On Thursday, Rep. Paul Ryan (R-WI) released his much-anticipated proposal for reforming the way the federal government tries to alleviate poverty. The core part of his proposal, the Opportunity Grant, would give participating states a lump sum of money rather than funding virtually all the current anti-poverty programs. And states would be instructed to hand that money down to community groups that work with poor people, because, as Ryan writes, “They are more effective than distant federal bureaucracies” and have “intimate knowledge of the people they serve—as well as their ability to take the long view.”
The underlying thesis is that those who are closest to actual poor people will be best able to figure out how to help them. But Ryan fails to take this idea to its end conclusion: that poor people themselves, being the closest to their own situations, are the most knowledgable about what they need to improve their lives. Instead, his proposal calls for low-income people to meet with providers to create a “customized life plan,” a contract that includes goals and benchmarks, as well as penalties for missing any steps.
In describing what this would look like, Ryan outlines the minimum requirements:
• A contract outlining specific and measurable benchmarks for success
• A timeline for meeting these benchmarks
• Sanctions for breaking the terms of the contract
• Incentives for exceeding the terms of the contract
• Time limits for remaining on cash assistance
There would be bonuses for people who meet their goals ahead of time, such as finding a job before the time allotted, although the bonus wouldn’t likely come in the form of cash but in something like a savings bond. But if they miss those goals — say, in the current American economy where there are more than two job seekers for every opening, they struggle to find a job in that time period — the poor person would face consequences, “most likely immediate sanctions and a reduction in benefits,” Ryan writes.
An entirely different approach would take out the middle man of the providers and let poor people decide for themselves how best to improve their lives. This could be done by simply giving money, without strings attached, to the poor. While it may sound radical, there have been experiments that have done just this and found positive results.
In Uganda, the government gave about a year’s worth of income, or about $380, to a group of applicants, and denied it to the other half. There were no conditions on the money, but those who got it invested most of it in “skills and business assets,” ending up 65 percent more likely to practice a skilled trade. Recipients worked an average 17 hours more than those without the money. And compared to the group that didn’t get the cash, those who did saw a 49 percent increase in earnings two years later and a 41 percent increase four years out, indicating that the effects last.
A similar study in Kenya found that after poor families in rural Kenya were given an average of $513 by an NGO, their assets and holdings were 58 percent higher than a control group a year later, incomes were 33 percent higher, hunger was significantly reduced, and their psychological wellbeing increased.
Just because these programs have proven positive in other countries may not mean they work here, of course. But there have been some experiments in the United States. A natural one occurred when the Eastern Band of Cherokee Indians in North Carolina opened a casino in 1996 and decided to distribute some of the profits equally to its members. Beforehand, about a fifth lived in poverty, but five years later, when members were getting $6,000 per person a year, the number of people below the poverty line was cut in half. Children’s behavioral problems declined, as did minor crimes, and graduation rates improved.
The reductions in poverty for the whole country could be significant. One calculation finds that giving people $3,000 a year cuts the poverty rate in half. Another found that giving each child a $400 monthly payment would cut child poverty from 22 percent to below 10 percent, or on the other hand giving one worker per family $15,000 a year would bring child poverty to under 1 percent.
And as some of the research in other countries have found, it may actually increase how much people work, rather than decrease it. While some other experiments with negative income taxes in the United States found they moderately reduced the hours recipients worked, there are reasons to think that it didn’t mean people decided to stop working as much.