#169 – Paul Niehaus on whether cash transfers cause economic growth, and keeping theft to acceptable levels
Oct 26, 2023
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Paul Niehaus, co-founder of GiveDirectly and economist at UC San Diego, explores the transformative power of cash transfers for the poor. He discusses compelling evidence showing that direct cash aid can boost economic growth more effectively than traditional aid. Insights into recipients’ preferences for payment formats, the challenges of fraud, and the potential of Universal Basic Income (UBI) studies are highlighted. Niehaus also elaborates on how cash transfers impact decision-making and risk-taking, reshaping our understanding of poverty alleviation.
Cash transfers have broader ripple effects on the economy, benefiting others beyond individual recipients.
Cash transfers are scalable and have the potential to address extreme poverty on a larger scale.
GiveDirectly raises the bar for other interventions in the aid sector, contributing to global poverty reduction.
Studying the general equilibrium effects of cash transfers is crucial for identifying effective interventions for individuals and communities in need.
Cash transfers have a 2.5 multiplier effect on economic output, leading to increased demand and utilization of underutilized resources in the community.
Deep dives
General Equilibrium Effects of Cash Transfers
Cash transfers have broader ripple effects and ramifications on the economy due to the interconnectedness of individuals. Studying the general equilibrium effects helps us understand the total consequences of cash transfers beyond individual recipients. When individuals receive cash transfers, they use the money for transactions, benefiting others as well. This mechanical effect of cash transfers on the broader community is significant and should be taken into account when analyzing the impact of such programs.
Scalability of Cash Transfers
Cash transfers are highly scalable in terms of implementation because they have already been successfully used in many low-income countries and have reached billions of people. In comparison to other anti-poverty interventions, cash transfers have the potential to be relevant and impactful at a larger scale. While other interventions may have specific benefits in certain contexts, cash transfers can address the overall problem of extreme poverty more broadly.
Value of GiveDirectly
GiveDirectly plays a significant role in changing the aid sector by raising the bar for other interventions. While it has been acknowledged that there may be other interventions that perform slightly better than cash transfers in specific areas, the focus should be on accelerating global poverty reduction. By giving to GiveDirectly, donors contribute to the movement of improving the quality of aid and providing direct assistance to individuals in extreme poverty.
The Importance of Understanding General Equilibrium Effects
Studying the general equilibrium effects of cash transfers helps assess the broader impact on communities and regions beyond individual recipients. By considering the ripple effects of cash transfers, we gain insight into the potential jump-starting of local economies and the acceleration of poverty reduction. Understanding general equilibrium effects is crucial for identifying the most effective interventions to support individuals and communities in need.
Overview of the Study
The podcast episode discusses a study conducted by GiveDirectly that explores the impacts of cash transfers on poverty reduction and economic growth. The study consists of three different arms, including a long-term arm where recipients receive 75 cents per day for 12 years. The hypothesis is that providing a long-term safety net would have positive effects on recipients' decision-making, risk-taking, and business opportunities. Two other arms are included as comparison groups, one with a two-year commitment and another where recipients receive a lump sum payment. The study aims to provide insights into the potential benefits and dynamics of UBI in low-income countries.
Multiplier Effect and Economic Output
One of the main findings of the study is the 2.5 multiplier effect of cash transfers on economic output. This means that for every $1 spent on transfers, the economic output in the region expands by $2.50. The multiplier effect is explained by the increase in demand and utilization of underutilized resources in the community. The study finds that the cash transfers lead to increases in retail and small-scale manufacturing, as well as improvements in standards of living for both eligible and ineligible individuals in the communities. However, the study emphasizes that economic output is not the same as well-being, and that careful analysis is needed to assess the overall impact on individuals' lives.
Challenges and Considerations
The podcast episode also addresses some challenges and considerations related to cash transfers. Concerns about fraud and theft of funds are acknowledged, with examples of cases where people enroll ineligible recipients or ask for kickbacks. The study highlights the importance of addressing these risks and ensuring proper implementation. The episode also explores potential concerns about the long-term sustainability of cash transfers and their impact on recipients' motivation to work. However, evidence from previous cash transfer programs suggests that work incentives are not significantly affected. Lastly, the episode discusses the political viability of UBI and emphasizes the need to consider the social and ethical dimensions of creating a fair and just society.
Main idea/key point 1
The podcast discusses the prevalence of theft, bribery, and fraud in fund distribution, highlighting that it accounts for around $250,000 annually. The podcast emphasizes the importance of not setting the expectation of zero fraud, as that could discourage reporting and detection. Strategies to prevent and investigate such incidents include checks and balances, separation of powers, internal audits, and data analysis for irregularities.
Main idea/key point 2
The podcast delves into GiveDirectly's biggest fraud case in the Democratic Republic of the Congo (DRC), where staff manipulated the registration of SIM cards to withdraw cash meant for recipients. The incident lasted for four months before being detected. It prompts a discussion on the trade-off between providing cash transfers in unsafe regions and implementing stricter control measures. The episode also touches upon ongoing universal basic income (UBI) studies conducted by GiveDirectly in Kenya, Malawi, and Liberia, highlighting positive impacts on economic activity and food security, and the potential benefits of longer-term transfers.
"One of our earliest supporters and a dear friend of mine, Mark Lampert, once said to me, “The way I think about it is, imagine that this money were already in the hands of people living in poverty. If I could, would I want to tax it and then use it to finance other projects that I think would benefit them?”
I think that's an interesting thought experiment -- and a good one -- to say, “Are there cases in which I think that's justifiable?” — Paul Niehaus
In today’s episode, host Luisa Rodriguez interviews Paul Niehaus — co-founder of GiveDirectly — on the case for giving unconditional cash to the world's poorest households.
The empirical evidence on whether giving cash directly can drive meaningful economic growth
How the impacts of GiveDirectly compare to USAID employment programmes
GiveDirectly vs GiveWell’s top-recommended charities
How long-term guaranteed income affects people's risk-taking and investments
Whether recipients prefer getting lump sums or monthly instalments
How GiveDirectly tackles cases of fraud and theft
The case for universal basic income, and GiveDirectly’s UBI studies in Kenya, Malawi, and Liberia
The political viability of UBI
Plenty more
Chapters:
Cold open (00:00:00)
Luisa’s intro (00:00:58)
The basic case for giving cash directly to the poor (00:03:28)
Comparing GiveDirectly to USAID programmes (00:15:42)
GiveDirectly vs GiveWell’s top-recommended charities (00:35:16)
Cash might be able to drive economic growth (00:41:59)
Fraud and theft of GiveDirectly funds (01:09:48)
Universal basic income studies (01:22:33)
Skyjo (01:44:43)
Producer and editor: Keiran Harris Audio Engineering Lead: Ben Cordell Technical editing: Dominic Armstrong and Milo McGuire Additional content editing: Luisa Rodriguez and Katy Moore Transcriptions: Katy Moore
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