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I’m a big advocate of cash. Like most of you, I’m pro-people-giving-me-cash, but more generally, I think handing out unrestricted currency, whether in paper or digital form, is an underrated and efficient way to help people.
As we’ve reported on Future Perfect, evaluations of cash programs have shown that they could provide economic stimulants for one of Kenya’s most deprived regions in Kenya as well as aid therapy programs in reducing crime in Liberia and decrease the number of homeless in Vancouver and fight the problem of hunger in areas of food insecurity, and cut down on kid poverty within the US.
Great enthusiasm also comes with immense responsibility, in particular, the responsibility to present research and evidence that challenge my current assumptions, even those that appear to be as simple as acquiring cash is beneficial. Recently, we’ve been marked by the publication of three major studies on cash transfer in the US. These studies showed that cash transfers were … extremely small.
Aiming for additional stimulation for 2020
The two previous studies are from the same group, comprising Michigan’s university of Michigan’s Brian Jacob, Natasha Pilkauskas, Katherine Richard, Luke Shaefer, and Elizabeth Rhodes of OpenResearch Lab, which runs an additional long-term case study. The papers they wrote analyze two distinct cycles of $1,000 cash grants from the nonprofit GiveDirectly that provided the funds in two different rounds to American householders in May of 2020 and in October of the same year. The funds were targeted at the poor, with recipients chosen through a mobile app that assists users in managing their food stamps and SNAP benefits.
After contacting recipients, as well as the non-recipients in a group, control The researchers did not find the difference in the two populations in one of five issues they were most interested in, including financial difficulty, mental health problems, and conflict between partners, children’s behavior issues, and parental issues.
In the study that examined the May 2020 payment, there was a decrease in the burden of material hardship for those with very low incomes specifically as well as some evidence of improvement in mental health. But that’s all it was. In October, there were no positive rays of sunshine — and even within the subgroups, there was no evidence of significant effects.
The third study is from an entirely different group (Harvard’s Ania Jaroszewicz and Jon Jachimowicz and the University of Exeter’s Oliver Hauser and Julian Jamison) and features a slightly different format: their study examined a cash-based payment program that gave 1,374 recipients $500, while 699 people received $2,000 while a third group received none. The average household that received money received $1,028 per month or $12,336 over the course of a year. Just below the poverty line for one person but much lower for families. Similar to the Michigan research, the funds were distributed in a slightly delayed manner after the outbreak began. However, in this case, the transfer was made slowly, starting in July 2020 until May 2021.
(Side notice: the report mentions that the transfer was provided by a national nonprofit organization that is specialized in offering individuals with low incomes unlimited cash transfers. The email sent by Jaroszewicz declared that the person who funded the transfer wanted to remain anonymous. )
The Harvard/Exeter team reached the same conclusion as that of the Michigan team. The researchers discovered no evidence that [cashdid not positively affect the results of our pre-specified surveys at any point in time. They found negative results for the respondents’ medical, financial, psychological, and financial wellbeing, although the authors believe that this could be because of the attrition in their studies, and they are careful to limit their conclusions to the fact that cash had no positive impact instead of proving that cash did harm.
Why didn’t cash help?
Then how did we do? Why couldn’t give low-income Americans upwards of $2,000 result in them having higher financial security, improved mental health, or even feeling more content?
The Harvard/Exeter group suggests an intriguing reason for this: receiving the money reminded recipients they were in a poor state, yet they did little to alter this long-term issue. This resulted in worse well-being and less satisfaction among the recipients. People who received the checks reported having more thoughts about money had more need for money in their lives and were more likely to admit to being anxious about spending the money than those who didn’t receive the funds. This could be due to the fact that the checks are making people more aware of their financial demands, which, in turn, causes them to feel stressed.
Researchers from both teams mention that survey attrition is one possible reason. It was normal for both the recipients and the members of the control group to complete follow-up surveys. It could be that those who did not take the survey did not differ from those who did to the point that it affected outcomes. This is the exact kind of problem that resulted in US elections in 2016 and 2020 that were wildly off.
It’s also true that the year 2020, as many remember, it was a tense year. This isn’t only because of the ongoing epidemic that was not yet cured and accompanied by a severe lack of social interaction, which significantly impacted people’s physical and mental health. Because of unprecedented federal action and policies, low-income Americans also found themselves in a remarkable financial position.
In all three research studies, participants had received stimulus checks totaling $1,200 per adult and $500 for children only a few months earlier. A few of the Harvard/Exeter study participants also received December 2020 checks of 600 dollars each and March 2021 checks that cost $1,400 each. A large portion of the recipients in all three studies could have benefitted from significantly increased benefits for unemployment insurance. UI recipients earned median incomes that were less than the general population, particularly recipients of the Pandemic Unemployment Assistance Program. This program is highly progressive.
It’s possible it could be that an additional one-time payment did not register similarly in the context of more expansive federal interventions — especially the UI benefit, which provided regular cash infusions.
In addition and more importantly, it is also true that the US is a very rich nation! Paradoxically in the context of its circumstances, it was an extremely prosperous location for those with low incomes in 2020. If you are looking to compare the cash transfers provided by GiveDirectly in the US against those too poor sub-Saharan African villages, the huge gap between results in both areas is very significant.
The Harvard/Exeter authors point out that the $2,000 check they examined represented around 16 percent of the average household income of the beneficiary. The landmark research paper from 2016 on GiveDirectly’s program in Kenya included a payment that was equivalent to around two years in household expenses (a figure that’s not that dissimilar to income, especially for poor people who have little money or the ability to access loans in the form of formal loans). A check for $200 percent of income is certainly different from one that is 16 percent! Naturally, the first will have more impact.
We need to study the studies that we require.
We could also be approaching a stage where the returns are decreasing on what we can learn from the research of one-time cash losses, particularly when the outcomes variables of interest are the most frequently used indicators of mental, financial, and physical health.
Programs for cash have been examined extensively. In 2016 The UK-based Overseas Development Institute (ODI) think tank analyzed the evidence base for cash programs that examined the results of 165 different studies. This was just only six years ago, which is why the research base has been growing with the huge variety of basic income programs being conducted around the world, as being one-off cash programs similar to those mentioned above.
There are some conclusions from extensive evidence based on cash. One is that the results of a handful of new research studies should not dramatically alter your opinions about the subject. If just one prior study around the globe examined cash drops like the ones discussed above, a single new study could double the amount of evidence. It’s a huge difference and would require you to change your thinking significantly. The transition from 165 to 166 studies isn’t really a radical shift.
It is also worth asking whether researchers are directing resources on the most pressing concerns regarding cash. The ODI report found that, in general, cash has many positive results in terms of reducing the burden of poverty, creating assets in addition to improving overall health. As outlined in the recent studies, there could be a decrease in returns in countries with large safety nets. However, the evidence that giving money to people reduces poverty is solid.
There are details to this story, such as the moment at which decreasing returns begin to take effect in the first place, which is crucial when it comes to determining whether a particular group is transferring money regardless, such as did happen with GiveDirectly it is possible to be able to conduct a research of the process in conjunction with it.
However, there are a lot of unanswered questions regarding cash that don’t have the amount of evidence to back them. For instance, do people perform better (on many different measures) in the event of large lump sums of money or less frequent monthly payments? What is the best method for payment (check or. mobile application vs. pre-paid debit card) that affects the outcome? Do you know where the money came from, whether it’s from the government, a charitable organization, or a subnational arm of the government? Is important? Are there macroeconomic consequences of a huge cash-based program? I’ve only heard of one major study of randomized design on this question. However, it’s a crucial issue and something that regular random studies aren’t able to answer.
The most important question regarding cash programs is their political economy. If they are, on their merits, generally superior to programs that provide aid in kind (in the forms of food or housing or other forms of aid), Why are they so scarce? Why do politicians not want to pass these programs? Why are programs like the tax credit for children that has been expanded in the US not passed by legislative bodies, while initiatives similar to those of the UK Tories’ attempt to cut the cash benefit in 2012 were successful?
The long-time DC security-net analyst Robert Greenstein has a new study examining certain issues. Greenstein tries to identify the factors that determine whether a federal safety-net program has grown or decreased in the US in the past 40 years. Programs tied to employment and extend to the middle class and the less fortunate do better, as well as those that are federally funded and run by the federal government.
One of the main factors is that growing programs with a high success rate offer benefits in the form of a gift or through tax code instead of straight cash, in the way Greenstein writes. Programs that help the elderly or disabled are an exception to this; however, generally, cash in the form of a check is not a good idea for the survival of a program. Take the example of Aid to Families with Dependent Children, a cash welfare program that shut down in 1997, and the increasing popularity of food stamps as an instance.
Greenstein’s research isn’t the only one to address these issues (see Zachary Liscow at Yale and Abigail Pershing’s latest research that found the popularity of in-kind programs with Americans than cash-based ones.). This area of study is vital to what happens to cash but isn’t as well-equipped in terms of funds as studies that focus on the direct impact of cash on its recipients.
In addition, I’m awestruck by new research that examines cash’s immediate effect. The three studies mentioned above have certainly influenced my thinking. However, for those who are looking for cash programs, they’re just the start, not the conclusion of the route. To advance on the research agenda, it’s necessary to move forward and move from the basics of cash and how it can create cash.