The Numbers Are in and Cash Transfers Don’t Work   Leave a comment

Angela Rachidi (American Enterprise Institute)

Found on FEE

Government transfers of cash to individuals and families have received increased attention in recent weeks, possibly because the presidential election revealed a disgruntled working class and left policymakers scrambling to find solutions. Even before the election, scholars across the political spectrum were advocating for unrestricted cash transfers as a way to relieve some economic insecurity for those at the bottom. But a recent study shows, similar to past studies on the same topic, that unrestricted cash transfers reduce employment and have few measurable positive effects.

Treatment decreased the probability that participants work in a given year by 3.3%.

Image result for image of negative effects of basic incomeThe study by David Price and Jae Song studied the long-term (40-year) impacts of the Seattle-Denver Income Maintenance Experiment from the 1970s. Like other income maintenance programs during that time, the experiment provided unrestricted cash transfers to beneficiaries (quite sizeable if no other income was in the household), which provided a basic income no matter what other resources were in the household.

The contribution of this study is that it looked at outcomes for the adults who received the payments, as well as their children, 40 years after the experiment. From the study:

We find new evidence of significant effects on adults, decades after the experiment ended. On average, treatment decreased the probability that participants work in a given year by 3.3 percentage points (4.6% of the mean probability of working for adults in our sample), and decreased average annual earnings by $1,800 (7.4% of mean annual earnings). Treated adults were also 6.3 percentage points (20% of the mean) more likely to apply for disability benefits (either SSDI or SSI), but were not significantly more likely to be awarded benefits, or to have died.

The authors also found no long-term effects, positive or negative, on the children of families who received the cash payments.

Policymakers should consider the long-term impacts of cash assistance.

The experiment only lasted for 3 to 5 years, making it unclear whether a longer guarantee of basic income would have had the same effects. But consistent with past research, it showed that cash transfers without requiring work will lead to reduced employment and other possible negative outcomes.

Image result for image swiss reject universal basic incomeCurrent proposals to provide unrestricted cash transfers to families fail to acknowledge this reality. Proposals to provide assistance not linked to work, such as a basic child allowance (here and here) or basic income may only make things worse without considering the long-term consequences. As Price and Song conclude:

Guaranteeing a minimum income above the poverty line ensures that a family is not in poverty while the guarantee is in place, but it alone may not be a panacea to break the cycle of poverty. Taken together, our results suggest that policymakers should consider the long-term impacts of cash assistance. In [the Seattle-Denver Experiments], assistance does not cause large observable benefits for children, and may lead to unintended consequences for adults.

Source: The Numbers Are in and Cash Transfers Don’t Work

By the way, the Swiss were asked to vote on this earlier this year. Only 23% thought it was a good idea and it was rejected in all cantons. The Swiss are extremely practical and liberty minded and the entire country favors limited government.

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Posted December 23, 2016 by aurorawatcherak in economics

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