A left-wing economist thinks he has the found the cure-all for poverty: free money!
The Brookings Institute's John McArthur wrote a piece on June 1 calling for 66 countries to implement a form of guaranteed income to the poor in their respective countries that are equal to less than 1% of their gross national incomes. Anything beyond that would be too much, as it would take away funding from other crucial areas, like infrastructure.
"This would help reach around 185 million people living in extreme poverty, more than a quarter of the world’s current total," wrote McArthur. "It includes around 100 million people in India, 17 million in Indonesia, and 9 million in Brazil, among other countries."
McArthur did acknowledge that there are a few qualifiers associated with his idea:
First, the efficacy and impact of cash transfers will differ across contexts. Second, the estimates exclude administrative systems for transfer delivery. Those costs are not zero, although they are low and declining thanks to the diffusion of digital technologies.
Third, the figures ignore the costs of identifying the poorest people in each country. These too are not trivial, but India’s recent success in issuing more than a billion digital identity cards shows the viability of connecting to vast populations in need. Fourth, the estimates only address one dimension of living in extreme poverty—income—without considering other crucial public services like education, health, roads, and public safety systems that societies require in order to support long-term prosperity.
McArthur still maintains that his idea could cause poverty to decline by 25% by 2025 and eliminate extreme poverty altogether by 2030.
"There are no silver bullets in the fight against extreme poverty, but cash transfers have shown themselves to be a powerful weapon in the arsenal," McArthur wrote.
But have they? The evidence that McArthur cites for his argument is rather weak, as he simply states that the cash transfers would be enough to raise people's incomes out of poverty. If economics were a zero-sum game, then his argument might be valid but that is simply not the case.
One of the problems with McArthur's solution is that the money is then taken out of the economy that could have gone toward creating wealth and jobs that could have improved the lives of everyone, including those in extreme poverty. It also does little to improve the situation of the poor, as it discourages them from working and provides an incentive to remain poor.
The best way to eliminate poverty isn't cash transfers, it's capitalism. Only by encouraging work and providing the poor with an opportunity to lift themselves out of poverty will extreme poverty be fixed.
H/T: Business Insider