Researchers Find a Remarkable Ripple Effect When You Give Cash to Poor Families | Hacker News Reader

Researchers Find a Remarkable Ripple Effect When You Give Cash to Poor Families

npr.org

61 pointspseudolus30 comments

This just adds to a growing body of research showing how effective cash transfer programs are, especially compared to traditional aid.

It pains me to see people going to stores to buy canned foods or physical things for charities. Because afterwards, people have to spend time to sort the goods, ship it out, and distribute the goods, which are resource intensive activities. And then the final recipient has no say in what they receive either... in many cases the donated items go unused. And even if they are useful, a constant infusion of effectively free goods can distort the local economies.

"And then the final recipient has no say in what they receive either... in many cases the donated items go unused."

I used to work in a food bank warehouse, and yes, sorting the goods was a great deal of effort. We sorted them by 'urgency' and use-by date. Canned food was very helpful, because it lasts between the big giving times - people donate primarily in autumn and christmas, and there is a big defecit during the summer, so having long-lasting things was always a blessing.

The main thing that would help would be standardising the placement and format of use-by dates on products. Some few products have absurd locations for the use-by date, such as inside of the container!

Very, very little food was wasted.

Yes, the recipient didn't have a great deal of choice. However, practically, this simply won't be possible without waste, as you'd have to have enough food to offer a choice, and some wouldn't be picked. However, the packages that we provided people were balanced nutritionally, and we took feedback from them regularly about what worked for them and what didn't. We made sure they got a lot of basic, versatile ingredients, such as onions, pasta, rice etc.

In adittion to this, have a little perspective. People who are relying on these kinds of programmes very rarely complain that they don't have choice, as they are glad to have anything at all. We also try to make sure each person recieves some "interesting" items along with basic ingredients, to allow them to experement, and provide diversity.

Things we always needed more of: Long-life milk, or powdered milk. Fruit juice, especially long-life juice or concentrated juice. Fresh vegetables and onions can be helpful, although if you really do want to help its best to confer with the local volunteers on what they need most at the moment.

Things we had too much of: Tea and coffee. Sometimes we'd get a large donation of fruit from supermarkets, but that was usually solved by effort (banannas that can't be given away made into bananna bread or baby formula, or in the worst-case compost for a community garden)

That last sentence struck me: “banannas that can't be given away made into bananna or baby formula.” This wasn’t in the US, was it?

It was in the UK. Banannas are just an example of a highly time-sensitive item (about a week before they go bad usually)

> In adittion to this, have a little perspective. People who are relying on these kinds of programmes very rarely complain that they don't have choice, as they are glad to have anything at all.

I don't think we should be comparing "donated goods" to "nothing", rather "donated goods" to "cash aid".

If the money used to buy the goods and transport it were issued as cash, could it do more good?

> "The cash transfers were something like 17% of total local income — local GDP,"

So basically they gave entire communities 17% of a years salary and looked at what happened to the community afterwards. My naive reaction is that this would funnel significant amounts of goods from nearby communities to these enriched communities because it was such a huge amount.

These extra goods would let people spend more time enriching it, creating more economic activity here but less in neighboring communities who sold their goods. For example, the mill, it didn't have enough grain to mill before but now they had money to buy grain. Doesn't this mean that some other miller somewhere else in Kenya now has less grain to mill? Or is Kenya importing grain? So to me it seems like this study ignored the externalities by just looking at the effects on the local community and not the entirety.

I don't really buy the argument that more money increased economic activity, then the problem would easily be solved by just printing money. Many countries have tried that and failed.

> Kenya ranks among the world's six most corrupt countries. Bribery and fraud cost Kenya as much as US$1 billion a year. Kenyans pay some 16 bribes a month, for two in every three encounters with public officials

Could it be possible that the improvements they saw in these communities were the result of better ability to bribe officials? That they couldn't get the supplies they were entitled to without spending extra cash?

Source: https://en.wikipedia.org/wiki/Economy_of_Kenya#Challenges

Keynes identified criteria under which printing money does not create runaway inflation.

An excellent example was 2008, when printing $800B did not cause inflation. Printing $1.2T would also not have caused inflation, and would have ended the recession, but the Senate preferred to extend the recession, to blame on Obama, instead.

> Or is Kenya importing grain?

Yes, their grain mill example is strange. But what they imply is yes. Either more is imported, or not exported or created/grown.

A better example is the clients buy a TV, then the benefits like family planning from watching things like soapies come through, which stops the destruction of wealth.

Don't get the printing money link.

Money from outside the country is given which allows them to import things they want or hire unemployed people to to create, who then might import things with their wages.

Rather than giving TV's you allow them to chose, so houses don't end up with two TV's, they might spend the money on schooling or a phone rather than a second TV.

Might be useful to distinguish between cash transfer and printing money. In this case the economic resources are coming from outside Kenya.

>Eighteen months on, the researchers found that, as expected, the families who got the money used it to buy lots more food and other essentials.

>But that was just the beginning.

>"That money goes to local businesses," says Miguel. "They sell more. They generate more revenue. And then eventually that gets passed on into labor earnings for their workers."

>The net effect: Every dollar in cash aid increased total economic activity in the area by $2.60.

Amazing. This is almost like what happens when (poor) families receive a tax cut.

It has long been known that up to a certain point any extra familial income gets spent. Problems occur when the spent money is vacuumed up by mega companies that do not invest into the communities they operate in thereby depriving communities of the cash flow they need to survive.

Companies are sitting on hundreds of billions of dollars in liquid currency. That stagnant money has a massive negative effect on the world. It's not a big deal when a family hoards 10k in cash. But when something like 8% the US GDP languishes in cash that's a whole lot of lost economic movement.

What needs to be learned here is that extractive economic models have created so many of the problems that our cities face. There are real consequences measured in human lives and suffering when people extract labor to become billionaires.

Privatize profits Socialize the consequences.

> What needs to be learned here is that extractive economic models have created so many of the problems that our cities face.

So, what would be an alternative to these economic models that would actually be beneficial to individuals, families and businesses? That would be the real lesson drawn from the education.

As another comment noted in this thread companies privatize profits and socialize externalities.

This should be reversed. I don't want to pay for the stupid lost bets, but everyone should reap the rewards when someone wins big. Investments are risks and investors have found ways to absolve themselves of risk by pushing the consequences onto everyone but themselves.

I started writing a lot more. It was just a disjointed rant. Basically our economic system is a mess that screws most people over. We need to fix this by solving the problems the vulnerable face. Don't like it? Leave society completely. The cost of inclusion is helping your neighbors no matter how much you don't want to.

> Problems occur when the spent money is vacuumed up by mega companies that do not invest into the communities they operate in thereby depriving communities of the cash flow they need to survive.

Feels like this is where government should come in and increases taxes on these corporations/wealthy and funnel money to the lower income. Which will incentivize corporations/wealthy to provide services to get the money from the low income.

> Companies are sitting on hundreds of billions of dollars in liquid currency. That stagnant money has a massive negative effect on the world

Shouldn't we start thinking about taxing wealth? Why tax sales, property (house) and income only?

Some countries do have a wealth tax. But in practice it hasn't worked nearly as well as it should in theory, and a lot of European countries ended up canning their wealth taxes.

The difference between US and "a lot of European countries" is that we have global financial power and they don't. If the US truly wanted to have a wealth tax, we can make it globally binding for US companies/citizens. Meaning you can't offshore it or hide it "legally" in foreign nations because we'd sanction both the individual and the nation. No tax haven or nation can afford to risk being banned from US markets and the international financial system which the US created and controls. But the US is a captive nation controlled by the wealthy, so I won't be holding my breath for a wealth tax.

Even ignoring people offshoring wealth, it's still fairly expensive for the IRS to audit assets for the wealthy, especially things like art (how many expensive paintings do you have and what are they worth now?), private equity (how will series-A startup founders pay their tax?), or intellectual property (how much are Rihanna's songs worth?).

Ultimately I'm skeptical, because there isn't a good model of it working well anywhere else, or even at smaller scales. If the argument is that it only works at the largest scales with 100% buy-in... that's an awfully risky policy.

And among economists it's basically Saez and Zucman vs everyone else, not particularly promising. This is at least the most reasonable position I found, which is that it might work but we shouldn't rely on it to raise as much as we expect: https://www.project-syndicate.org/commentary/elizabeth-warre...

I can support increasingly expensive taxes on vacant and underutilized property. Piles of corporate cash in safe investments should also be taxed to force economic movement. I also support profit, compensation, ownership, and stake value limits that force sell offs early and often in successful companies. I'd also support minimum wages that reflect the cost of living. If a company can't pay a livable wage it should be taxpayer funded or cease to exist. If the costs of living are to high then progressively harsher measures should be taken to rapidly fill demand or shift demand to other cities.

These measures should feel more painful the wealthier one is to spur action, capital utilization, and change for the betterment of all, not for ones vanity or expensive habits.

It is surprising to me at least. I expected (based on newspaper articles and interviews with economists) that when people (bellow a certain social economic threshold) are given Lump sum money via tax breaks or government rebates it is spent on big screen tv, iPads smart phones ... etc which clearly doesn’t stimulate the local economy. I didn’t expect it to be spent on essentials.

It’s a fairly basic premise of macroeconomics that a dollar injected into the economy produces greater than one dollar of net GDP increase. The money multiplier is usually discussed in terms of government spending, or the central bank printing money, but it is true at the consumer level as well, for example, when measuring the economic impact of a tax cut.

And interesting side point is that the multiplier (obviously) is much lower as the savings rate increases, and also if the cash infusion is used mostly to pay down debt, because neither will translate into further spending cycles.

So when confidence is high and interest rates are low, the money multiplier will be at its highest.

Shades of Dickens.

Now all we have to do is to remember this 'very carefully done' study, so that it doesn't have to be repeated in a century.

"We learn from history that we don't learn from history." - Hegel

Trickle-up economics?

Also known as: Supply side vs demand side economics. But essentially yes trickle up.

Yes. The latter works, the former further enriches the rich. Guess which they like better.

It's well known that the trickle-down theory is utter codswallop. The marginal propensity to spend, and spend locally, is higher among the very poor.

But I suppose it's always good to get some quantitative confirmation.

it's actually returning them the money they were robbed by being paid below the value of their work

I don't see how that is possible as most of these people are doing subsistence farming. They eat their economic output themselves, there is nobody to underpay them. On the contrary their main problem is that there isn't some large corporation there to enhance their productivity with heavy machinery and fertilizers in exchange for a fraction of the yields.

The comment is not regards to subsistence farmers using rudimentary methods.

In regards to latter half of your comment. The value is robbed from them by not valuing their efforts fairly in comparison to the value added by the equipment used to scale the operation. Sure you can hyperfocus on the study's cohort but then what's the point of any discussion at all?

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