The poor know what will improve their lives better than the government does
A useful and basic truth about the world is that we should subsidize people, not things. That is, of course, if we desire to subsidize anything at all.
One reason for this is that it is people that matter, not things. It is people who suffer, or might do so, and it is the living standard of people that we wish to raise. What happens to things is of very little, if any, moral worth compared to what happens to people.
It is also true that the subsidization of people is efficient as compared to the subsidization of things. Which means that we here have one of those interesting times when economics is not at war with morals. We do not face that trade off between equity — fairness — and efficiency that is.
Both now argue in favour of the same method of dealing with our problem rather than against each
other, as is so often true.
One reason for the greater efficiency is that if we subsidize the thing, then everyone who consumes it gains from that subsidy. Yet there are many of us who are entirely capable of standing on our own two feet against this cruel universe and so we don’t need that subsidy.
Further, what we do consume in those resources devoted to the subsidy become resources unavailable to those who really need them. This moves over from being not in conflict with moral precepts to being in direct violation of them of course. However, there’s another element of this efficiency which needs to be made clear and it’s India that becomes the example. That country has, for decades, been running a system of delivering food to the poor. The government contracts with farmers to purchase crops, which are then transported, stored, and doled out as a ration to the poor.
The system is replete with stores of government grain rotting in warehouses, of the poor only sometimes to near-never receiving their rations. Of those running the system are inflating populations in order to gain access to more such food to resell onto the markets, of theft and peculation at all levels in fact.
It’s grossly inefficient in terms of food rotting, it’s grossly inefficient in terms of theft, and it’s grossly inefficient in a third and important manner too. For yes, the truly poor do need our aid in being able to eat.
But we all, just because we’re all human, also value agency. We all have slightly-to-very different desires in life and the life well lived is one where we’re able to determine our own path, to decide what we’d like to do with the resources available to us. Poor people are people who don’t have enough resources, certainly, but that’s not to say that they are being made as well-off as we can make them by delivering to them just the one additional resource.
For example, the American welfare system delivers free medical services to the poor through a program called Medicaid. Even the government itself agrees that the people receiving Medicaid think that what they get is worth less than what it costs to get it to them. The same US system also provides groceries in the form of food stamps. Those poor receive a debit card charged with a certain amount of money, but that money can only be used to purchase food, and a limited selection of it.
There is a thriving black market in selling such food stamps for actual cash money, the attraction that cash can be used to buy anything. The going exchange rate is $1 food stamps gets 50 cents cash. The largest purchase then made with that cash is nappies, diapers. The poor value a clean, dry, and smiling baby more highly than they do a full plate we might say. And who are we to say that they are wrong in that valuation?
This being what agency means — we can fulfil our own desires, we have choices, rather than being limited to those that others would impose upon us. So, the condition of the poor has deteriorated because of coronavirus. How should we improve it again?
Well, there is that program in Bangladesh to offer rice at Tk10 a bag. Which is now mired in allegations that those administrating the program are keeping that rice for themselves. We’ll also, undoubtedly, be told in time that some rotted before it was given out, or fell in the river, or any of the number of things where such aid can be wasted.
The correct answer, instead of subsidizing things like rice, is to subsidize people. Give those poor the price of a bag of rice and let them go and get it in the normal market. Or, if they prefer, spend the money on something else.
Perhaps bread, or fish, or medical treatment, of school fees for the children. For they know what will improve their lives better than we do, so it should be them making that decision. That is, if we wish to make poor people richer, we should give them money, not subsidize the price of things for them.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.