How ‘free’ government money actually hurts its recipient
“First, do no harm” is the basic rule of the Hippocratic Oath, the ancient medical code of ethics. The same applies to our public policies, particularly those aimed at helping the most vulnerable through our social safety net.
We have new evidence of the harmful and unintended consequences of welfare programs that provide assistance to poor families. This “free money” comes at a cost: less income and cash, decreased work performance and satisfaction, increased financial stress, lower quality of sleep and physical health, along with increased loneliness and anxiety.
These findings are from a new study by scientists from the University of Exeter and Harvard University. They studied Americans living in poverty under one of three conditions during the first year of the COVID-19 pandemic: those receiving a one-time $500 unconditional cash transfer (a half-month’s worth of gross household income for the average participant), and an unconditional cash transfer worth $2000. (two months income) or nothing.
The researchers measured the effects of this “free cash” on participants’ “financial well-being, psychological well-being, cognitive ability and physical health through surveys conducted one week, six weeks, and 15 weeks after receiving the cash.” For 43% of the sample, they also noted bank account balances and financial transactions.
While cash transfers increased expenditures for a few weeks, the researchers found “no evidence that they have positive effects on pre-specified survey results at any time.” They also found “no significant differences between the $500 and $2,000 groups.”
The academics tried to explain the results, saying that the money increased problems because “receiving some but not enough money made participants’ needs – and the gap between their resources and theirs – more visible, which in turn created feelings of malaise”.
Their claims would be more believable if we had not already seen the pervasive, horrific damage that the welfare state inflicted on poor families, especially black families. Conservatives recognize, for example, that our tax system punishes poor marriages; The Atlanta Fed report revealed new evidence of the “marriage tax,” or “marriage penalty.”
The researchers looked at what happens to an individual’s earnings after marriage and found that because of the way some welfare programs are structured, marriage actually hurts some of a woman’s lifetime earnings.
When someone, usually a single mother, qualifies for welfare programs such as public housing, housing vouchers, food stamps, or Medicaid, their income falls below certain thresholds. Marrying a working partner boosts family earnings beyond eligible limits, and those taxpayer-funded benefits disappear. So, basically, some women have an impediment to marriage, that is, they face the “marriage tax”.
In a separate previous analysis, Harvard-trained economist Raj Shetty found birth in a two-parent home to be the key variable in terms of whether a child grows up in poverty, drops out of school, or engages in drugs and gangs.
In their extensive research, Hoover Institution economist Thomas Sowell and Manhattan Institute fellow Jason Reilly note the broader negative trend that began with the great community welfare expansion in the 1960s.
Prior to that, about 75% of black children were born in homes to married parents. Now it’s the opposite: more than 70% of black children are born into unmarried homes.
Some progressive lawmakers oppose and argue that the breakdown in the black family is due to structural racism, including the rise of mass incarceration among black men. But Riley in particular notes that the expansion of these sponsorship programs former The high crime rate preceded the high incarceration rates.
This problem is not entirely new. Conservatives have been talking about it for decades. For us, these studies confirm the laws of economics: When you tax something, you get very little of it. When you support something, you get more of it. Whether it’s less work or fewer marriages, these are just more cases of well-meaning liberal politics that have harmful and unintended consequences.
On a larger scale, permanent cash grants and “stimulus” checks are counterproductive in causing high inflation. Multiple studies show that inflation hurts the poor, minorities, and women-led families because they spend a greater proportion of their household budgets on goods that are tracked within the CPI.
This new research at Harvard University and the Federal Reserve is further evidence that we need to restructure tax law and the welfare system so that they do not discourage and harm family and productive work. The beleaguered families deserve better.
Carrie Sheffield is a senior political analyst at Independent Women’s Voice.