A better way to ease poverty — well, maybe
It’s midway through 2022, and we still haven’t solved poverty — not in Texas, not in the United States.
It’s complicated.
When COVID-19 hit, I believed that unconditional cash transfers could be a big part of the solution.
It turns out that under Presidents Donald Trump and Joe Biden, the federal government also endorsed that idea — to an extent we had never seen.
The U.S. government issued three rounds of economic stimulus in 2020 and 2021, with checks of $1,200, $600 and $1,400 per adult. Economists pointed to an immediate drop in childhood poverty rates with these payments. Critics pointed to increased deficits and, eventually, inflation.
At the same time, local efforts also ramped up to replace or supplement traditional poverty-fighting efforts with cash transfers.
In May, the Austin City Council approved a program to provide monthly $1,000 checks to 85 families for one year, specifically targeting families at risk of eviction from their homes. Austin is unique in that only local tax dollars will go toward its pilot program, which is set to start this summer.
Even before that, San Antonio launched an even larger program combining public and private dollars. The San Antonio program was funded quietly in December 2020 and still has six months to run, until January.
One thousand families earning less than 150 percent of the federal poverty level were enrolled to each receive $5,108 over two years. Two-fifths of that amount was issued immediately in a lump sum from public funds, with the rest issued in monthly $400 payments contributed by private philanthropies in the area.
Although the cash transfers are unconditional in the sense that the money is not tied to buying food or other necessities, the program is paired with capacity-building support for participants, meant to encourage work advancement or entrepreneurship.
In both Texas cities, an Oakland, Calif.-based organization called UpTogether provides payment infrastructure. UpTogether’s premise is that unconditional cash can and should be combined with community support.
Patton Dodd — executive director of storytelling and communications for the H.E. Butt Foundation, one of the private philanthropic partners in San Antonio — emphasized the role that UpTogether plays as a convener.
“It was important for us that UpTogether’s unique approach to cash transfers includes an emphasis on community — people building social capital on the UpTogether platform,” Dodd said. “That piece gets overlooked a lot, but we agree with UpTogether that community is essential.”
Trusting people in need
The point of unconditional cash is that it empowers individuals and families to decide what they need most. It does not rely on a bureaucratic organization to restrict expenditures to food, transportation or housing, but rather allows recipients to spend the money as they see fit. It’s a “we trust you” statement to people who need it, which is not generally the way we do welfare in this country.
Many worry that unconditional cash will be squandered, but as San Antonio Mayor Ron Nirenberg reported, “with direct cash assistance … we’ve seen the exact opposite.”
“An overwhelming majority of participants in this program use their funds on basic needs — utilities, rent, mortgage and other bills,” he said. And further, “this was made possible by not assuming we know the outcomes or the needs of every family but trusting them to make good decisions with the assistance provided.”
Nirenberg and Austin Mayor Steve Adler are members of a related advocacy organization called Mayors for a Guaranteed Income.
Dodd described to me H.E. Butt’s reason for participating: “Our city … includes a lot of households making 80 to 120 percent of the average median income — people who are striving but who are one sickness or broken-down car away from deep crisis. Cash infusions are an efficient way to help those families, and UpTogether’s data has shown that people use this money to get ahead and not just get by.”
But it’s in the data where things get a little problematic.
Among proponents of unconditional cash transfers, many call for studying their effects by collecting scientifically rigorous data. This makes sense because if unconditional cash is more effective than other programs for alleviating poverty, such as food stamps or housing vouchers, then hopefully we could replace complicated government programs with simple monthly cash.
But not all data analyzed supports that hypothesis. A study released this month by
Harvard Business School and the University of Essex that followed 5,000 individuals in poverty during the first year of the pandemic.
The study’s designers tracked people who each received a one-time cash payment of $500 and those who received a $2,000 payment, and compared them to people who received no cash payment.
They evaluated outcomes in terms of financial well-being, psychological well-being and physical health, as well as bank account balances, when available.
The annoying result, for believers like me: The single payments had no discernible positive effect.
I haven’t given up on the idea that cash transfers are superior to existing welfare programs. But we have to consider rigorous studies that show the opposite of what we expect or hope to be true.
The bargaining part of my brain wants to argue that a study of people in poverty conducted during the beginning of a pandemic is not representative — or that a onetime payment is not the same as monthly ones, or that the cash payments involved in this study were not accompanied by any community support, as is being provided in San Antonio.
But if the study reported what I had wanted it to say, would I have taken it as the truth? Well, yes, that’s how my brain works with confirmation bias, and probably yours as well.
So these experiments should continue, and we should be open to what works and what doesn’t.
The only thing known for sure is that we still haven’t solved poverty in the richest country in the world.
Michael Taylor is author of “The Financial Rules for New College Graduates” and host of the podcast “No Hill For A Climber.” michael@ michaelthesmartmoney.com | twitter.com/michael_taylor