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.
Suggesting that people living in a mud hut in Uganda can realistically reach a better standard of life simply through working, displays an astonishingly blinkered view of the world. The majority of people there don't have access to resources required to "pull themselves up by their bootstraps".
Economies before were different from economies today. It may be possible that whatever worked naturally when everyone was "living in the mud huts" doesn't work in today's globalized environment. And no, no matter how poor you are, you can't ignore that the rest of the world is much more developed; there's no practical way to isolate your economy until you get on your feet.
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). 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.
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.
> That's why it's important that it's a one-time donation, not a recurring additional paycheck
It can only be a one-time donation if no one ever does this again, so that's basically saying, "it's important that this whole model of charity never becomes so dominant as to give people multiple kicks at different cans of the same type."
The problem with long-term poverty is rarely lack of money as such. It is lack of access to capital (which is a different issue) and most importantly lack of the rule of law (which makes access to both money and capital difficult.)
There are charities that promote the rule of law (Amnesty, World Justice Project) that are more likely to change things in the long run than charities that respond to immediate needs (athough I'm all in favour of people supporting both.)
Yes, but if the program becomes well known and expands in scale, some poor people may think there is a chance they will become grant recipients, and this could affect their work effort.
I do! But it's from the article and it supports the opposite conclusion:
> Longer-term research into anti-poverty interventions is rare, but it exists for cash transfers. 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.
There are multiple ways to give money. The way the US does it in some cases, where earning 5K more in a given year can cost 10K in benefits, does creates a perverse incentive. The way this charity does it, you get 1K and that's it; it does not create perverse incentives.
Consider the following example. In one example, a person receives X a week to help, but the aid rolls back when they get a job, M dollars less of aid for each dollar earned. So a job comes along where they can earn Y dollars for 40 hours of work. We could call M the means testing coefficient or something fancy like that.
Say that M is 1, and Y < X. In this case, they will now spend 40 hours of their week for no immediate benefit. Having a job may lead to possible longer term benefits (say beginning a career where eventually Y > X), but the cost of 40 hours of their life a week for such little possible benefit would make not working the better choice.
If X > Y, but only by a small amount, and M is 1, then they will see some small benefit, but spread over 40 hours it may still not make the job worth it.
And if M > 1 and Y < X, it would actually be harmful to get a job.
On the other hand, say that M was .25. In this case, taking the job would almost always be beneficial, despite the relationship between X and Y.
As for this charity in question, M is 0 (but the aid lasts only for a year). It is the least likely to cause any such harm to getting a job (except for when M is negative, which is to say the more you earn, the more aid you get, which oddly enough happens in some cases of corporate welfare).
Yeah, I saw that conclusion, and I've seen several like it before. :)
The question was my way of suggesting that the comment I was referencing was probably unsubstantiated - while still giving him a chance to come up with data if he happened to have any.
What about monthly over a single year like this startup is doing? As long as you ensure that the receiving family knows it will only last a set duration.
I think that allows families to learn to better manage their money and not blow it on a single large purchase, and also prevents disincentive to stop working entirely.
Again, all of your wild assumptions are covered in the article. If they're only getting one payout, and they're already barely scraping by, they're hardly about to stop working. It helps them get a leg up.
As the article mentioned, some folks would prefer to receive the money in a few payments so that they're less likely to have family members come begging, but some prefer it all at once so they can allocate it to a big project.
