Yes, Cash Transfers Work
The Atlantic by Annie Lowrey / Aug 30
In 2023, the United States produced $28 trillion worth of goods and services. The average family had a net worth of $192,900. Shares in American companies accounted for more than half of global-market capitalization. Yet one in eight Americans lived in poverty, as did one in seven children.
The best way we have to help those people is to give them money. Year in and year out, Social Security lifts more than 20 million Americans above the poverty line; tax credits lift 6 million; and food stamps, housing subsidies, unemployment insurance, and Supplemental Security Income payments lift another 2 million to 4 million each. Expanding these programs would move the poverty rate lower, experts have long argued. Providing families with much-needed cash also tends to have a range of positive knock-on effects, such as keeping kids in school and improving health measures.
But a new set of cash-transfer programs has had lackluster results. Writing in the new publication The Argument, Kelsey Piper notes that “multiple large, high-quality randomized studies are finding that guaranteed income transfers do not appear to produce sustained improvements in mental health, stress levels, physical health, child development outcomes or employment. Given the sobering results, politicians and policy makers should hesitate before pumping funds into these safety-net initiatives, she argues. If not, “money will be wasted on things that don’t work.”
Having a technocratic debate over how to spend the next marginal safety-net dollar feels a touch absurd at the moment. Republicans are gutting the Supplemental Nutrition Assistance Program and Medicaid to finance tax cuts for billionaires; Trump-administration officials are sending masked thugs to disappear people off the streets when they are not busy texting war plans to my boss; American democracy is fading; nobody is talking about instituting a universal basic income anytime soon. Still, policy design is important, and the analysis of these new studies seems to have convinced a number of Beltway wonks and denizens of econ Twitter that cash transfers might not be as good of an idea as we once thought.
Yet the argument has tended to overinterpret a limited and novel body of evidence while ignoring decades of sterling research showing that cash—particularly when targeted to infants and children—is near unmatched as a salve for poverty and its horrible consequences.
The new studies focused on programs that were launched over the past eight years. Each worked in a similar way. Researchers found people interested in receiving unconditional cash payments, divided participants into a control group and a treatment group, disbursed the money, and studied the differences between the two groups. The programs varied in the types of people they enrolled (Baby’s First Years targeted infants and mothers; the Denver Basic Income Project, the homeless; the Compton Pledge, low-income households) and the size and duration of transfers (the OpenResearch Unconditional Income Study offered $1,000 a month, Baby’s First Years, one-third that sum).
The results were disappointing in some respects. “Homeless people, new mothers and low-income Americans all over the country received thousands of dollars. And it’s practically invisible in the data,” Piper writes in her summary. Denver’s program did not lead to a material reduction in homelessness. Compton’s did not improve its participants’ psychological well-being or alleviate certain measures of financial distress. The OpenResearch initiative did not bolster health outcomes. Baby’s First Years did not advance child development or spur families to move to better neighborhoods. “On so many important metrics, these people are statistically indistinguishable from those who did not receive this aid.”
But people receiving aid were statistically distinguishable from those not receiving aid: They had more money to use on the things they needed, or wanted. In the OpenResearch pilot, participants spent more on housing, transportation, and food. Mothers who got cash through the Baby’s First Years initiative were less likely to be in poverty than those who did not. In other words, a famed anti-poverty measure reduced poverty.
This intuitive finding is underplayed, perhaps because it is so intuitive. Cash transfers aren’t new. No safety-net policy has ever been as thoroughly examined over the course of decades. Last year alone, initiatives to send cash and cashlike substitutes to American families cut the overall poverty rate in half. Just a few years ago, a massive temporary federal cash transfer to parents slashed the child-poverty rate to a historic low of 5.2 percent; the rate rebounded after the program ended. You give people money; they have money.
That said, I am not surprised that the pilots’ effects were limited, given when they were happening and how they were structured. The initiatives took place during and after the coronavirus pandemic, when Congress flooded families with stimulus checks, $600-a-week bonuses to unemployment-insurance payments, and a $3,600-per-kid child allowance. If the no-strings-attached payments from OpenResearch or Baby’s First Years were the only cash transfers that low-income families were receiving, I imagine that they would have had a stronger impact. (Cash transfers have more bang for the buck in developing countries than the super-wealthy United States for a related reason: The more money people have, the more expensive it is to improve their situation; the more intense the material deprivation, the greater effect a single dollar has in alleviating it.)
More important, the pilots took place during an acute cost-of-living crisis: a giant surge in inflation combined with a long-simmering run-up in the price for child care, health care, and housing. A few hundred dollars a month was never going to secure a single mom an apartment in Denver or cover the cost of 9-to-5 day care in Queens. Thus it might have had a smaller impact on financial well-being than anticipated, and might explain why transfers did more for people living in low-cost Illinois and Texas than in the witheringly expensive Los Angeles metro area.
There is a real lesson for policy makers here. Cash is no good if you cannot buy the things you need with it, and the brutal cost of day care, elder care, higher education, doctor visits, prescription medication, and rent—especially rent—continues to hammer the working and middle classes. We cannot transfer our way out of this crisis. If you give parents child-care vouchers, prices will go up unless supply expands. If you provide rental assistance, landlords will soak up the cash. Right now, surging energy costs are eating up Social Security payments, jobless benefits, and earned-income tax-credit transfers.
But the relationship between household income and supply constraints is not the focus of the current debate. Rather, folks are dinging cash-transfer initiatives for failing to bolster breastfeeding rates, cut maternal stress levels, change people’s physical activity, or increase people’s educational attainment. Given these results, a “big ‘give everyone cash’ program” will not “make them measurably healthier or happier, or get them better jobs, or improve their children’s intellectual development,” Piper writes, not “at any detectable scale.”
Hundreds of studies of cash-transfer programs conducted over the past half century, however, have come to the opposite conclusion. Giving people money does have strong ancillary benefits. Cash makes people healthier, eliminates hunger, increases educational attainment, cuts the disability rate, reduces inequality, raises lifetime earnings, and prevents incarceration. The strongest benefits redound to infants and children. But cash is not magic, and these second- and third-order effects take time to show up in the data. Mothers’ pensions, the precedent for today’s welfare program, had muted effects on the women receiving them from the 1910s to the 1930s, but significant effects on the lifetime earnings and educational attainment of their sons, decades later.
Perhaps other interventions would have worked better. Perhaps researchers should have taken the money from the pilots and spent it on, say, workforce training, job coaching, therapy, health counseling, or some other intervention. But such policies do not have a promising track record, and these studies shed no light on their comparative efficacy versus cash. Complicated programs with complicated participation criteria also tend to be expensive for the government to run and difficult for citizens to navigate, meaning fewer people use them. That’s a big reason to just give people money. Folks would rather receive cash than a refundable tax credit to reduce energy costs, or an income-scaled voucher redeemable at a certain location after you fill out a bunch of paperwork.
The point of giving people money right now is to get them out of poverty. The point of giving people money is to give their kids a better chance at a healthy, abundant life. Reading the studies, I kept on thinking about that temporary child allowance. When parents received the cash, they didn’t feel happier. They moved above the poverty line, and bought more groceries. They could afford more formula for their babies and berries for their toddlers. Maybe that’s a disappointment. But as a parent myself, I kept thinking: What a win.
