In designing a welfare system - pay cash please

An interesting piece in The Guardian which underlines an important point about welfare systems - they should be paying out cash.

No one doubts that we're going to have some form of welfare system, the arguments are only about how much and how generous. But underlying the basic discussion we really do have to insist that however wide the system is it should be one which pays out real money which the recipients can then determine how to spend themselves:

We all have our own ways of dealing with the insecurity of poverty. For my father, food was a point of pride. No matter how close the wolf got to our door, we ate well. Food stamps helped, but my dad was also thrifty. To make up for splurging on pine nuts, we ate quick sale meat, government cheese, and tuna from dented cans. His resourcefulness paid off. We’d sit down together and eat chicken cacciatore and handmade pasta with garden salad with my mother’s special vinaigrette. He’d survey the table with an expression that seemed to say, “We may be poor, but we eat like kings.”


But the facade was deceptive. We weren’t the only family feeling the pinch. In the early 1990s, the Oregon logging industry was in freefall due to increased mechanization and changes in federal environmental policy. Logging jobs evaporated and the mills shut down one by one. When I looked at my classmates, I saw the facade: all-American kids in name-brand jeans and basketball shoes. It didn’t occur to me that other parents were scrimping and prioritizing, buying the kids Nikes and putting off paying the phone bill.

That choice was a matter of pride. Just as my dad attempted to protect us from food insecurity, my friends’ parents were protecting their kids from social scrutiny.

One part of this is that the poor value agency, just as the rest of us do. We are richer by being able to decide how our limited resources - and they are limited for all of us - are deployed to maximise our individual utility. And do not forget that utility is indeed individual.

This is not a universal - there are those we really do think are incompetent to make their own decisions and we also know that we're going to have to take many to most for them. But that's a very small part of any welfare state that is going to exist in any likely political reality. Outside that little arena whatever it is we do as either redistribution or simple social support should be provided in those interchangeable ration coupons called cash - even if these days that will be digital or in a bank account.

There's a flip side to this. US Census, which measures such things, readily agrees that the value to the recipients of Medicaid, food stamps, Section 8 vouchers and the rest is less than the cost of providing them. We could make all such recipients as well off as they are at lower cost, or make them better off at the same cost, by simply providing money rather than coupons, goods or services.

This should then inform our own design of whatever it is we're going to do therefore. Like, for example, housing benefit rather than council houses - in the absence of our actually solving the problem by liberating planning control of course. 

For the truth is it is always more efficient to subsidise people rather than things, agency is indeed valuable and money allows the poor, like the rest of us, to maximise utility within our budget constraints.