Cash is Key to America’s COVID-19 Recovery

calendar iconMar 19, 2021


Cash could be ‘the welfare of the future’ according to a Bloomberg article exploring how cash payments give people in need ‘the breathing room to chart a better life course’ and will be key to America’s COVID-19 recovery.

The provision of cash handouts to individuals in America is a cornerstone of Biden’s $1.9 trillion COVID-19 relief bill, and this signals a major shift in policy thinking away from the traditional ‘hand up, not a hand out’ approach of the 80s and 90s. Back then, both state-administered block grants and tax credits would come with the requirement of people earning some income for themselves. This was informed by old thinking that welfare recipients would ‘choose to live off government benefits instead of getting a job’, which has been debunked by work such as this paper by Henrik Kleven. He concludes that the number of people in work is primarily limited by the availability of jobs.

Modern research is in favour of cash transfers. A 2018 literature review by Ioana Marinescu showed various unconditional transfer programmes boosted incomes, health and education. Similarly, a study of the Alaska Permanent Fund, which distributes cash payouts to Alaskans, found it increased part-time work by 17 percent and had no overall negative effect on employment.

Cash helps boost people out of poverty by helping them fend off daily troubles; by greasing the wheels of life and giving them a cushion against risks. Helping them afford the essentials provides breathing room to think about the next step in life.
"Noah Smith, Bloomberg

Adding to this, The Atlantic reported this March that no-strings-attached welfare handouts trialled in Stockton, California did not shrink the labour force, and in some cases helped people into work by giving them the stability to seek out new jobs. Noting ‘these kinds of cash transfers are a common, highly effective method of poverty alleviation used all over the world… But not in the United States,’ the article observes income volatility reduced and financial stability across the community improved as people were better able to pay their own bills, and also help out others.

Contrary to old ideas, a cash handout is, in fact, a hand up, and this new evidence has no doubt informed the Biden administration’s COVID-19 relief bill, which has no fewer than five major cash transfer programmes. The new child allowance in particular could allow struggling families to keep up with daily bills and give them the opportunity to work towards a brighter future.

When it comes to boosting people out of poverty, it seems that cash really is king.
"Noah Smith, Bloomberg
Last Updated: Mar 18, 2021