Stanford Panel: What do people do when they are given cash with no strings attached?

by Cordelia Holst | Mar 8, 2017 | News

The Stanford University Philosophy Department organized the first in a series of events focusing on aspects of unconditional basic income. Facilitated by Juliana Uhuru Bidadanure, Assistant Professor in the Philosophy Department of Stanford University, with an affiliation to the McCoy Center for Ethics in Society, the panel consisted of researchers in pilots and experiments of basic income: Guy Standing (Professorial Research Associate at SOAS, University of London; BIEN co-founder), Elizabeth Rhodes (Research Director of Y Combinator’s basic income experiment), and Joe Huston (Regional Director at GiveDirectly). The topic for the panel discussion was “What do people do when they are given cash with no strings attached?”

Juliana Bidadanure

Bidadanure opened by setting a definition for unconditional basic income: cash, given individually, unconditionally, and universally, so people can enter an existence free from economic insecurity. She flagged some of the most common concerns around a universal income policy –too many people will withdraw from the work force, or it can be wasteful, taking away from government investments in poverty, education, roads, etc.

The Speakers

Guy Standing

First up was Guy Standing to discuss his research results from a pilot of universal basic income in India. Standing provided some background, saying he is pleased there is an explosion of pilots around the world; however, he warned that while pilots teach us how to form policy and legitimize our agenda, we don’t need pilots to pursue universal basic income on the basis of social justice, freedom, and basic security for all. This is something we can pursue now.

The pilot in India took a year to plan, working with the local governments, and registering background data on over 11,000 people in 20 villages. Standing stressed that conceiving of the survey required envisioning the possible stories that might come out of the data so that the metrics were in place both before and after the test. Eight villages were selected to participate, 12 other villages were used as the control group, data was collected from everyone at 6 month intervals through the trial, and the cash was paid out for 18 months. Data was also collected 2 ½ years after the pilot. Results were gathered by independent data collectors.

Standing outlined the changes that took place in the villages that received the basic income:

• Residents invested in improvements in sanitation and housing
• Weight relative to age, for especially girls, improved dramatically
• Spending on alcohol, tobacco went down
• Health care spending increased, incidents of ill health decreased, and the health status of the disabled improved (because they were able to pay for continual medicine with no breaks in treatment)
• Spending on schooling went up, with the greatest improvements for girls
• Registration and attendance in schools improved for teenage girls
• Men worked more, and earned income increased for those getting the basic income
• The only group where there was a reduction of labour was children

The best result, in his opinion, was that the emancipatory value of the basic income. When people needed cash due to an illness or an accident, they were able to use the liquidity and pool together to cover the costs, rather than borrow at 50 percent from the money lender (as they had done previously). The basic income kept people out of debt bondage.

In January 2017, the government of India included a special chapter on basic income in its Economic Survey, which referred to these pilots.

More reading on the India pilot.

Elizabeth Rhodes

Next up was Elizabeth Rhodes from Y Combinator. A Silicon Valley based venture capital firm, Y Combinator provides seed money and advice to tech start-ups. In 2015 they started Y Combinator Research, a non-profit research lab. Their motivation behind sponsoring and executing a basic income pilot came from their president, Sam Altman. He, as well as many others in Silicon Valley, are concerned about current struggles in the US with growing inequality, unpredictable employment, deep poverty, the gig economy and the fact that the existing safety net is based on work. With millions looking for borrowing options like high risk payday loans, falling into deeper debt which they probably spend a lifetime to pay back, and the decrease in job security over time, it became important to come up with a solution. They are especially concerned about the potential worsening of these struggles as workers are increasingly displaced from their jobs through robotics and AI.

Y Combinator’s pilot is in the design phase, and Rhodes explained its context as one step in a larger agenda, cautioning that the current specs may change. Rhodes took care to note it is not an ideologically driven study, but rather a study of a promising potential solution in the name of social science. It will not be a test of the effects of universal basic income, but the effects of individual cash transfer, missing the community level effects, but focusing on the individual level effects, due to the practicality of the expense of making the study community level. The study currently planned in Oakland, California, will include 2000 to 3000 participants, who will have a variety of demographic backgrounds, range in age from 21 to 35, and whose household incomes will not exceed the area median. Of these, 1000 will receive $1000 a month for 3 years (5 years for a smaller test group). The rest will be the control group. Quantitative data will be collected and a large subset will be followed up with a qualitative component as well.

The Y Combinator study will look closely at the central question “What do people do when they are given cash with no strings attached?” in the context of the US. The research plans on collecting before-and-after data on the follow metrics:

• How does it affect time use?
  • Work hours
  • Entrepreneurial/ gig employment/ self employment
  • Education/ training
  • Do parents spend more time with their children?
  • Do people volunteer more? Get involved in their community?
• How do cash transfers affect physical and psychological well being?
  • Health and mental health
  • Subjective well being
  • Healthy behaviors like cutting back on smoking and drinking, improving fitness and diet
  • Decrease in stress
• What is the effect on financial health?
  • Payday lending, title lending, savings, credit cards
• Do political and social attitudes change?
  • Inner-group prejudice
  • Economic conservatism
• Are there network and spill-over effects?
  • Are people helping friends and family?
• Outcomes for children
  • Possibly grades, test scores
• Any effect on crime?

Rhodes concluded by noting they would be looking at sample size to see which metrics would end up being statistically significant, but the goal would be to address these questions.

Joe Huston

Last to present was Joe Huston, from GiveDirectly, a non-profit that gives unconditional cash transfers directly to the extremely poor people living in Kenya, Uganda and Rwanda. Over the last 5 plus years of operations GiveDirectly has transferred over 135 million dollars through their program. GiveDirectly’s most common model is giving 3 lump sums (total roughly $1000), transferred through mobile phones over a 5 month period, to the poorest people in each village. They have been building a body of evidence of the effects of cash transfers, over the last 5 years, over 65,000 households, and are able to speak to the question “What do people do when they are given cash with no strings attached?”

The GiveDirectly pilots focused on the poorest people and gave lump sums. Huston started with an explanation of the purpose of the pilots: they have seen in other tests around the world that cash is very functional; it removes the bulk of the costs of delivering the aid, and people can spend it in ways that improve their lives. For example, in some cases they have seen that when young women are given money, they get married later, become pregnant later, and have lower rates of HIV. In others, they have seen people investing in assets or increasing earnings. In GiveDirectly’s research, they consistently do not see people stopping working or an increase in gambling, alcohol or other “temptation goods.” They have seen the effects of the cash transfers having a longer term effect as well: even after the cash transfers have stopped, income is up, investment in assets are up, and decreases in malnutrition and improvements in mental health remain.

Huston explained that GiveDirectly is interested in the current debate around basic income. As their tests have show with lump sum cash transfers, there is evidence to expect positive outcome from an ongoing cash transfer, yet there is much debate and many hypotheses, especially among economists, about how human nature will respond to a basic income over a long period of time (for example, will it lead to alienation and idleness?). GiveDirectly wants to participate in gathering evidence on these questions in order to prove or disprove some of the theories.

GiveDirectly has added a basic income pilot, a change from previous work, in that instead of giving only to the poor, this test will be universal; all adults within the village will be treated the same. Forty or so villages will receive cash, a basic minimum level of subsistence (based on local poverty levels), for a period of 12 years. GiveDirectly wants to look at this long-term program versus the effects in a short 2-year program. How does this change the way families make decisions? They also want to see the effects of monthly income structure as opposed to lump sum transfers. Does it motivate people to make different choices? And they want to compare giving universally versus giving to the poorest. What are the community outcomes? Do they see a reduction in crime or conflict? Do communities take on projects together? Huston notes that the pilot will use randomization and control villages to have reference points. GiveDirectly would like to frame this debate around the evidence that comes out of this pilot. They are hoping this data can help inform different policy goals in societies.

In closing, Huston showed a chart from Brookings depicting the decreasing total cost of closing the poverty gap, and the increase in foreign aid over the years on a global scale. The chart gives a clear picture that the aid needed to close the poverty gap is available; we just need to deliver it effectively to the poor. GiveDirectly has evidence that cash transfers are very effective, and they look forward to testing universal basic income as the method of payment. Huston explains the proof of the former claim this way: before we go into a village there will be a larger portion of their society living in extreme poverty; when we leave, no one will, and that shows a direct mechanical way that basic income mitigates poverty.

Panel Discussion

The facilitator, Bidadanure, then changed gears to the panel discussion focused around the question of what people might do with cash in several counterfactual scenarios: basic income vs nothing, basic income vs microfinance, and basic income vs investment in children and education?

Standing answered that he think the counterfactuals involve paternalism of various sorts.

For example, in India the welfare system has provided subsidized food, kerosin, wheat, sugar, etc., and repeatedly the government has admitted that something like 93% of every rupee spent on the programs never manages to reach the recipient of the aid. The government subsidized fuel, which amounted to 3 or 4% of GDP. If they were to spend 3 to 4% of GDP on basic income, that would be half the poverty line.

In addition a very common issue or concern in both developed and developing countries has been the labour requirement, where recipients only get income when they do paid labour. There has been a tradition in developing countries of not giving cash transfers. In 1999 the World Bank had no records of cash transfer programs; now there are hundreds of pilots. These pilots have tested, and are testing, targeting (only to the poor) or conditionality (on sending one’s children to school or paid work) against universal programs.

Standing believes that targeted or conditional programs are very paternalistic; they don’t allow the recipient to decide what is best for themselves and their families. This kind of targeting can also create poverty traps, where people lose their benefits as soon as they get some kind of income. This is seen in developed countries and impoverished countries. Universal programs are more progressive at affecting the income distribution and lead to better outcomes.

Rhodes added that many people in this discussion are worried that if people aren’t working, where are they going to find meaning? So one alternate idea is subsidizing work for people who are able to work. Y Combinator is not able to test it in its study, but that can be a counterfactual.

Huston, agreeing with the other panelists, noted that we are used to complicated programs to help the poor, and we should instead ask what would happen if we took the money that we are spending trying to help the poor and just gave it to them.

Bidadanure’s next question was, “Do targeted benefits created resentment or a stigma in a community that we don ´t see with universal programs?”

Huston noted that GiveDirectly discusses this a lot internally. They have mainly done programs with targeted benefits where between 40% and 80% of each village has received benefits, but will start a universal program, where everyone in the village will receive benefits. GiveDirectly has not seen resentment or stigma outweigh the happiness factor in the targeted programs, likely because the criteria for who gets benefits are clear and understandable to the community.

Standing is a strong advocate for running universal pilots instead of giving benefits to randomly selected individuals. He explained that if one member of a household of five gets the income, and the rest don’t, it will be worth a lot less to that individual than a household of one. Additionally, once it becomes know that an individual is getting this money, family and friends in need may come looking for assistance. Referring to his pilot in India, he said that the importance of examining community and network results cannot be overstated. Standing did note, on the issue of migrants, that the India pilot did block migrants from joining the universal basic income program; only residents of the village at the time the pilot started (except for new babies) were included. Children got half the amount of parents, given to the mother.

Next, Bidadanure focused on the panelists’ experience with politicians and local governments.

GiveDirectly works with the Kenyan government to gain permission to be there, and to work together to extract policy questions or possible lessons that could drive their cash transfer programs. The Kenyan government currently runs 4 cash transfer programs that are focused on the most vulnerable portion of the populations: the disabled and the elderly. They have see means testing as easier to pass, so they are interested in the results of the universal pilot to see how different demographics respond when given cash. In general, do people who can work, stop working? Also of interest to the Kenyan government is the difference between individuals receiving cash versus their current program where cash is delivered on a household level.

Rhodes explained that they Y Combinator has found it difficult to get permission to give people money. The organization is working with the California state government, and even the federal government, to look at the implication of this cash transfer in terms of taxes and other benefits. They are securing waivers to allow people to keep Medicaid, and the process has been challenging.

Standing noted that it took him 3 or 4 years to get through the Indian and Namibian bureaucracy. This negotiation is very difficult. Standing explained that he was involved with negotiating the program in Finland, which did not end up according to his vision. He is currently involved in discussion around the possibility of a big pilot in Fife, Scotland, where his best ally to date is the Police Chief of Fife, who sees the possibility of crime reduction in that part of Scotland as a result of the pilot. Similarly, in the Netherlands 25 municipalities are working through negotiations with bureaucracy, but have put the work on ice until the country’s elections in April. Difficulties in negotiating with local governments will teach you a lot of humility, says Standing.

Q&A from the Audience

Adding a few minutes to the session for question and answer, Bidadanure turned the floor over to a line of interested audience members:

• What are you excited to see in the upcoming studies?

Huston stated he is excited about the number of questions they will start to see answers for — not just will people work less, for example, but will we see more risk taking and entrepreneurialism? He is interesting in seeing the studies talk to each other, where are they consistent, where we see differences. Rhodes added that the studies are being developed to enable data sharing and analysis.

Standing is excited to see momentum grow around the search for a new income distribution, and warns that dangerous waters lie ahead due to the growing income inequality. He is excited about the release of his new book, The Corruption of Capitalism, which calls for a new income distribution system, where Universal Basic Income can be an anchor in that new system.

• What is the reason for not requiring a contribution? Shouldn’t everyone getting income be cooperative, or contributing in society? And why give to millionaires?

Standing tackles this question on principle: if you say a person has to do some form of labour, or something like 35 hours of care work, you immediately become paternalistic, you immediately lead to inclusion errors and exclusion errors, and then you have to have bureaucrats monitoring it. Additionally it distorts the labour market, which can lower wages for low-skilled labour. He warns against creating a system of bureaucracy that has to be monitored; that introduces social engineering. Standing sees no danger in giving to millionaires, since you can just tax it back.

• Will any of these tests look at “in-kind benefits” up against UBI?

Huston noted that this is an exciting field of research, thinking about giving one group of people $1,000 cash versus giving another group of people $100 worth of tuition, food stamps, etc. GiveDirectly is planning a test in Rwanda where they would look at giving cash up against giving medicine, peanut butter, etc. There is a lot of evidence around giving cash and not a lot about the effects of other types of transfers. Rhodes added that in the US it would likely need to be a government run study to be practical.

• Are micro loans as or more empowering than direct aid? Is there research on this?

Huston answered that there has been a lot of research on this, and the results were disappointing. People will start more businesses, but you don’t see that flow through into the aspects that we care about like higher incomes, or higher overall welfare. Additionally, the cost of collecting the loans back from the recipient has proven to be counterproductive.

• How do you choose the threshold of $1000? What constitutes a basic income? Why cap at some high income level?

Rhodes answered this question for the Y Combinator pilot: $1000 is the current level set by Y Combinator in the planning phase, obviously the cost of living is different in Oakland versus rural Louisiana. The income cap is to see results, giving $1000 a month to someone earning $200,000 a year isn’t going to make a big difference for them.

• Have you seen inflation in your pilots?

Standing has not seen that, quite the opposite. In low income communities, the income that comes into people’s pockets increases demand for products and services, and therefore the supply is increased. What he saw in the Indian villages, for example, is that unit prices went down, and farmers’ income went up, because more people entered the market.

• If necessity breeds innovation, what happens to society?

Huston answered briefly that capital is also useful for breeding innovation.

Next in the Series

See the event here. The room was full, and we ran out of time to answer questions from the audience, which indicates the interest in this topic and may indicate an interest for the rest of the series that will focus on basic income and feminism, basic income and unions, basic income and racial justice.

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The next event is on April 12th: Philippe Van Parijs will discuss his forthcoming book Basic Income: A Radical Proposal for a Free Society and a Sane Economy.

Read more about Stanford’s graduate seminar here.