The War On Poverty Is Grounded In Paternalism

Many researchers interested in extreme poverty (i.e., people living on less than $1.25 per day) are in agreement about the best way to help the world's poorest people: Giving the poor cash is better than almost every other alternative. Yet, the World Bank, International Monetary Fund, and countless aid organizations have instead invested billions of dollars in corrupt leaders and bad development ideas.

Researchers interested in disaster relief after tornadoes, hurricanes, and tsunamis have also reached a similar conclusion: People suffering in the aftermath of a natural disaster prefer cash to clothing, shoes, or the junk we send to recovering communities. Cash, by definition, is fungible and empowers the people in need to get the resources most urgent to them. It is vital to the development process, and gifts in kind are, in the language of economics, almost always inefficient when compared to cash.

The two aforementioned lines of research are relevant because America's War on Poverty is a disaster in its own right, and much of the program is grounded in feel good ideas and paternalism, rather than what the poor actually need and deserve. America's poor could benefit greatly if our welfare system were streamlined and control rights were shifted from government bureaucrats to the poor themselves.

Unfortunately, most of our welfare programs are still based on centralized models where the government rations scarce, low quality resources. From the 1960s to 1990s, for example, the US Commodity Credit Corporation produced government cheese and then distributed it to the poor. The free cheese program was driven, in part, by the idea that the poor need dairy and calcium in their diets (but they wouldn't be responsible enough to consume it on their own) Over time, government cheese production was displaced by more sensible programs like food stamps, and the lives of the poor and the efficiency of our welfare system improved ever so slightly as a result.

While food programs to the poor have (thankfully) shifted away from direct government production, there are many other welfare programs that still look a lot like government cheese programs. Public housing, for example, is still based on the idea that the government is an effective builder and manager of America's housing stock. A far more enlightened and pro-poor welfare program would either give the poor cash directly, give them vouchers to use on privately provided housing, or give them ownership rights in the current supply of public housing and get the government out of the way. A straight cash transfer, of course, is the most controversial but, in ways, the most efficient: The poor are given the power to choose where to live, and the government slowly exits the business of supplying crime-ridden projects to the poor.

Many people worry about the cash being wasted and the poor just taking up residency on our streets. Some of these worries are probably real while others are overblown; vouchers that require the dollars be used on housing would at least be a step in the right direction and a significant improvement over our current model of moving the poor into the projects.

Like housing, healthcare and education could be vastly improved with a little bit of creative thought and empathy. We spend about $11,000 per child per year on education nationally. Imagine if the poor were given money (or vouchers) and given choice over where their kids go to school.

Obamacare and many other programs seeking to provide blanket coverage of the poor address one (important) problem afflicting the poor. But, for the vast majority of poor people who don't need much in the way of health care, the reaction must be something like, "Free health care is great...but it's not really what I needed." Rather than have a broad brushed program that helps those who are sick but does little to help the healthy poor, why not, again, consider a system of cash transfers and market incentives: Give each poor person $6,000 per year. If they use it on health care, it's the first money that goes; if they are healthy, on the other hand, let them keep 50 percent or even the entire amount to use as they see fit.

Just as a privately owned house--even if subsidized somewhat by the government--encourages better care from the people who own it, a cash based health system empowers the poor, greatly expands their number of options, and creates incentives to be healthy and make healthy choices. Yes, there will still be about 15 percent of the poor with serious disabilities that need different care, but we could go a long way towards truly helping the poor with a few small tweaks.

The plight of the poor is about a lot more than getting a better education or finding a job. It's about repairing the damage that has been done to their lives on a multitude of margins--broken families, stress and depression, fear of crime, drug use, etc. And, the plight varies from person to person and community to community. Like the broader effort to alleviate world poverty that I mentioned earlier, our War on Poverty has layered one bad idea on top of another in the hope something will stick. Yet, the problem persists, and there are few promising signs we are even headed in the right direction.

Rather than complicate the poverty problem further with more programs and more "spread the wealth around" policies, it's time we draw on the research work being done on extreme poverty: When it comes to poverty, less is more; doing bad is often bundled up in trying to do good; and cold, hard cash, even with the concomitant risks of abuse, is superior to just about anything else we've tried.