“There are some arguments for in-kind transfers. We might think that the poor are so totally incapable of managing their own affairs that they must be given goods, rather than allowed to spend on what they want most.”
Do you have an explicit refutation for this point? If we grant that a large share of recipients would otherwise consume things we deem socially harmful (or harmful to the buyer), these calculations cease to measure what we want.
There is a subgroup within the category of assistance recipients which should be given in-kind assistance and oversight: people with serious drug/alcohol addiction and mental health issues.
In their case, with housing, not only should they be given a housing voucher rather than cash for housing, they should be given some type of supportive housing where addiction workers and public health nurses can oversee them. In the case of people struggling with addiction and mental health issues, cash transfers will go towards drugs and alcohol. Once their monthly disbursement is gone, these people will be at risk of hunger and, if they spend the rent money on drugs, eviction and homelessness.
Some might argue for an even more struct approach of institutionalization in addiction treatment programs and/or mental health facilities, but this proposal has major ramifications on individual liberty, as there's a huge assymetry between the highly educated professionals (doctors, psychiatrists) making the judgment call that Bob or Suzy (poor people facing addiction) need to be institutionalized and the impoverished, poorly educated people on the receiving end of these decisions. If Bob or Suzy get institutionalized, they may have no one to advocate on their behalf and argue for their release, so they may end up "inside" for years.
Counterpoint: in terms of modern christmas, a substantial cost of buying an item is search cost. Consider a doctor who could make $100/hr and spends 2 hours doing research before settling on a $70 computer mouse. If you have a mouse you like already, you can give them one and the gift's deadweight loss is -$200.
Many people really would do better with cash handouts, and others would likely do a lot worse.
Perhaps the best system would be one that attempts (however imperfectly) to determine which bucket the recipient falls into and proceed from there. Eg. If the recipient tests positive for drugs and alcohol, then they only receive the in-kind transfers (which make it harder to use handouts for the wrong reasons and ultimately will result in fewer drugs purchased). On the other hand, the needy person who is more likely to use the money in ways the taxpayer would approve of would get a cash transfer.
Such a system would not be perfect, but it would do a lot to reduce deadweight loss relative to our current approach.
This is a compelling idea. It could also be cheaper if recipients are granted in-kind transfers but must apply to switch to cash transfers. It’s really an actuarial problem after all.
Interesting piece Nicholas! I have never considered the “deadweight loss” of gift giving or of welfare, like food stamps or Medicare.
The conclusion, however, that direct cash transfers are superior, does not surprise me.
Where feasible, the state should limit its assistance to the poor using cash. This would also greatly reduce the administrative burden of these programs.
“There are some arguments for in-kind transfers. We might think that the poor are so totally incapable of managing their own affairs that they must be given goods, rather than allowed to spend on what they want most.”
Do you have an explicit refutation for this point? If we grant that a large share of recipients would otherwise consume things we deem socially harmful (or harmful to the buyer), these calculations cease to measure what we want.
There is a subgroup within the category of assistance recipients which should be given in-kind assistance and oversight: people with serious drug/alcohol addiction and mental health issues.
In their case, with housing, not only should they be given a housing voucher rather than cash for housing, they should be given some type of supportive housing where addiction workers and public health nurses can oversee them. In the case of people struggling with addiction and mental health issues, cash transfers will go towards drugs and alcohol. Once their monthly disbursement is gone, these people will be at risk of hunger and, if they spend the rent money on drugs, eviction and homelessness.
Some might argue for an even more struct approach of institutionalization in addiction treatment programs and/or mental health facilities, but this proposal has major ramifications on individual liberty, as there's a huge assymetry between the highly educated professionals (doctors, psychiatrists) making the judgment call that Bob or Suzy (poor people facing addiction) need to be institutionalized and the impoverished, poorly educated people on the receiving end of these decisions. If Bob or Suzy get institutionalized, they may have no one to advocate on their behalf and argue for their release, so they may end up "inside" for years.
Counterpoint: in terms of modern christmas, a substantial cost of buying an item is search cost. Consider a doctor who could make $100/hr and spends 2 hours doing research before settling on a $70 computer mouse. If you have a mouse you like already, you can give them one and the gift's deadweight loss is -$200.
Many people really would do better with cash handouts, and others would likely do a lot worse.
Perhaps the best system would be one that attempts (however imperfectly) to determine which bucket the recipient falls into and proceed from there. Eg. If the recipient tests positive for drugs and alcohol, then they only receive the in-kind transfers (which make it harder to use handouts for the wrong reasons and ultimately will result in fewer drugs purchased). On the other hand, the needy person who is more likely to use the money in ways the taxpayer would approve of would get a cash transfer.
Such a system would not be perfect, but it would do a lot to reduce deadweight loss relative to our current approach.
This is a compelling idea. It could also be cheaper if recipients are granted in-kind transfers but must apply to switch to cash transfers. It’s really an actuarial problem after all.
Interesting piece Nicholas! I have never considered the “deadweight loss” of gift giving or of welfare, like food stamps or Medicare.
The conclusion, however, that direct cash transfers are superior, does not surprise me.
Where feasible, the state should limit its assistance to the poor using cash. This would also greatly reduce the administrative burden of these programs.