

GiveDirectly is considering changing requirements not because they think
they're including too many (relatively) high-income families with non-metal
roofs, but because they might be excluding some people who live in metal-roof
houses but are still poor.

------
brador
@5% average yearly return, Bill Gates + Warren Buffet could do this for 8
million people a year, every year, forever, and not eat a cent into their
initial capital.

For scale: that's the population of Switzerland.

~~~
Beltiras
Gates&Buffet are both very invested in philanthropy and extremely data
oriented. If they were made aware by someone they actually listen to, they
just might do it.

~~~
criley2
8 million is not a lot. There are >7000 million people in the world.

It takes the two richest people to provide for 0.0022% of the people on the
planet.

Too high of a cost for too low of a return. I believe those men think they can
solve more than 0.0022% of a problem with their fortunes.

~~~
brador
Money doesn't vanish into a black hole. It flows.

Those 8 million will no longer have to worry about feeding themselves,
educating their children, paying their rent. They can create. A % will create
businesses to take advantage of the money flow, supporting themselves and
their communities, paying taxes, jobs, export.

Over a single generation you could move from 5% literacy to 95%, for 8 million
families. That's a lot of kids and a lot of creators. Fewer babies next gen
too if history is right.

Those 8 million will essentially have their greatest fears and worries removed
and replaced with joy and freedom. Just imagine the possibilities.

~~~
oldmanjay
>Those 8 million will essentially have their greatest fears and worries
removed and replaced with joy and freedom.

well, for a while. then the money runs out.

------
cbeach
“Aid is just a stop-gap. Commerce—entrepreneurial capitalism—takes more people
out of poverty than aid.” \--Bono

Bono's brave enough to admit this.

Kenyan economist James Shikwati: "for God's sake, stop the aid:".
[http://m.spiegel.de/international/spiegel/a-363663.html#spRe...](http://m.spiegel.de/international/spiegel/a-363663.html#spRedirectedFrom=www&referrrer=https://www.google.co.uk/)

~~~
BigChiefSmokem
Please that's the same bull Ronald Reagan used to spew - That poor people are
poor because they choose to.

~~~
MCRed
No, it's not.

Let me give you an example. In africa there used to be a great many tailors.
This was a profession that was viable and quite respected on the continent
long after the western world had gone to pre-made clothes. In part this was
because the country had not modernized. Then the aid came. The aid came in
many forms, but one of the forms was millions upon millions of T-shirts and
jeans. The entire profession of being a tailor has been eliminated (of course
except for the very rich people.)

I'm not saying africans should be tailors, but pointing out that aid distorts
the market, and distorts the economy and can undermine it if it's not well
thought out.

This is what Bono was saying and this is one of the lessons that GiveDirectly
seems to have learned.

~~~
tomjen3
It is easy to see the taylors who go out of business, it is a lot more
difficult to see the million upon millions of people those millions upon
millions of jeans are now keeping warm.

If we go from aid to commerce the tailors won't come back, but billions upon
billions of consumer items will flood into Africa. As the country gets richer
there is going to be at least a 300 million women who aspire to owning a
washing machine, a generator (or other source of power) and indoor pluming.
Say what you want about capitalism and industrialization, but short of
something like a first contact with the Culture, no other system on the planet
can satisfy those needs. And they deserve to be satisfied.

------
zobzu
I like the transparency that there seems to be around this as it makes me more
likely to donate the money.

It seems to mean that basically they get 9% of donations to cover various
costs. Both non-negligible but also not too bad.

Still would like to know what the "overhead costs" are.

~~~
reagency
When you go to the grocery store, do you interrogate to find out what they
spend overhead costs are, or do you ask if the product is worth the price?

~~~
MCRed
In the case of buying a product you can evaluate the product directly. This is
much harder with charity, so you can look at their financial efficiency to see
if your money is helping people or helping the operators of the "charity" to
get rich.

------
mckoss
Alaska paid residents $1,800 in 2014 under its Permanent Fund program (a
negative tax).

------
kelukelugames
When I get home I'm going to read the article thoroughly and do some digging.
I've heard of organized charities failing miserably but this sounds too good
to be true.

~~~
notahacker
A few points to start you off.

Randomised Controlled Trials aren't at all novel or unusual in international
development, despite what the article says. (though some of the parties
conducting them aren't particularly inclined to share the data, especially the
microfinance guys...)

The survey referenced is here
[http://www.princeton.edu/~joha/publications/Haushofer_Shapir...](http://www.princeton.edu/~joha/publications/Haushofer_Shapiro_Policy_Brief_2013.pdf)

The margin for error in these studies is high. The study notes that their
relative measure of "women's empowerment"[1] for women whose _neighbours_
received money increased by a similar degree to the food security of people
that actually _did_ receive money. Plausible? The only viable causal mechanism
the survey authors and I can think of that leads women who haven't received
any money to be more "empowered" as a result of a few neighbours receiving it
is the spreading of rumours that aid money is linked to people treat their
women (something randomised study authors would really prefer didn't happen.
Subjects trying to second-guess the surveyors' intentions is a _big_ problem)
The only other hypothesis that seems to fit is secular trends or differences
in village behaviour contaminating the study results, despite the best efforts
to control for them. Either way that result is unhelpful, not least because it
puts into perspective the surprisingly small proportionate increase in food
security

Taking the statistics at face value, they strongly suggest the recipients
don't waste the money and don't have it stolen from them, but the non-cherry-
picked stats aren't as spectacular as the article makes out

Ultimately, it shows that households receiving $287 in cash had $278 more in
wealth later on. Their businesses are larger _but generate no more profit than
before_. People receiving a total of $1085 are only $531 better off in assets
and actually have slightly worse returns on the businesses than the people who
received lower handouts[2]

The one thing this wealth does enable people to do is consume more, quite a
lot more ($40 more for people previously spending presumably because they have
less need for savings or debt repayments. Whether this pattern continues
further into the future (and how that affects their income/assets) isn't
studied. Effects on the other villagers' income and wealth appeared negative,
but not to a statistically significant degree.

I'm reasonably convinced that at this end of the scale the cash transfers are
better than the more fashionable approach of _loaning_ the small amounts of
money (with high overheads and commensurately high interest payment burdens on
the recipients) but the study supports the view that its a band-aid rather
than a solution.

[1]which, reading the full text, is actually a measure of reduced domestic
abuse [2]whilst not statistically significant, the result that larger handouts
resulted in a _smaller_ increase in revenue is unhelpful

~~~
reagency
Most people, including startups , will inefficiently spend if they get too
much money in one series of funding. Cash flush can make you rush to purchase.
Better to have a good plan before raising more funds.

Consumption isn't so bad to be worthless. At this level , consumption includes
stuff life increased food for better health , which isn't reported in ROI. And
a slightly silly analogy: Britain's elevate handouts kept many people afloat
but generated one $billion profit enterprise (Harry Potter)

------
abetusk
Does anyone know why there isn't an entry for this organization in
charitywatch.org?

~~~
ceras
I haven't heard of Charity Watch, but GiveDirectly is one of GiveWell's top
recommended charities: [http://www.givewell.org/international/top-
charities/give-dir...](http://www.givewell.org/international/top-
charities/give-directly)

For background, GiveWell is the most prominent charity evaluator in the
effective altruism space, and does much closer inspection of its recommended
charities than anyone else. They're highly data-driven and fully transparent.
They not only vet the charities expenditures, but the core mission itself to
ensure it's a highly effective way at reducing suffering:
[http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-directly)

You can rest assured that GiveDirectly has been well-vetted.

------
alaskamiller
They made a real-time dashboard for a crowd-sourced remittance program.

------
datashovel
90 cents on the dollar is extremely efficient. And from the sound of it all
the studies indicate it's extremely effective as well.

Don't tell FOX News, as I'm sure they'll find a way to give this a negative
spin.

------
rtkwe
It feels odd to call this a startup instead of a charity or non-profit. The
normal goals of a startup vs a charity, which seems a better description for
the things this company/group is doing _, don 't match well to me (edit in
italics: forgot to finish writing this sentence)_. Nothing particularly wrong
with calling it a startup I guess, just strikes me as odd.

This seems to be part of a larger turn towards more data and study driven aid
than was the standard. Hopefully the larger nation state players can get
around to using aid programs to reap longer term improvements vs the current
short term and occasionally overall harmful effects some programs have been
reported to create.

~~~
tghw
"Startup" by its very definition is simply a company in its early phases.
Whether it's a for-profit corporation or a non-profit corporation, the
challenges, at a high level, are largely the same. At a lower level, they vary
just as much between for-profit and non-profit as two for-profits in different
industries vary.

~~~
jaysonelliot
Startups are not just young companies, they're companies focused on rapid
growth.

The challenges of a company built for exponential growth are very different
than, say, a small business, a lifestyle business, or a charity.

~~~
tghw
That's the Valley redefinition of a startup. You don't need rapid growth to be
a startup. "A startup company or startup is a business in the form of a
company, a partnership or temporary organization designed to search for a
repeatable and scalable business model."[0]

Nor do you need to be a for-profit business to seek rapid growth. If we're
going to measure based on "rapid growth", GiveDirectly has been a far more
successful startup than most YC companies.

[0][http://en.wikipedia.org/wiki/Startup_company](http://en.wikipedia.org/wiki/Startup_company)

~~~
vacri
"designed to search for a repeatable and scalable business model" means
"designed for rapid growth".

~~~
tghw
Not at all. There are clear examples of when rapid growth has been neither
repeatable nor scalable and the companies had to fold precisely because they
grew too fast.

Backblaze is a great example of a company that could not have grown any more
rapidly than it did. If they had, they would not have been able to source
enough drives to continue and would have been faced with some difficult
decisions.

Rapid growth is a great goal in some industries. But in others, a long, slow
ramp up is better. That doesn't mean you can't have startups in those
industries.

~~~
cactusface
He said A means B, but you're refuting B means A.

------
mx10
They should give it to them in monthly chunks rather than a yearly lumpsome.
When you're poor it's easy to be financially irresponsible.

~~~
MichaelDickens
GiveDirectly does monthly in some areas and semi-annually in others [1]. They
are also conducting an RCT on allowing recipients to choose their preferred
transfer schedule [2].

[1] [http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-
directly#GrantStructure)

[2] [http://www.givewell.org/international/top-charities/give-
dir...](http://www.givewell.org/international/top-charities/give-
directly#Behavioral)

------
ARothfusz
Given that most startups fail, one could consider the whole startup ecosystem
a form of charity that, hopefully, produces enough wealthy people to keep the
wheels turning. With luck, some of the beneficiaries of GiveDirectly prosper
enough to start their own charity some day. The ultimate Y-combinator
function?

------
Bostonian
A program that gives money to the poor creates a disincentive to get out of
poverty through work. The welfare gain from the poor having more money should
be weighed against the welfare loss of their working and saving less.

~~~
chton
That's why it's important that it's a one-time donation, not a recurring
additional paycheck. If you give 'the poor' an additional paycheck, yes, it
will have an impact on the willingness to work and save. If you give them a
one-time donation, on the other hand, they can use it to improve their lives
in the longer term, without reducing work. That's what the data (as quoted in
the article) shows.

I believe the reasoning for why that should be goes back to the cycle of
poverty
([http://en.wikipedia.org/wiki/Cycle_of_poverty](http://en.wikipedia.org/wiki/Cycle_of_poverty)).
It's harder to make more money if you don't already have more money. By giving
a one-time lump sum, you give people the opportunity to dig themselves out of
that hole. Eating better, dressing better, buying things that last longer,
these all have big impacts on how much one can save and earn. Even getting
some basic education helps enormous amounts. In the end, it might even lead to
people being more willing to work harder and actively save more money.

~~~
scarmig
What's important is that it be an unconditional donation, not that it not be
recurring. Yes, a one-time gift is (usually) not contingent, but you can also
have recurring unconditional income that's not means tested.

Take out the means testing, and you remove the incentive not to work. They can
still work, and, if anything, it lets people get out of the psychological hole
where they have to make decisions that aren't utility-optimizing in the long
term just in order to survive.

