Direct cash payments work ...we’re about to see how

Suddenly, even conservatives are interested in direct cash payments to people in need. The package up for a vote in the Senate offers $1,200 for each adult and $500 for each child for many households.

But the debate over such payments began again recently when Sen. Mitt Romney, R-Utah, proposed giving every American adult a $1,000 check as part of the response to the novel coronavirus pandemic. House Democrats then upped the ante, calling for $2,000 for each adult and $1,000 for each child. There’s already a robust discussion over whether the payments in the Senate legislation are sufficient: Still, the bill takes an idea that has long languished on the fringes of Washington policy discussions – providing unconditional cash transfers, as opposed to tax rebates or other indirect benefits – and turned it into a multibillion-dollar reality.

Economists might like to believe that the reason for this dramatic change is their years of careful research demonstrating how effective no-strings payments can be. But there is probably more to Washington’s about-face than that. One reason may be the perceived inadequacy of stimulus and bailout packages in 2008-2009, widely seen as being skewed toward propping up banks and other institutions and insufficiently benefiting ordinary people. Whatever the cause of the change, it’s one to be celebrated, because getting cash directly into the hands of distressed families is both an efficient and equitable response to an economic shock like the one the coronavirus outbreak is causing.

To be sure, this wouldn’t be the first time the U.S. government has handed out cash: In 2001, after the 9/11 attacks, most Americans who filed a tax return got a $300 check, for example. Something similar happened in 2008 after the global financial crisis. But those were tax rebates, meaning that they didn’t help people who didn’t need to file. And that includes many of the poorest people in the country.

Tracing the idea further back, President Richard Nixon, influenced by economist Milton Friedman, flirted with a “negative income tax” - in effect, a cash subsidy for the poor. From 1968 to 1972, an experimental federal program provided cash to low-income recipients across five states. Studies found that families that were randomly selected to receive payments saw improvements in their children’s test scores, and they were better nourished than similar families in a control group that got no payments. There was a small negative effect on labor force participation – an issue that concerned conservatives – but that was concentrated among new mothers, who took a bit more time to return to work after their child was born. The results were widely discussed when Nixon proposed a modified version of the scheme, the Family Assistance Plan, to Congress - though it was rejected by members of both parties.

More recently, a small experimental cash transfer program in New York, starting in 2007, disbursed cash to select low-income families ($8,700 over three years, on average). Admittedly, this program included conditions: Parents had to pursue education or employment, keep their kids in school and take them for preventive health-care appointments. But the experiment reduced poverty rates among families selected for the program by 12 percentage points compared with a control group.

What’s not to like about an approach that reduces the bureaucracy associated with in-kind welfare programs – such as housing assistance (run through housing management offices) or food stamps – and that delivers results? A lot, apparently, to judge from the fate of Nixon’s Family Assistance Plan and that of other programs centered on providing cash. Overall, the proportion of safety net payments made as cash has fallen over the years, not least as a result of welfare reform under President Bill Clinton.

Today, the United States is left with just the small unconditional cash-transfer program of Temporary Assistance for Needy Families, which paid out less than $6.7 billion across 3.1 million recipients in 2018, which works out to about $6 a day. That program is limited to families with children in which adults are at least actively looking for work (or are employed) and can last no more than 60 months. States can add even more requirements.

But with the economy in free-fall, many people are thinking back to 2008-2009, the last such crisis, and acknowledging problems with the government’s response. Around $700 billion in federal spending went to the 2008 Troubled Asset Relief Program to bail out banks, compared with about $100 billion in tax rebates to families in an economic stimulus package that same year. Journalist Matt Taibbi summed up the case against that approach: “We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system.”

At the same time, a raft of new research has further bolstered the case for unconditional cash – and kept the topic on the wonk agenda. The aptly named charity Give Directly has run a series of ever-larger experiments designed to test the effectiveness of cash payments. Their results, based on randomized trials in Kenya involving 1,372 households, suggest that recipients of grants from $404 and up produce improved psychological well-being and increases in food security, among other measures. When families have full freedom to choose what to spend aid on, they do so effectively.

Meanwhile, many in Silicon Valley have championed a universal basic income as part of the response to the perceived threat of joblessness posed by robots and artificial intelligence – an idea now closely associated with former presidential candidate Andrew Yang. While a permanent universal cash transfer is still not popular in America or on Capitol Hill, it does seem to be gaining support. Thirty-five percent of Americans supported a universal basic income in a 2014 poll, compared with 43 percent who backed it in 2019 (though the questions were worded differently).