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Hi David, this is a complex question and I agree with you that a lot depends on the circumstances and details.

My understanding is that many cash transfer programs have had measurable positive economic effects, both when they are targeted and when they are offered to an entire community. And there are obviously situations of humanitarian catastrophe, such as a natural disaster or a famine, where direct distribution of aid is the right answer.

My objection to most handout programs is based on the negative psychological effects I experienced time and again while working with development assistance grants in Africa and Asia. The resources we distributed would certainly result in an economic boost, but they also fundamentally changed the way the recipients saw themselves, and the way we saw them. Handouts caused the recipients to view themselves as dependents whose fortunes were subject to the whims of luck and on pleasing donors, rather than on themselves as drivers of their own lives. When repeated enough, this psychological side effect can be devastating not only for the individual recipient, but for the broader community that has come to depend on the handouts.

The dynamics in microfinance loans are much healthier in my experience - especially in a market-oriented community like Zidisha, where borrowers offer their own loan terms and lenders base their lending decisions on the borrowers' own demonstrated performance with past loans. It feels more like a business partnership than a handout.

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