“Until a few years ago, I didn’t think this was a very complicated subject; The Luddites were wrong and the believers in technology and technological progress were right,” Lawrence Summers, a former Treasury secretary and presidential economic adviser, said in a lecture at the National Bureau of Economic Research five years ago. “I’m not so completely certain now.”
Yeah. Quantitative Easement didn’t do much easing. They made it cheap to get money, so money is now plentiful for some, but mostly for those who already had plenty. Now they are like a bunch of 8 year olds in a candy store with carte blanche and a belly ache, but not about to go eat a vegetable.
How would you feel if you learned a drug had been found that vastly improves the health and well-being of some of the poorest people in the world? This new treatment, Pecunilam, has startled researchers for its efficacy in treating a whole host of conditions. Today, it is easily the most heavily researched development intervention in the world.
A single dose works as a powerful poverty reduction tool, too. In one study in Sri Lanka, men’s annual income had increased substantially five years after treatment. A separate study in Uganda found that four years after receiving a dose, young people earned 41 percent more than those who had not been treated, dipping back down only nine years out.
Here's the thing: Pecunilam is no drug. It’s cash.
Does that change how you feel about it? Should it?
The point of this thought experiment is simple: If tomorrow a drug was developed that transformed the lives of the world’s extreme poor as efficiently as direct cash transfers, it would be considered a revolution in the world of aid. Well, guess what: It already exists.
The mechanisms through which cash achieves these results aren’t clear, but one study in Kenya finds important reductions in the stress hormone cortisol in some groups who receive cash transfers. These are accompanied by large improvements in self-reported psychological well-being, with larger transfers associated with bigger effects. More research is needed, but we can hardly be surprised to suspect there’s a link between sudden cash infusions and newfound peace of mind.
Direct cash aid is also amazingly cost-efficient. A 2016 study by Innovations for Poverty Action looked at 48 separate anti-poverty programs and found that one-time cash transfers have the highest cost-benefit ratio compared to a range of other anti-poverty measures, from popular give-a-farmer-a-cow type programs to complex, integrated programs that seek to address the whole range of community ailments at once.
So why aren’t cash transfers being used more widely?
Perversely, their own cost effectiveness might be part of the reason. As many as 94 cents of every donor dollar spent on direct transfers to the extreme poor reach them directly, compared to ratios for traditional programs that are often impossible to calculate and might range as low as 60 cents on the dollar. The remainder, of course, funds a sprawling international aid bureaucracy — which, like all bureaucracies — feels threatened by newer, cheaper, more effective ways of delivering its mandate.
But think of it this way. If you had an emergency in your own life, would you want a bureaucrat deciding you’ll get $100 worth of canned goods, or would you rather take a $100 bill? You don’t need a pile of social scientific studies: You know cash is better because cash is what you’d choose for yourself.
Why? Because cash is power. Cash puts you in charge and lets you decide what your priorities are. If your goal is to empower the extreme poor, nothing does that like cash in their pockets.
Direct cash transfers disintermediate aid, cutting out the development middle man and shifting power from aid bureaucrats to the actual people in need. While some charities and aid agencies — such as the U.K.’s Department for International Development and CARE International — have woken up to the potency of cash transfers, too many lag behind.
Giving cash directly to the world’s poorest people is one of those radical ideas that, on second thought, is so obvious it never ought to have seemed radical in the first place. For the last decade, one small aid organization — GiveDirectly — has worked out all the kinks, documented results and proved the idea can work at scale. That is why, full disclosure, I donate to it each month.