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These Nobel Prize-winning economists explain why direct cash transfers are so vital to fighting poverty

Direct cash transfers have become mainstream during the pandemic. But two Nobel Prize-winning economists say the way in which they’re administered needs some ironing out.

These Nobel Prize-winning economists explain why direct cash transfers are so vital to fighting poverty
[Illustration: FC]
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One type of income assistance won’t fit all of the world’s economies, nor all of the people within a single economy, say MIT economists Esther Duflo and Abhijit Banerjee, on a panel at the Fast Company Innovation Festival. Governments need to do better in addressing different needs within their populations, and providing variations of cash relief for different circumstances.

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Duflo and Banerjee, winners of the 2019 Nobel Prize in Economics, discussed some of the research that they laid out in their 2019 book, Good Economics for Hard Times. They said that some of the ideas—particularly those about direct cash transfers to help struggling populations—weren’t in favor pre-pandemic. “Not very many people were talking about the possibility of showering the world with money,” Duflo said. But, in the era of COVID-19, which certainly qualifies as one of those titular “hard times,” many countries, rich and poor, brought cash stimuli into the mainstream.

There’s more dignity in giving someone cash than a food voucher, which essentially prescribes how a human should spend their money. It’s this concept of dignity that should underlie cash relief systems everywhere in the world, Duflo said. But, its definition varies. In poor countries, where many people face a literal risk of starvation: “You are a shock away from not being able to put food on the table,” she said. Indeed, the pandemic has pushed millions of people into extreme poverty. Dignity, then, is the act of being able to feed your family. So, the duo advocates for a universal basic income (UBI) to cover those basic but fundamental expenses, especially given that it’s hard to target people effectively in some developing countries, and that has left needy people excluded in the past.

In rich countries, the economists also believe UBI can exist “because that’s a part of your right as a citizen, to have a minimum income,” Banerjee said. But, in the developed world, dignity is not only about sustaining your family, but it’s also about “having a sense that you belong to the community, that you’re playing your part,” Duflo said. That requires a “more generous” chunk of money for certain people, which those governments can afford.

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Those payments could be targeted—and efficiently responsive—to “layer on top” of UBIs: for instance for someone who loses their job due to offshoring. That person clearly has a need for additional resources at a particularly low point. It’s ideally “a system that says, ‘Look, you got screwed over, we’re going to try and help you get back on your feet,'” Banerjee said. This responsive part of the social system is the one that’s weak, in the U.S. and also in other rich economies often lauded for their safety nets, such as Denmark.

Whether conditional or unconditional payments, the duo said one of the most frequent myths about direct cash transfers is simply not true: that people will squander it. “It’s striking how little evidence there is that when you give people an unexpected bunch of cash, they go out and buy booze or something else is bad for them,” he said. There are many years of proof to the contrary; and, in an outcome they very much expected, there’s already data available about how pandemic unemployment assistance in many countries has not stopped people working. “This fear that cash will somehow be misused is really extraordinarily overemphasized,” Banerjee said. “They seem to spend it in perfectly sensible ways.”