Economic theory teaches that people make choices that provide them with the greatest benefit. So why not extend this idea to the realm of charity? Economists and social entrepreneurs Michael Faye and Paul Niehaus of GiveDirectly argue that giving people cash with no strings attached is the most cost-effective means of helping the poorest people in the world and their communities.
Watch this podcast episode on YouTube:
This week's guests:
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Additional ideas and people mentioned in this podcast episode:
Nina Munk on Poverty, Development, and the Idealist. EconTalk. Jeffrey Sachs on the Millennium Villages Project. EconTalk. Abhijit Banerjee on Poverty and Poor Economics. EconTalk. Vernon Smith on Markets and Experimental Economics. EconTalk. Valerie Ramey on Stimulus and Multipliers. EconTalk. Scott Sumner on Monetary Policy. EconTalk. Ed Leamer on the State of Econometrics. EconTalk. David Autor on Trade, China, and U.S. Labor Markets. EconTalk.A few more readings and background resources:
Milton Friedman on Capitalism and Freedom. EconTalk.A few more EconTalk podcast episodes:
Daniel Sumner on the Political Economy of Agriculture. EconTalk. Dani Rodrik on Globalization, Development, and Employment. EconTalk. Michael Munger on the Basic Income Guarantee. EconTalk.* As an Amazon Associate, Econlib earns from qualifying purchases.
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| 0:37 | Intro. [Recording date: October 27, 2021.] Russ Roberts: Today is October 27th, 2021 and my guests are economists and social entrepreneurs, Michael Faye and Paul Niehaus. Together with Rohit Wanchoo and Jeremy Shapiro, they founded GiveDirectly, an organization that gives cash to desperately poor people. Michael is the President of GiveDirectly now and Paul, who is also a Professor of Economics at UC San Diego, is the Chair of the GiveDirectly Board. Michael and Paul, welcome to EconTalk. Michael Faye: Thanks, Russ. Paul Niehaus: Thanks, Russ. |
| 1:10 | Russ Roberts: Now, our topic today is the use of cash transfers--giving away money with few or any strings as a way to fight poverty. Michael, why don't you start and tell us how GiveDirectly got started--when that was and what's been the approximate arc of your organization. Michael Faye: Yeah, so we started GiveDirectly in 2009, a bit more than a decade ago. All four of us were in graduate school, studying economics, and at a time that was particularly relevant in the field of poverty eradication. It was a time when we started applying the techniques from other fields and specifically A/B testing, randomized control trials, to understand what worked and what didn't work in poverty eradication. And, one of the lessons from that literature was that a lot of the things we had hoped was working was not. And, this simple idea--intuitive to some, counterintuitive to many--of simply giving people money to make them less poor worked surprisingly well. We were grad students. We had some stipend. We talked a bit about where we should be giving our own money, and of course, people would ask us where they should be giving theirs, and decided giving directly was something that we wanted to do. We reached out to a number of organizations, looked for places that we were able to move money directly to other people, and weren't able to find it. And it wasn't because other people weren't doing cash. There were certainly governments doing cash; at times, there were others. But, as an individual donor that option didn't exist. And that really was the genesis of cash. The other thing happening at that time, which I should say, is the innovation of mobile money. Prior to that period, very few people--certainly in the emerging market--were connected to the digital financial system. They didn't have bank accounts. They really had no access to the global financial grid. The introduction of mobile money with M-Pesa that began in Kenya changed all of that. Everybody essentially had a bank in their pockets. Meaning, that we could now reach many more people than before. Russ Roberts: And, Paul, do you want to say anything about this startup of the organization? Add to that? Paul Niehaus: The early days? Russ Roberts: Yeah. Paul Niehaus: I think that's the essence of the story. I mean, I think there was this evolution from it being a very bootstrap thing where friends and family were putting in some money, to the usual progression of: then you figure out, 'Hey, we can do this.' It's actually working to the point where you're willing to open it up to the public and get a sense of what the response is. To: sort of really having a clear vision that actually there's a need for something like this in this space, strategically, and starting to think about the scale that it could reach. So, the growth from there: we had some sense and we started out friends and family. Today, last year, GiveDirectly during the pandemic moved over $300 million to people living in extreme poverty. It's one of the fastest growth trajectories for an organization in this space. And, so, we see it as being on that trajectory, being one of the big international NGOs [non-government organizations] with this unique specialization in cash transfers to people living in extreme poverty. But, I think we also see it as symbolic and as trying to provoke some thinking for other people in this sector as well. Russ Roberts: And, that $300 million that was spent, I know you try very hard to minimize overhead most of that cash. I mean, maybe that's what they actually received, but most of the cash that you have on hand, you try to put it directly into people's hands. So, one of the challenges, of course, of past efforts of development is that donated money often ended up elsewhere. It didn't go into the hands of the people we were trying to help. It often ended up in the hands of corrupt leaders or dictators, thugs in the poorest countries. So, you could amplify that point about the giving directly part of your mission, but also tell us where your recipients are and how you actually give it away. Paul Niehaus: Yeah. So, how does this intermediation work and why is it important, right? So, corruption is an issue that's near and dear to me. That's what a lot of what I do, my day job, my research on, is corruption in large public sector programs. And, I think that for public aid that has been a big issue. But, actually for a donor like you or me who is thinking about a gift to a charity: I think that's less the issue. And, the issue is more all the layers of decision-making and operations and subcontracting and so forth that a dollar goes through before it actually gets to something--some good or service that's provided to somebody living in extreme poverty. And, so, it can actually be very difficult to map out. I think we've had this experience of looking at some big charities and saying, 'Hey, if I give a dollar, like, not just what's the impact going to be, but literally, what will happen to that dollar?' And, it's just very difficult to trace out. And, so, I think with GiveDirectly, we wanted to make that very easy to understand. That's always been one of the goals. So, what will happen with GiveDirectly is that dollar will go into GiveDirectly's bank account, and then it will go into a mobile money wallet that GiveDirectly owns somewhere in Sub-Saharan Africa, let's say in Kenya. And, from there, we're going to transfer it into the mobile money wallet of a recipient. And, the recipient is going to be somebody that we found--because our team went out door-to-door through communities, low-income communities and signed people up for the program and said, 'Hey, would you like to receive these transfers? And, if so, then you need to get signed up for mobile money.' So, when they get the transfer into their mobile money wallet, they're going to get a text message that says, 'Hey, you've received a transfer from GiveDirectly.' And, in theory, they could use the money in their wallet and spend it as digital money, but in practice what most people are going to do is they're going to go to an agent nearby and withdraw it as paper money. And, that agent is typically going to be a shopkeeper, maybe in their village, probably in a nearby town. And so, they're going to go withdraw the money and they're are going to spend it, whatever they want to do. So, those are really all the links in the chain and there's not a lot of discretionary decision-making or sort of people thinking about capital allocation or program design. And, I think it's that bit of the disintermediation that's really the essential thing, more so than corruption in this case. Russ Roberts: And, you're using the word 'disintermediation,' which is a fancy econ word--maybe one of the ugliest pieces of economic jargon that's ever been invented. But, if I understand it correctly, you're kind of skipping through the layers of bureaucracy or other middlemen kind of stuff and giving it directly to the person. Is that right? Paul Niehaus: I thought of it as startup jargon, but yeah, that's right. Russ Roberts: Okay, great. I think it's financial jargon. Maybe it's not econ jargon. Paul Niehaus: Maybe, yeah. Russ Roberts: Michael, do you want to say something about the underlying idea of giving people cash versus the other development anti-poverty efforts that the international community has tried to do in the past? Michael Faye: Yeah. I think Paul hit it a bit at the end. I think this notion that money disappears in corrupt dictators or thugs is not an uncommon one, but often where the money is going is much more innocuous. And, just to give you two examples of why the question of how much money that we start with winds up in the hands of the recipient is such a hard question for the sector and to answer. And, one that we actually don't have an answer for as a sector, if you asked how much that we start with it, literally ends up in the hands. And three pieces of that, I think, make it particularly challenging. One is what gets reported often as operating expenses in this space. So, if I'm an organization--if I'm GiveDirectly--and I take a dollar from you, Russ or let's say I take $100 and I give $99 to a friend of mine, who's running another organization in Kenya; and he takes $98 of those dollars and gives it to another friend who's running another organization; and so on and so forth. We all look essentially like we're being 99% efficient, when in fact all we're each doing is pocketing a dollar in the chain. And, that makes it very hard to trace, beginning to end. In GiveDirectly, we do exactly that. And, on average--depends on the program, obviously--we get about 90% of the money that you donate into the hands of the recipient. There are places where it's much higher, like in the United States where it's closer to 98% or 99%, and places where it's harder and it might be closer 80%. But, that 20% or 10%, whatever our spending[?] is, is it's everything. It's not some meaningless accounting metric of overhead. It's everything spent--foreign exchange fees, payment fees, salaries, offices, so on and so forth. And, that's really the relevant metric here. |
| 9:51 | Russ Roberts: But, the salaries that we're talking about or might be the people on the ground who are helping to identify who the potential recipients are, right? And--versus the older model where we're going to build a dam or we're going to build a power plant and somebody's uncle is the contractor for that plant, so it's really expensive. And, so, the bang for the buck is much smaller than the original plan might have gone and then, so on. Here, in theory, giving cash should always be relatively efficient compared to more complex things. At least, getting money into the people's hands. It may not be as effective. It's a different question of what the overall impact of giving cash is versus say some programmatic intervention. Anything you else you want to add to that? Did you want to say something about corruption? Paul Niehaus: Not as yet. Michael Faye: Can I answer that one quickly, Russ? Russ Roberts: Sure. Michael Faye: You're exactly right. Cash is simpler, operationally, than a lot of things and more scalable operationally--which we can talk about. At the same time, I think it can often be trivialized. People will say, 'Well, cash just trivial.' And, it's not just trivial. Of course, we need staff. Of course, we need an independent audit team to ensure we're not being defrauded. And, we're constantly making innovations on the technical side, on the operational side, and so on. So it is certainly simpler, but it is not trivial. And, what it does is it takes the decision making, which can often be quite costly--we pay lots of consultants and have lots of meetings to talk about what is the best thing we can do for the poor. You're getting rid of all of that thinking cost, and the cost just becomes the delivery- and doing-cost. And, we've essentially outsourced the thinking. We're paying the recipients to do the thinking for what they need and what's best for them. Russ Roberts: Yeah. I'm a big fan of that part of the experience, as I'm sure listeners would expect. When people ask me for money on the street, I give them cash. I don't give them food. I let them decide what they want to buy. And, when my friends tell me, 'But, aren't you worried they're going to waste it on drugs and alcohol?' I always answer, 'Well, if I were really, if I were homeless or had lots of problems, I might want some drugs and alcohol. And I don't judge that other person. I treat them like a human being, not like a child.' I am not a paternalist, ever--almost, except with my children, and now, they're all over 18, and 20s, and I'm not even good at that. But, one of the things that I think, that I love about what you're doing--and we've had other episodes on this, in this context with Chris Blattman and others--you're saying: the person who we're trying to help has a really good idea of what they need. And, for us to judge what we think they need or what we think might be better for them--first of all, we have imperfect information. But, I think there's also a respect issue there, which is what I'm alluding to. Although I'd also make a distinction between giving a person on the street $1 in an American city versus giving $70--some significant money. But, maybe there is no difference. Paul, do you want to add anything? Paul Niehaus: Well, yeah, I really like what you said. And, I'd push it even beyond respect. I think that was the language that we used initially. But, I think there's this real issue of power and almost a sort of decolonizing the way we do and think about aid--which is that we have this industry, which is, certainly built with good intentions to try to benefit people living in extreme poverty. But, across the board, they have almost no say in what happens. And, that seems wrong when you look at it. And, so, there are various ways in which you could give more decision-making power to the people that we purport to serve. Cash transfers are one very straightforward one, as Michael said, because they're the ones who get to think and do all the deciding. There are other things you could do. You could say, 'We want to build a dam and we're going to collect some community input on that. We're going to have people vote on whether it should be a dam or a road or things like that.' So, there are lots of ways that we could do this, but I think it's important to have a push in that direction and to really be open to the idea of ceding some decision making power to the people we're aiming to serve. Russ Roberts: Yeah. It's a very tough issue for me as--both in the area of public policy and also in personal decisions of how I allocate charity of my own money and how I decide to give money to people on the street. And, as a related issue of respect, for me, when people say, 'Well, of course we have the right to, say, require motorcycle helmets because we offer people medical care if they hurt themselves, even if they can't afford to pay for it themselves, don't have insurance. So, that gives us the right to make them wear a helmet.' Or in this case, if I'm giving money to a poor person on the street, 'I have the right to insist to be spent a certain way, say on food, instead of drugs or alcohol.' And, I find that--actually I find it kind of repellent. I think most people believe that just without even thinking--they think it's just, it's obviously true. It's true I do have the right: I'm giving the money; I could decide not to give it. But to exercise that right is the question: whether I should exercise that right. And, for me, the idea that because we give away healthcare to people who are uninsured or can't afford it--which is a question whether that should be a government mandate or whether it should be privately financed or whatever, put that to the side. The fact that that gives me the right now to tell you how to run your life--I just find that--like, what kind of charity is that? It's a weird kind of charity, right? I'm going to give you money, and of course that gives me, that entitles me to tell you how you live. Now, if you live badly, I may not like it, and I may decide not to give you charity. That's a different question. But, I certainly don't like the idea that somehow if I help you, I now can dictate how you live. Again, that--that to me is for parents and children up to a certain age and we can debate what that age is, but it's never, never appealed to me. |
| 15:51 | Russ Roberts: Let's talk about the arc of what you've been doing and trying to understand what the impact is. You've done a number of serious studies to know what the impact is. And, I want to--just to help us with the conversation--when you give people money, there's one thing that obviously happens, which is: They have more money. At least in the short run. This was Milton Friedman's argument in Capitalism and Freedom: If we want to fight property, why don't we do the thing that might reduce poverty, like give people money? And, his idea was--this is 1962, I think; and he said he wasn't the first person--and, he said: 'We have a lot of these programs, give people housing, give people food. Let's give people money and they'll choose the mix of housing and food and healthcare that is best for them. And, it will cut out the bureaucracy and a lot of the other costs or at least reduce the bureaucracy.' So, that's one thing, and we could call that mitigation--poverty mitigation, reduction of suffering. The next question, though, is, is what we would call development, right? Does the cash lead to something more than just a reduction in misery or suffering? And, they're both important. But, the second one's sort of the holy grail. That's what we care the most--often are trying to solve so that we can fix this problem in a longer-run way rather than just a ameliorate or alleviate poverty, ameliorate or alleviate it. So, Paul, why don't you start? Tell us what GiveDirectly has done to try to understand what's the impact of this model. Paul Niehaus: Right. So, right. So, impact evaluation has been a priority from the start. The first transfers that we gave were part of one of these randomized control trials, and then since then, we've run or are in the process of running, I think, 15 separate studies--looking at different questions, sometimes trying to focus on this question you raised, sometimes focused on different questions, depending on the project and so forth. It's challenging in the sense that there are so many paths that people can take and that have taken. If you look at, you know, over the last couple of decades, hundreds of millions of people who have exited poverty, the ways in which they've done that are so varied. In some cases, it's intergenerational, right? It's kids getting a better education, and therefore being able to command a higher wage. In some cases, it's somebody having the capital to start a small business and increasing their earnings in that way. In some cases, migration is an important part of it--just moving to places where opportunities are better. And, so, when you look at something that is as flexible--by design--as cash transfers, if you really want a wholistic accounting of the development impact of it, you got to sort of track all of those things. And, then in addition to that, there are some of the aggregate impacts: that, sort of, communities getting this money, it's going to have impacts on local demand, and that's going to have impacts that are indirect, right? And, to see those, you really need to be running experiments at a very large scale--which we've only begun to be able to do. So, I say that just to say that there are sort of all of these things that in theory one would want to measure. And, we know that and we're sort of only able to see some of them and in some cases. But, you know, I think that what you see in the studies we've that we've run so far is that there are going to be some people, a subset, who are going to make productive investments. They're going to--it might be in agriculture. They're going to purchase some livestock or better fertilizer and inputs for their farm. It might be a non-agricultural business. I think in many cases, retail, where you purchase inventory and then become part of the supply chain that brings things into these communities that your neighbors want to buy, is a direction that a lot of people want to go. But, there are so many, and they're so varied. There are some people that will get into transportation and give people motorcycle rides. We had somebody that purchased musical instruments and started a band and started touring. So, it's sort of everything that you can imagine. But, you see that for some people and you don't for others. And, I think that's an important thing to note: That there are some people who sort of have something like this they want to do; and there are other people that just want to make sure their kids are better nourished and going to school. And, that they're able to have a mattress to sleep on, and things like that. And so, you know, those are important, too, and it's going to be a mix. Russ Roberts: And, before we go on, I'm going to let Michael comment on that and add to it. And, then, we'll transition in a few minutes to the larger-scale study that you're in the middle of. But, one thing that's fascinating that I read in reading about your organization is that some people turn the money down. They don't want it. Either when it's offered them individually, I assume could happen. But, certainly, you've gone to whole villages and offered the money and some people just don't take it. Could you talk about that, Michael? Michael Faye: Yeah. So, if someone showed up at your house, Russ and said, 'Hey, I've got $30,000 for you. You just got to fill out some forms and we'll send it over by wire next week,' you would probably be skeptical. Russ Roberts: And, it's more money than that, actually, right, telative for some of these studies, the amount? I'm just going to come out and say it, I make more than $30,000 a year. But, for some of these recipients, it's a substantial portion of their annual income. And so, it's, it is a very large gift horse that you might not look in the mouth or you might. And, so, yeah, if somebody said that to me, I assume it's a scam. Right? I get those emails every day, actually. They don't come to my house. They know better. But, they do send me emails saying, you know, 'If you could just tell me your bank account, I'd give you a lot of money.' And, I, 'Hmm, I don't think so.' But, yeah. So first, how do you overcome that? How big a problem is it for the organization? Michael Faye: So, we've gotten better at time, I think. One of the most important things of any cash program is communication. And we've had different challenges at different times. When we first launched our challenge was actually convincing people that they could spend it on whatever they wanted--which we hadn't even realized would be a problem. Russ Roberts: Sure. Michael Faye: They thought they needed to use the money to improve their housing. Which wasn't the case. But, what this points to is there's a history, right? We're not the first organization to be doing development work or charitable work. And, in a lot of the other cases, there was some expectation--right?--where you were going to convert to this religion, you're going to take this action that I, the donor, would like you to take. And, if I don't understand that action as a recipient, I'm going to be skeptical. So, I have to get that communication right. I think we've done a lot better over time. We certainly still have refusals, but you have to understand a bit of the history and context that you're operating within. One of my--bit of a related story of expectations. One of my favorite stories came from one of the Nairobi urban settlements. So, these are very densely packed settlements where most people will be living in extreme poverty. Extreme poverty being under $1.90 a day. So, truly kind of unable to meet your basic needs. We did a cash program there and people were appreciative and spent it on all sorts of things. Some invested in bathrooms that they then sold access to others for. Some started other shop-cart businesses, and so forth. But, one of the best things someone said is, 'You know one of the organizations that always came here would come and give us a bowl with a bar of soap. And, we took it; and we appreciated it because we thought that organization must not have much money. But, now we know how much you Western charities actually have. So, we've started asking them to just give us the cash instead.' Russ Roberts: I don't want to forget, by the way, that that listeners may want to go back and listen to the episode I did with Nina Munk about at the Millennium Villages Project and then a follow up with Jeffrey Sachs, which was--I don't come out too well on that, but it could have been worse. Jeffrey Sachs wasn't happy with what Nina Munk said about him and then he asked me if he could be on the program. And so, I said, 'Sure,' and he was ready for me. It was a pretty interesting episode, but it's related to these questions. I just want to, again--interested listeners may want to go back and look at that. Paul, would you comment on anything about this issue of, I would call it credibility or reputation. You're coming in, you're foreign often: How do you get people to trust you? Paul Niehaus: Yeah, I think that in the early days when it was literally us coming in as foreigners, that's an especially a big challenge. And, part of the hard work behind the scenes of building an organization is learning to hire and grow and build an excellent local team. And, [?] transfer more of the leadership and the responsibility to them, so that it's people who are coming from these communities who know them better than Michael or I do, who are the ones out there doing the communication. And, there's obviously systematic engagement as well with local leaders. There's a whole process of communication with local government about what's going to happen and making sure they understand and they're supportive of it. And, at times when there's doubt and skepticism, there's engagement with local community leaders outside of government, as well, to make sure they understand what's happening. Getting them on the radio, getting pastors on the radio, talking to people to explain, 'Hey, I've met with these guys and they're not crazy.' So, that's sort of what the day-to-day I think of that looks like. |
| 25:04 | Russ Roberts: There are still--you mentioned along the way in passing, I think it was Michael--that, missionaries try to convert people to a religion. There's all kinds of strings. 'You can have this, but it's in the form of a bowl and a bar of soap,' or 'You can have this, but you must spend it on the roof of your house because we, from the outside, have decided what is best for you.' And, certainly cash is less, I would say, both demeaning and arrogant as a way to help people, who you don't, inevitably don't know particularly well. And, don't know what, not only, you don't know what they need, but again, I think it's a sign of respect; it's important. But, people have raised ethical issues about this, the whole idea of it. The whole idea that we on the outside, in the richer West know--not 'know,' but just that we're intervening in this way in these people's lives. Is that an issue? Is it something you talk about and worry about? Michael, why don't you go ahead first? Michael Faye: We talk about that all the time and in some sense that is the genesis of GiveDirectly--how we can shift power to the recipients. And, there's the systemic issue, which I'm sure we'll talk a about, but there's also the very personal issue. I've been doing this for over a decade now, and you still have moments where you catch yourself in a moment of judgment, where you say, 'Wait a second, you spent the money on what?' or 'You spent the money on that? Why did you spend the money on that?' And, recipients will patiently explain why they spent the money on that. And, it's just a very, I think, normal human emotion to judge. I remember we--early days, a lot of people spent money on metal rooves and tin rooves, which they still do to some extent. And, as a foreigner, you'd say, 'Well, why are you spending the money on a tin roof? Is this just conspicuous consumption? Is this the Western Kenyan village equivalent of a marble bathroom? Why the tin roof?' Very directly, recipients would say, 'Well, look, my thatched roof falls down multiple times a year and I have to replace it; and it costs me $50, and this cost me $150'--I forget the exact numbers. So, the actual return and savings on this is quite large. I said, 'Okay. I didn't realize that.' They said, 'Two, I actually collect water off of it in the rainy season.' So, there are lots of NGOs working on safe water programs, so that people don't need to walk a mile, two miles to get water. Turns out you can get it straight from your roof. Three, 'The mosquitoes don't spend time in a tin roof like they do in the thatched rooves, so we actually see less bugs in the house.' And, then the fourth one, which doesn't show up in a lot of the, in the numbers per se, is, 'You know what the biggest impact of a tin roof is? Avoiding the pain of watching my child get rained on every night. I don't want my child to get rained on. It's humiliating. It's awful. And, to know that he or she has a roof over their head is the most dignifying and empowering thing of all.' And, that just gives you pause for a second on checking that judgment. Russ Roberts: Yeah. Absolutely. Paul, do you want to add anything to that? Paul Niehaus: Just that, when I've been out and met with recipients, this has been--it was a very, really sort of deep, soul-searching moment for me because what I've found when I've been out and spoken to people is that: first as Michael said, there are times when you come to understand that you really didn't understand before you got out there. But, there are also times when I find there are people that I just don't find all that compelling. I don't like them all that much, the things they're doing are not the things that I would do. And, so, I think there's a real coming-to-terms with that--of saying, and it's just like anywhere else--I like Michael and you seem like a nice guy, Russ. I feel like we'd probably get along. A lot of people that I don't like, and that I sort of don't--I don't buy into what they're doing with their lives or their priorities. But, I can still respect what they're doing with their lives and their priorities and make a decision that I'm going to create space for that, and that I want to live in a world in which they have space for that. And so, that for me, I think was a very profound experience. And it felt, I think, very healthy, like a part of my own personal maturation, I think, to come to terms with that. If that makes sense. Russ Roberts: Absolutely. I have listeners--longtime listeners, especially in economics, who know I'm not a big fan of utility theory. It's something we teach undergraduates. But we do it, as Zvi Griliches told Vernon Smith, and he reported on our program--when asked, 'What's it good for?' he said 'Teaching.' But, we like to think it's better for understanding. And, I think it's very limited, but it gets a prominent place in every textbook that is out there. But, one of the advantages of the approach--and I have a lot of problems with utility maximization, and my next book is going to complain about it a lot. But I will, in its defense, say the following--the idea of consumer sovereignty. Which is a piece of jargon that simply means: Even though I don't like anchovy pizza, that you buy it, and I assume it's good for you, and you enjoy it and get pleasure from it, that fundamental idea, which is the heart--it's in Adam Smith, he doesn't call it utility theory, but he respects--it's very clear, he respects people who aren't like him. Mostly. The idea that people know what's best for themselves is deeply embedded in economic theory, the way we teach it, even starting at the undergraduate level. And, we can complain about it a lot--and I have and will--but I think that's really important. And, it's really, Paul, what you're saying. Paul Niehaus: Let's say[?], I--go ahead. Russ Roberts: No, go ahead. Paul Niehaus: I think that's right. The way I've come to say it is that the way economists are trained to approach welfare analysis, policy analysis, is by putting themselves in issues of everybody who's going to be impacted by it, and asking 'What does this look like?' from their perspective. And, so, whatever you may think of the specific math and its limitations and flaws, I think that something that forces you to do that is very healthy. Russ Roberts: Yeah. It's underrated, actually, I think. And it just doesn't come naturally, right? We're judgmental as a species. That's what comes naturally, like you're say it: 'I don't like him. I don't like what he's doing. I don't like the color of his shirt actually, even.' Best to learn to respect the choices of others, unless they impinge on your life; and then you may get something to talk about, maybe. And, you can debate about when that happens and that's another conversation. |
| 32:01 | Russ Roberts: I want to talk about the large-scale effort you're doing now to evaluate what you do, which has had some encouraging signs and some skeptics. We'll talk about both. You started in 2017. I think the study goes until--is planned to go--till 2029. It's a 12-year study. Tell us what that study is, what you've done. It's in Kenya. Talk about what you've discovered so far, what you find encouraging? discouraging? And, Paul, why don't you go ahead? Paul Niehaus: Yeah, sure. Well, there are actually two. And, so, maybe we can talk about both that I think are important here. The first one started in 2014 and this one is sort of fairly mature now. We have a paper written up and coming out. And, then the second one is the Basic Income trial, which is the one that started in 2017. And, that's the one that's really long-term, as you say, where the chance is, of course, you're going to continue for a long time. So, maybe let me start with the first one, if that's okay. And, then we can talk about both. So, the thing that's really exciting about this study is that we've had so few opportunities, not just for cash transfers, but really for any of the things that we do, in Development Economics, to look at impacts at this large scale using experimental methods. And so, I think there's actually this very deep tension there that--obviously, the experimental revolution in Development Economics has been profoundly impactful, and I would say beneficial. I mean, that's been recognized with the Nobel Prize in 2019. But, there is this tension that, you know, for experiments to give us the answers that we want, we have to make this assumption that when I treat you, it doesn't impact anybody else, so that I can use them as a control group. And, of course, in all of the models that we write down as economists to understand the world, whatever happens to you impacts everybody else, right? Because we live in these interconnected things called markets and networks and systems and so forth. So, there's this sort of just deep issue that I think we're not seeing those broader impacts--what we call General Equilibrium effects. So, in this study and because we're starting to run these experiments at a larger scale, we can start to get at that. And, I think it's especially important for cash. It's important for everything we do. But, with cash transfers, there's this just very obvious point, once you think about it, that: If I give you $1, Russ, you're going to spend that dollar somewhere. And, so, it's going to have a one-for-one impact in some sense, at least in an accounting sense, on somebody else. Right? In some settings, you might think some people are going to save some of this. In a richer country, they might put it into a bank account and then it goes into the financial intermediation and ends up somewhere else, but in these settings where we're working, even if people are saving, they're going to be doing that in the form of some asset. Something like purchasing a cow or something like that. So, all of it is going to get spent somewhere at some local business. And so, I think the big limitation up until the point where we started to run these studies was that we just weren't seeing that. We weren't able to trace out the flow of funds from the people who got it initially to the places where they spent it and then ask, 'What are the ultimate knock-on effects of that? What does it all add up to?' So, in these experiments--we're doing this at the village level--so, we're choosing some villages to receive transfers and not others. And even a little bit higher than that: so, some regions we're treating more villages than others. And, so, you get a lot of this variation in how intensely my neighborhood is being treated: how much money flowing into it? And, in total, it's a ton of money, right? So, during the peak period of that first study, I think the amount of money that was flowing into the study area was about 17% of GDP [Gross Domestic Product]. Right? So, it's just an enormous shock to the local economy, to purchasing power. And, we're able to then see, yes, we see the things that people do with the money and what that means for them personally, as you do in many of these other studies. But you also see the revenue showing up at local businesses. You see the upward pressure on wages and increased wage payments to employees that result from that. And, you can add it all up and say, 'What was the aggregate impact on the economy?' And, so, in that paper, we estimate a multiplier of around 2.4, meaning that for every dollar that we put into the economy, it seems that output went up by around two and a half dollars. And so, I think being able to see impacts at that scale for the first time--and to me, it sort of really opens up a whole bunch of new and important questions about: What it is it about these economies that enables them to expand? And, to what extent were the constraints on this economy not the sort of individual constraints that people face. You know: 'I couldn't borrow money to start a business.' And, these aggregate constraints, right? That there's, 'I have a business, but there's just not that much demand for the things that I produce because I live in a poor economy.' And, so, we can start to explore the role of those demand constraints as well. |
| 36:39 | Russ Roberts: I just want to put in a footnote here that you used the word 'multiplier,' which most people associate with so-called Keynesian stimulus, sometimes called the Keynesian multiplier. It's a little bit different in this case of what is actually happening. And, we'll go into it in a little more depth, I hope, in a minute. But, in United States, when the government spends $1, it has to come from somewhere within typically the United States. Sometimes, we're borrowing it from a foreign country, but often we're either effectively printing the dollar here or taxing citizens here. And, it's--you need to take into account the full effect. One of the stranger analyses of the stimulus in the aftermath of the 2008 financial crisis was that papers were published--it showed that the places who got the money grew faster than the economy as a whole. Well, you think that because they got the money. It's not really--that's not Keynesian or anything. You'd have to take into account where the money came from or what places went down. But, just looking at the places that got the money--of course, they're going to have more money. But it doesn't mean it's welfare-improving for the society as a whole. What we're talking about in the case of Kenya and the 2014 study or the one that started in 2017--which we're going to get to--is the money has come from outside the village. Clearly. So, the village is going to be better off. It would be weird for the village not to be better off. There is an issue of inflation--whether the prices go up and offset the gains in nominal income. But certainly we would expect nominal income to go up. If it goes up more than the amount that's injected, that that would show some sort of overall productivity increases. And you're saying that's what you found. And we'll come back to that. But, I just want to make that point. I think, it's often lost in these discussions. Michael, before we go on, do you want to add anything? Michael Faye: Yeah. I'll just say one thing on this paper, which--this paper, I think, at its core is about externalities: so, the impact of a transfer on other folks. And, this was a question that we got a lot about cash. People would ask, 'Does it inflate the economy? What's the impact on other people?' Two parts of that. One is cash, for some reason, provokes a lot of these questions that I think we should be asking about all interventions. You tell people you're just giving cash. They say, 'Well, how do you know they're not spending it on alcohol? How do you know how it's affecting others? How do you know there's not fraud? Well, how much does it exactly cost?' These are exactly the questions that I hope GiveDirectly and cash pushes other organizations and interventions to also answer. The second bit is when you think about the externality piece and you think about some traditional interventions--things like food aid, where we move food from U.S. shores into Africa, say, or used T-shirts. Whatever the case is. Think about what that externality is. What have I just done to the local farmer that is selling food on the market? You've heard him pretty dramatically, because now he needs to lower the price to match the food that's been shipped over from the United States. So, you're actually potentially having quite a negative effect on the local economy and market. Which is the opposite of what we see with cash. I don't want to lose that point that a lot of the other interventions very well may have this negative externality on others. Russ Roberts: Yeah. I don't want to talk about that. It's come up in a lot of other episodes, and we've done so many episodes on this that, again, I just encourage listeners who are interested in this to, we'll put up a bunch of those episodes in the links to this episode. |
| 40:25 | Russ Roberts: But, one of the things--I've always wondered; I'm a pretty hardcore free-market person. And, when we have creative destruction in the United States--when a new business comes along, it puts other businesses out of work--we assume that, 'Yeah, there'll be some short-term suffering.' But, we'd like to think that the U.S. labor market works pretty well, and therefore, people will find new opportunities. And, I think that's a really interesting question in the last 10, 20 years: that, it appears to me that the U.S. labor market doesn't work as dynamically as it has in the past. And, so, these short-term adjustments may be much longer term and may be need to be taken more seriously by economists. You know, I think the work by David Autor, interviewed on this program about this--the China shock--I actually, I think he didn't measure all of that. So, the reassignment of workers--he looked at the manufacturers who lost their jobs. I'm not sure they were able to effectively measure that re-assignment of workers within--'assignment' is the wrong word. That workers finding new opportunities elsewhere in the economy, because there was cheaper stuff coming in from China, which allowed resources to be more effectively used in other parts of the economy; and you've got to look at the full picture. But, your point, which is that when we give food--we, the United States gives food--aid--to a poor country that puts some farmers out of work--there's one flavor of economics that would say, 'Well, that's true, but the people have cheaper food. They have more money. And, those people who aren't farmers any more are going to go work in the sectors that are expand because have less--we don't spend so much money on food.' And, it's a beautiful idea. But it's only true if the labor market works really effectively. And, in a lot of poor countries, my impression is, is it doesn't. And so, it's not as clear as I think some economists think it would in those kind of interventions. But, I'm not so sure they're so well-intentioned, actually. I think it's much more complicated. I don't think they're designed to hurt poor farmers in Africa. I think they're designed to make sure the political demand for helping rich farmers in America is still there. But I'm off track. Sorry-- Michael Faye: We--just one fact and then we can go back to UBI [Universal Basic Income] paper. Russ Roberts: Yeah, Universal Basic Income. Michael Faye: Yeah. Paul and I had looked at doing a paper on food aid, probably, like, what, almost 15 years ago at this point? And, we got a data set that was ship-level data. So, you got every shipment by ship and what got shipped. And, we were staring at the data and couldn't understand why it seemed to have so many duplicates. So, you'd see the exact same kilograms, the exact same grade of maize, the exact same everything with one distinction, which was the ship name. And, we could not figure this out. And, we eventually tracked down a statistician in the government to help explain it. And he said, 'Oh yeah, that's a function of the program, which is, we have preexisting contracts with shipping companies. We know that we're not sending full ships, but we have to split the shipment equally. So, of course you see the exact same replicated data with different ship names.' That is what we're doing. So, just one story, an anecdote on food aid. Russ Roberts: Yeah, yeah, but why is that so disturbing--they split it up like that? I mean, it's weird, but-- Michael Faye: At some level, it's just wasting, you're sending empty ships of food aid. So, if you care about the environment, gas cost-- Russ Roberts: Oh, sorry, yeah. Michael Faye: any of the above. Russ Roberts: I get it now. Okay, when you say they weren't full, it's not just that they weren't full of that crop. They were weren't full at all, and just the ships like to take more trips. Michael Faye: So, it seemed. Russ Roberts: Very stimulating potentially, but I think not a bad idea. Paul, do you want to add anything? Paul Niehaus: It's just a pervasive pattern. I mean, even within lower income countries, India, the reason that there is a subsidized food program is originally because there was a program to help farmers. And, then the grain started to pile up and at some point, somebody said, 'We got to do something with this before it rots.' So, it's the same there. It's the same with the food stamp program, the sort of genesis of it here in the United States. It's the reason that we give food aid. So, it's a near-universal pattern. I think that we do things to help farmers and then end up with food and have to figure out what to do with it. |
| 44:30 | Russ Roberts: So, the 2014 study found a pretty big impact. I'm a little bit skeptical of it. But, I'm going to let you get to the 2017 study first. Say what's different about it in terms of what the actual study is. And, then what you found so far, both that you've published and maybe of some tentative results that haven't published been yet. Paul Niehaus: Well, you're going to tell us what you're skeptical of at some point? Russ Roberts: Oh, I like to build up this suspense. Yeah, no, I'll get to it. But, I want to let listeners know what they--how the program is designed and what it's doing. Go ahead. And, it's not--trust me, I know you've got an answer. Paul Niehaus: I'm looking forward to it. With the Universal Basic Income study, again, we're sort of looking at the community level, but the sort of key thing that's different here is that instead of this one-time design, which is what GiveDirectly has typically done, where we come in and say, 'We're going to transfer you a tranche of capital, and then we're going to walk away.' Here, we're saying, 'For the next, some number of years,'--in the longest arm, it's 12, as you said--'we're going to be giving you each month enough money to meet your most basic needs.' And, so, why are we doing this? Obviously, there's this global conversation about Universal Basic Income. There's a lot of interest in it, the buzzword. It's a very different conversation, interestingly, in some parts of the world. In the United States, it's about the concerns we have about job loss to automation and to trade, things like that. In many low-income countries, it's more of a reflection of dissatisfaction with the way we do redistribution and anti-poverty work. And, just the sense that, although we try to target benefits to the poorest people, it's hard. It's messy. It doesn't always work that well. It's costly. Maybe, it would be simpler and better to just enroll everybody. And then, I think most important to me is there is a sort of political dimension of this. It gets at the stories we tell about why there should be redistribution in the first place. And so, in most countries--in most places, most times--the story has been that people who are able to take care of themselves should do so, but we should have some programs to help people who fall on hard times or for some reason can't--widows, orphans, people who lose their jobs, things like that. And, so, that basic narrative makes sense to a lot of people and that's the basis of it. I think with UBI, you open the door to new ideas. Perhaps, a sense that some of the assets, some of the resources that society has, we should view as being held in common. And, that perhaps, everybody should be entitled to some share of the returns from those that they get; and they can do what they want with it, they can decide what to do. That's sort of the narrative you see in a place like Alaska with the Permanent Fund, for example. And, so, I think-- Russ Roberts: That's money that got generated by the discovery of oil there that was shared-- Paul Niehaus: From the oil, yeah-- Russ Roberts: Much more, the revenue. The rights were sold by the State of Alaska. And, then the money was spread out in a very different way than it might have been in a more just decentralized way. Paul Niehaus: Yeah. Yeah. So, I think there's a significance to this issue that's about, what are the impacts of telling somebody that your basic needs are going to be met for a long time? Do they stop working on their own? Do they shut down or do they take more risk and experiment with things? Try things that they might not have otherwise? That's relevant. But, it's also taking place in the context of this political conversation and this sort of thinking about what does a fair society look like and how do we reason about that and articulate it, that's important. So, in that context, there are a lot of UBI pilots and experiments of some sort going on around the world. I think most of them don't really get at what matters in the sense that, first of all, most of them are going to be at the individual- as opposed to the community-level. So, they're really not universal. They're trials of Basic Income. Here, we're going to be universal, at least in the sense that entire villages, entire communities are going to be receiving transfers together. And, then second, most of them are very short term. And, so, I would argue, we already know a lot about what happens when people have a bit more money in their pocket today from the very extensive literature on cash transfers that's out there. We don't know as much about what happens when you have this very long-term guarantee. And, that to me is sort of intellectually and for policy, the most interesting thing that we want to get at with this study. Russ Roberts: And, Michael, do you want to add anything? And, we want to turn to the question of what you found in the beginning and so far? Michael Faye: I would just add the generic listener warning that cash gets collapsed as cash in policy discussions so frequently and there are a hundred varietals of cash programs. Big grants, small grants, frequent grants, infrequent grants, recipient chooses when they get the grant, targeting women, targeting men, targeting entrepreneurs, and so on--that you need to go a level or two below when you're talking about what is the impact of a cash program. Russ Roberts: Yeah. No. That's a great point. |
| 49:18 | Russ Roberts: So Paul, what did the first results that--I think you're three years into the program, in 2020? When did you get the first set of results and analyze them? And what did you find? Paul Niehaus: Yeah, so we have a first set of end line results from 2019 that we're actually analyzing now, sort of looking through those. And, so, we haven't published things yet. You talk a little bit about some initial impressions. We did publish some results that came out of a survey during the pandemic, so in the early months of the lockdown in Kenya. And, that was sort of interesting because, obviously, we hadn't planned for a pandemic, but part of the idea, I think, behind UBI as a policy is that it provides some insurance against the uninsurable. In the sense that there are unknowable things that will happen in the future. And, ideally, we design social policies that would protect people, provide some insurance against those. But, in reality, perhaps we can't anticipate all of them. And, so, we get to see that play out in front of us, unexpectedly. So, I think some of the things that were interesting there were: you see some impacts on the kinds of basic indicators of wellbeing that you'd hope to. That, a lot of people are not consistently eating enough during the pandemic. It's a very difficult economic time in these communities; and that's a bit less severe when people are getting a Basic Income. It's not eliminating the problem at the kind of the levels of funding we're talking about, the size of the transfer, but it's making it less severe. I think the other thing that was really interesting is that before the shock of the pandemic and the lockdown hit, what a lot of people receiving Basic Income transfers had done was to start these new non-agricultural businesses. So, we weren't seeing a big change in the total amount that people were working--which by itself is a very important finding, right? We are seeing a shift that they're working less in agriculture. They're working more in these small non-agricultural businesses. They start primarily retail businesses, right? And, so, you're seeing a little bit more of this structural transformation, right? This gradual shift out of agriculture primary sector into non-agricultural business. So, those businesses were doing pretty well before the pandemic hit. And, then during the pandemic, they sort of get wiped out, along with all the other businesses, because there's a lockdown and sort of demand plummets for everybody. And, so, what you sort of see is that for the people getting Basic Income, there's a sort of a bigger income shock because these businesses they've invested in are exposed to this risk and they get hit. But, then there's a smaller shock in terms of what that means for their livelihood and for food security, right? And, so, I sort of think you see in that both the opportunity there--that sort of having a Basic Income once you take a bit more risk--and also, the reason for it, which is that it provides you a bit of this shield or this insurance when hard times unexpectedly hit. So, to me, I think that was the most interesting thing that we're seeing so far. Russ Roberts: Could you just give the listeners and viewers a feel for the magnitudes here? I know every village is different; and it's multiple villages. But in a particular--pick a modal village; just give us the approximate amounts you're talking about. What would be the income of that village before the intervention and what's the size of the intervention per year? Paul Niehaus: Right, right. Yeah, so people are going to be living on, sort of the average is going to be pretty close, I think, to the purchasing power of parity to the global poverty line, right? To $1.90 per person per day. There's some variation around that, but we're sort of in that ballpark. And, then we're sort of giving people on average about $1 purchasing power parity adjusted per day. Russ Roberts: How much? Did you say $1? Paul Niehaus: Yeah, $0.75 cents nominal, right? So, actually if you adjust that, it works out to about $1.50 at purchasing power parity. Yeah, per person. Russ Roberts: So, it's close to a doubling, a doubling of their command over real resources. So, it's--what's fascinating about it, and of course, whether it generalizes, whether it's a flawed analysis, obviously, there's always a question when you do these kind of studies--but, these are people who start at a near-subsistence level. They are not at the level of income or standard living of, say, someone in America. And, it's not the equivalent study of, say, doubling the income of an American under UBI. Most of the Universal Basic Income proposals for America are nothing like doubling the average person's standard living. So, this is very distinct for that reason. And, it's also distinct because they're starting at a very low level and the idea that it could have an effect on hours of work--which again, I'm not sure is the thing you'd want to focus on, but people do care about it a lot. It's going to be a different analysis, probably, in a successful, a higher income society with a much lower level of assistance versus the kind of system you're talking about--this experience we're talking about here. Michael, do you want to add anything? Paul Niehaus: Yeah, I think that's it. That's a reasonable, that's a very reasonable--it's not quite as dramatic as you said, because we're giving transfers only to adults. And, so, it's going to be sort of as a percent of household income, a bit less. But, the basic point is right: that these are people who are living very close to subsistence on average and for them, it's a very significant change in their income, I'm sure. Russ Roberts: And, I'm going to get to my skepticism in a second. Michael, you want to add anything, first? Michael Faye: Just that the point you made, Russ--the fact that they are starting from a much lower level and require much less to get over the extreme poverty line or meet basic needs--is also the opportunity. And, if you put that in a global magnitude, people will estimate the poverty gap, call it $80 billion--so, that's the amount that if you could magically know exactly who is in poverty and how far below the poverty line they were and put money in their pockets, what would be required to take them over the poverty line? Now, let's say that's three or four X [times--Econlib Ed.] under estimates. So, let's say it's $300 billion that would be required. That's still less than 1% of U.S./Europe GDP [Gross Domestic Product] combined, which is about $40 trillion dollars. So, the point is: It is a very solvable problem on the extreme-poverty metric. We can take people over extreme poverty. And, certainly at the individual level, it does not take a whole lot, in the emerging markets. |
| 55:37 | Russ Roberts: Okay. So, let's move to the skepticism part. I know we haven't got to it. You can respond to my skepticism with this other point, which is: You found some nice effects in the first round of analysis--that it seems to have significant impact on a wide range of measures wellbeing. Not just income, by the way, which is--we haven't explicitly talked about that, but obviously, we care about more than income. We care about all kinds of things. Some of which are measurable, some of which are not. But, here's my skepticism: So, somebody, some listener--and if that listener is listening now, I'd love to know who it was--told me their take on the--an old aphorism, 'Give a man'--which now it's not usually a man, but let's make it 'a person' in the original aphorism--'Give a person a fish and the person eats for a day. Teach the person how to fish and they can live for a lifetime.' And, this listener--and I hope you're out there; you can tell me who you are--said, 'Give a person a fish, they eat for a day. Teach them how to fish and they can at least have something to eat over their lifetime. But, allow them to trade fish for other things then you might actually create a standard of living and growth.' And, it really captures the way I think about the world. At least in the material sense--which is not the only thing that matters, but it's not unimportant, especially for the people we're talking about. So, a critic of your idea said, 'Give a man a fish, you feed them for a day. Give a family cash and you feed them for a while.' So, basically the argument--this criticism--is, 'Okay, you've got some multiplier effects for a while, but eventually it will return back to its original level of arc of wellbeing, whatever it was.' The way I would phrase it is: I don't expect cash. I expect cash to help people have more pleasant lives. I don't expect it to make them more productive. Yes, there are capital constraints in these villages. It's hard to borrow money. Having an infusion in cash, it allows you to buy a wheelbarrow, which is incredibly important for some people. Or open a small retail business, like you alluded to. But, these economies--economies--these villages relatively isolated from trade, relatively not embedded in markets, relatively self-contained: It's hard for me to--I'm just going to be skeptical that this, that cash alone is going to suddenly make people more productive. Because ultimately, that's what the goal has to be. 'Productive' is an ugly word in the general sense, but in the economic sense, it means that they get more from what their resources are. That they can produce more stuff from any hour of work or from any investment in raw materials. And, without that, you don't have growth. You have, just, mitigation of poverty. Which--I don't want to ever romanticize poverty, of all--and people do all the time. It's disgusting to me. If all that happens in these villages is that they get, they have better lives; and, even if it changes the thing they used to do that we want to be romantic of out, like subsistence farming, I don't want to be romantic about that. So, if they come to a different style of life, that's okay with me and it's their choice. But, it's hard for me to understand the mechanism by which they're going to have a long-term change in their wellbeing. It seems to be we need bigger changes. It doesn't mean I wouldn't want to give you money, because I do think mitigation of poverty is a really important human impulse to act on and I'm all for it, but you're making larger claims. So, give me a story that would make me feel more confident that it's, that the things you're finding are true. Paul, why don't you go first and Michael, you can go. Paul Niehaus: Wonderful. Yeah. There's so much to deconstruct and to dig into what you said, so. Russ Roberts: It's a long question. More of a statement, for which I apologize. Paul Niehaus: I'm going to take some bits and I'm sure Michael will have more to say. But, I'll just start with the aphorism, because I actually think that's a wonderful, sort of little thought exercise to use, to sort of think about and deconstruct a bit the way we think about Development. So, certainly there's truth in that, in the sense that there are sort of productive investments that we hope to see happen. Whether we make them or whether we enable other people to make them, yeah? I think there's also an enormous amount of hubris in that, in the sense that there's a presumption that we know how to teach people to fish. And, so, I would like to go from there to the research on sort of training people, trying to make them more productive or more employable, which is one of the things that Development Economists love to try to do. There's this, sort of area of work--which I would sort of call 'active labor market interventions'--that try to make people more productive: train them, more employable. And, so, that's interesting to think about: is, maybe that's pretty close to what we mean by 'teach a man to fish.' And, generally, the results there have been fairly discouraging. That, it seems like we're not very good at teaching people to fish and making them more productive. So, you know, glossing over, obviously, a lot of detail--and there have been some successes and things like that. But, so, you know, I just think we need to first start by saying, 'Okay, fine in principle, but let's actually take this to the data and see if we're actually any good at these things that we proclaim are so good.' I think the second part of it, then, Russ, is like, 'Okay, what is a realistic expectation for what cash transfers could do?' And, there again, I think it's important to think about it in the context of the reductions in extreme poverty that have been taking place. And, as you say, you know, capital markets are not perfect. There are many people whose talents are not fully utilized because they're not able to get the education that we'd like. All these imperfections and problems. But, yes: Somehow, some way people on average, many of them are finding a way out. That's been happening and that's going to continue to happen. So, I think it's unlikely that there are going to be cases where cash transfers sort of get people out of a trap--that they're sort of stuck and they're not going to get out of there on their own unless we come in. I think that's probably an unrealistic expectation. And, if anything, it sort of plays to our romantic desire to be the savior, right? They're sort of people who are stuck in a poverty trap unless we come in. But, I think there will be cases where it sort of accelerates people's transition along that path, because they would have needed to save up for five years to get the wheelbarrow and now they can get it right away. And, so, you're going to see people move out of poverty a bit faster than they would otherwise. And, I think that's good. And that's part of the reckoning when we account for the impacts of cash--along with the fact, as you say, that they live a bit better in the meantime and enjoy a higher quality of life and their kids eat better and so forth and so on. So, I think that's sort of what my expectation would be. Knowing both what we know about the impacts of cash from the randomized controlled trials, but also the big picture of how growth works and the fact that it's happening. Russ Roberts: But, you're finding pretty big multipliers. I think you mentioned the 2.7 before. I think in this study in the first paper that came out of it, it was 1.6. I mean, meaning $1 of intervention produced $1.60 of material wellbeing. And, the skeptics are saying, 'Yeah, for now. It will be, that's the case, but over time, it's not going to be there.' Do you feel that that cash injection is going to have the longer term effects of an arc of wellbeing? Paul Niehaus: Great. Yeah. And, so, first to your earlier point: You're precisely right that when we see that $1 has more than $1 benefit for the people who get it--you could equally well flip that around and say, 'Well, if we were to take that dollar, tax that dollar from somebody else, that would probably have more than a dollar of cost for them to be giving it out.' So, I just want to underline that point you made which is spot on. And, here, the nice thing is these are charitable dollars, so we're not too worried about that. But, yeah, I think that this is sort of the frontier. This is what we don't know, both about cash and about other things as sort of these aggregate multiplier impacts and how persistent they are. I think it's going to be tough to learn that, frankly, from the experiment that we've done so far, because, initially in the first months and years after the transfer, you can sort of see the localized impact. But over time, I think it's going to diffuse. It's going to spread out across space. Because, I buy something at the nearby town and then that guy buys something at some town near to him and so forth. And, so, I sort of think the experiment will tend to, will kind of dissolve over time, if you will. And, so, I would like to be able to learn that from the study that we've done. I think it's going to be tough and increasingly tough over time, for that reason. But, to the extent that we can, within the study, sort of look at how this thing is trending over time, because we have measurement over a range from sort of 12 months to 24 months after the transfers: it seems like there are sort of fairly persistent impacts over that time span. Longer run, we just don't know. Russ Roberts: Michael, you want to add some thoughts? Michael Faye: Yeah. I think Paul hit one of the key ones on this project, which is: If the people not receiving cash are benefiting almost as much as those that receive cash--which is what they find--you are essentially eliminating your control group with time. So, as time passes, the experiment dissolves--is the best way to say it, as Paul did. To your question, Russ, of do you see long term impacts of cash? Are there examples of that? The answer is unambiguously, yes, we do. There's a wonderful paper in American Economic Review by Anna Aizer and colleagues, that is, to my knowledge, the longest evaluation of a cash transfer program. It was actually done in the United States, where they looked at the children of people that received cash 50 years after the cash had been delivered. So, five decades is about as good as you're going to get in economics. And, what they found is that those children lived longer, achieved more educational attainment, and had higher incomes. So, that's not even the recipient of the cash. It is the recipient's child that had higher income 50 years later after the cash transfer program. So, you do see this evidence. We absolutely need more long term evidence on the impact of cash, but you do have these examples out there. |
| 1:05:36 | Russ Roberts: Yeah. Again, I think data are always tricky. There is--you talk about the experiment dissolving. There are things happening in the villages around your villages--that aren't just that they live near villages that receive cash. There's all kinds of other macroeconomic stuff going on that makes it hard to evaluate. Ultimately--you know, one of the phrases I hate is, 'Well, the data speak for themselves.' No, they don't. They never speak for themselves. They only speak with our help; and we have to make decisions and assumptions about what's going on. And, in the case of, that you just told, I don't know that paper. I look forward to reading it. We'll put a link up to it. But, it's hard to understand the mechanism. So, you need a narrative, often, to go with the data to make it more plausible that, even though you have a control for everything, it still is plausible. Obviously, access to resources can help people make better lives for their children way beyond just putting food on the table. But, I'd want to look at the magnitudes, and it--it's really hard. I just want to emphasize this, and then we'll let you guys have the last word. It's just really hard to make people more productive from the outside. And, a lot of that comes back to what we were talking about earlier. Some people don't want to be made more productive. They just want to lead a simple life. They would love to have more to eat. And that's fine. I'm happy to help them do that. That's why I give the people on the street a dollar. And, coming back from a conference once, the guy I was walking with gave that person a $20. I thought, 'Well, that's a nicer person than I am.' So, I'm just--my skepticism is, although always somewhat general--in this particular case, yeah, sorry, that's fine. Modus operandi, as I've gotten older. But, I just--knowing how hard it's to make people more productive, it's hard to understand how giving them cash is going to--I understand the capital thing. I understand that argument. But, in a village that has very limited exposure to the outside world and a little bit of inter-village trade, it's just--I'm a little bit skeptical. But, we'll see. And, I strongly urge you to open up your analyses of these of these incredible projects--and I'm a big fan of the innovation--but I urge you to open up to people who aren't associated with your organization to look at the data. Maybe you're already doing that. But, I just, I think that would--that's helpful. Last words. Michael Faye: We should have said that right off the bat, Russ. Russ Roberts: Yeah, go ahead. Michael Faye: I think we spent time on two papers. GiveDirectly has done 15 papers, all of which have had external academic evaluators with no affiliation to GiveDirectly. Russ Roberts: Great. Michael Faye: Before we even started the organization, we had done an RCT [randomized controlled trial]. So, this is kind of part of our DNA [deoxyribonucleic acid], external evaluation. Russ Roberts: Great. Paul, do you want to say anything in closing? Paul Niehaus: Yeah. Well, this is going to be small ball because, but I actually do want to react to a couple of things you said that-- Russ Roberts: Yeah, go ahead. Paul Niehaus: I think [crosstalk 01:08:23]. Russ Roberts: I like small ball. Paul Niehaus: I think your point about the big picture and kind of integration into markets and realistically, I think that's spot on. And, so, I do want to sort of mention a few things from these studies that are relevant to that. I think one is it turns out that these communities are reasonably well-integrated in some senses, at least, into the broader economy. And, so, that's why you don't see much of an impact on prices, and that sort of people are sort of purchasing things that are made outside of these communities. I think the opportunities that are created for many people are to get into supply chain, to be the retailer, who sort of brings those things in and then sells them to their neighbors. But, so, we see very little inflationary pressure and I think it's precisely for this reason. The second is that I do think that part of what makes--the challenge for folks living in these places is exactly as you say, that they're small, right? That there's just not that much purchasing power around them. And, so, even if you had a fantastic idea for something, some business, it just wouldn't take off in a setting like that. You need access to a larger market. And, so, what we're doing has some impact on that, right? Because it does increase the size of the effective market, right--the purchasing power of your neighbors. And, I think that's a big part of the story here, that you have neighbors that can now afford to buy things from your little shop, your business. But, obviously as long as the sort of primary thing people are doing is agriculture and folks are tied to the land, there's going to be a limit to that, right? And, so, this kind of big-picture process of urbanization and moving to places where we can cluster and denser [?]: That is kind of the big picture of development. And, there's a role for public policy in planning and doing that wisely, right? Building the needed infrastructure, managing all the challenges of urbanization, the externalities. So, none of what we're doing at the sort of individual or even the village level is to detract, I think, from the importance of that and of that big picture, but I think that to the extent we're seeing evidence on that, it seems to help along the way. And, to, if anything, just sort of underscore the importance of that big picture. |
| 1:10:15 | Russ Roberts: Last thing I'm going to say, and then again, Michael, I'm going to give you the last word. I'm sure you know this. And, I'm going to let Michael respond to this and anything else you want to add, which is: Economists sitting in university offices in America, given a data set are really good at analyzing it. We've got a lot of cool tools now in econometrics. But, real people on the ground--there's things going on that the data aren't capturing, that they don't illuminate: they can't be seen. I would just encourage you, and I can't believe I'm saying this, but I'd encourage you to hire some anthropologists or other types--people from other types of discipline--to get a better feel for the things that can't be measured. And, to make sure that the things you are measuring actually aren't--they just aren't filling in things just to make people happy or--it's not fraud, but it's kind of awkward. A lot of people in poor countries or in poor societies and poor villages are really good at running their lives in ways that we don't understand it. The roof is just an example of it. But, in terms of data collection, it's not usually as straightforward. So, I'm not suggesting that there's any fraud on their part or on--but a lot of times there's things happening in the gray underground economy that aren't being captured by the data. That's all that I'm going to suggest there. Michael, take us home. Michael Faye: It's a great place to end this. I think we agree a wholeheartedly on that. And, have hired anthropologists who'd done qualitative work because I think it's extremely important. And, I think you need to match the data to the reality and to the stories to understand it. Staying with the data theme for a second, I think there is an important point, which you said: it's not just the data. And, you're right. The data is the starting point. And, even if we had the ability to perfectly measure everything, which we don't, but if we did what we're going to get is outcomes. We're going to get, 'This is the impact of a cash program. This is the impact of another program.' And, we're going to have a long list of outcomes and numbers and statistical significance. But, what that list of numbers is not going to tell us is: which is best? Which one should we do? Maybe this one encourages people to go to school more. This other intervention helps on the health side. This other intervention actually helps people work more and you see it in income and productivity. But, at the end of the day, there's still a decision about which of those is best and that is a subjective decision that someone needs to make, whether the donor makes that assessment, looking at all the numbers, and I do think donors should look at numbers more than they have historically, right? So, if you're going to make those decisions, look at the numbers. But, is it the donor's decision staring at numbers, or is it the recipient's? And, that becomes the core question. Russ Roberts: My guests today have been Michael Faye and Paul Niehaus of GiveDirectly. Gentlemen, thanks for being part of EconTalk. Paul Niehaus: Thanks, Russ. Michael Faye: Thanks, Russ. |
READER COMMENTS
Matthew Saywell
Dec 7 2021 at 2:28am
Another fascinating episode, I really enjoyed hearing about what these guys have established and today’s conversation.
Coincidentally I was just listening to the Nina Munk episode about Jeffrey Sachs on Friday afternoon while I was mowing my parents lawn.
I only found econtalk about 3 years ago, so have been working my way through the back catalogue listening to about 3 or 4 episodes a week over the last 18 months.
Thank you so much Russ for what you do, there are some amazing interviews in there from the earlier years, especially with guests that are no longer with us.
I look forward to listening to the episode with Mr Sachs, I can sort of imagine how it went.
Take care.
From a devoted New Zealand fan.
Shalom Freedman
Dec 7 2021 at 4:18am
The first thing that comes to my mind is the admirable goal and effort of the founders of this organization in working for the realization of a fundamental goal of humanity, eliminating poverty.
The second thing is the character of the dialogue in which they are met with informed skeptical questioning as to the success of the strategy of giving cash directly to the poor. A couple of their answers strongly impressed me. One is one in which a father given money directly did not use it for maximum economic benefit but for replacing his thatched roof with a tin roof, so that for other reasons also, but mainly for the reason that he did not want his children to suffer the humiliation of being rained on. Another answer of a different kind came towards the end of the interview when a fifty-year long- term study was pointed to which indicated the children of those given the cash turned out to have more successful lives, both economically and health-wise than had this money not been received.
On the whole for someone like myself without the real economic background to get into the heart of the arguments the interview was enabled me to know about an important subject (Direct cash giving to eliminate global poverty) I had no previous knowledge of.
Jose
Dec 7 2021 at 9:20am
How does giving directly compare with cash remittances from emigres communities? Because I read that these were bad for communities with large emigres contingents developing themselves into productive self sufficiency.
B
Dec 7 2021 at 2:35pm
For levity, but 100% in the spirit of the conversation in the podcast:
https://www.youtube.com/watch?v=MEb_epsuLqA
[note: Video contains some R-rated language. –Econlib Ed.]
mike
Dec 11 2021 at 4:09pm
We are all individuals and we all act according to our beliefs and how we benefit from them. These individuals in their interview spoke about how “individuals” give money to their organization. When you look at the 990 PDF form that I provided, you see that no individuals gave. They received their money from the government. They themselves have not given their own money to this project, therefore I believe it should be known that I assess that their story, as Mr. Taleb has said on the program, they have no skin in the game and are rent seeking against the government. This is not personal by a fact based upon the definitions of those words. They act like elitist because they are playing with other people’s lives by giving them money and then seeing how they react as if they were in a lab to prove their political agenda of a national income. Meaning they are creating the background story that Universal Income is a valid idea.
[Comment revised per agreement with the commenter–Econlib Ed.]
Seth
Dec 14 2021 at 8:06pm
I’d like to hear more about this paper. I assume it’s compared to a control group of similar children whose parents did not receive the cash, but my ‘weasel word’ antennas raised up when he didn’t specifically say or give any idea by how much. In other words, I hope it’s not as compared to their parents.
Comments are closed.