Wednesday, January 12, 2011

paying the poor

Last week an article in the NYTimes reported on the successes of Bolsa Familia, the conditional cash transfer program in Brazil that now serves a quarter of the population of the entire country. Unfortunately, the article (especially the headline) focused on "cash transfer" and deemphasized "conditional", and entirely ignored the less salient impacts of the policy.

"To Beat Back Poverty, Pay the Poor". Wow, so simple! I can't believe we didn't think of this before. Unfortunately, that headline is shameless pandering to the insane contingent of leftist American politics who so naively believe that poor Americans are already virtuously doing everything they can to help themselves, and therefore all we have left to do is to bail them out from whatever untenable situation is keeping them in poverty. (Of course, most people in this contingent are upper-middle-class suburbanites, who I would like to collectively invite to go work in a disability benefit office for awhile or live in section 8 housing and see what really goes on in the lives of a significant fraction of welfare-state beneficiaries...)

Bolsa Familia doesn't just pay the poor to keep their heads above water. It pays them to keep their kids in school, take them to the doctor, and attend classes on disease prevention or other life skills. And, it limits the benefits to only a couple kids per family. In other words, it pays the poor to ensure that their offspring aren't doomed to repeat their mistakes.

I think this is a nice pseudo-solution to the biggest problem with welfare programs, which is that they make poverty more attractive to stay in. The implicit marginal tax rate (the sum of higher taxes and lost benefits when making an extra dollar) on the poor in the U.S. is over 90% in many cases. Who on earth would work extra hours for that? Conditional cash transfers aren't any different, but at least they prevent hereditary poverty. It still makes advancement less attractive for the adults but much more attractive for their kids. Dropout rates have indeed plummeted since Bolsa Familia was introduced.

The hidden downside to such programs, completely ignored by the article, is that they are LARGE and suck government support from other programs that may be more worthwhile, such as education and infrastructure. This is a longer term effect that is harder to pinpoint, but some people already have.

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