Is handing cash to the poor beneficial?

           The idea of handing cash to the poor could be considerably controversial. As a poor college student, I would jump on the idea. However, those who are wealthy and wouldn't be receiving the "free" cash probably wouldn't be quite so happy about the situation. In this article, titled “Ending Poverty by Giving the Poor Money”, Annie Lowrey briefly describes the research of three young men who studied a program in which the Ugandan government gave a large sum of money to young people who met a few requirements, including simply applying for the money. According to the article, the program had profound effects on the economy.

While reading the article, I first thought that this would be a horrible idea. The reason is because I immediately thought about the Keynesian model, in which people would just blow a large percent of the money they were given and that would be the end of it. However, as I kept reading, I saw how big of a deal this really was. The government was giving young people with a basic education the opportunity to branch out and begin new careers and businesses. They wouldn’t have this opportunity without the large sum of money they could receive, which was sometimes close to a years’ worth of wages. Handing cash out worked really well for the most part because the young Ugandans were smart and hard working. Most of them just had a basic education and they put the money to good use by either starting businesses or spending the money on a higher education.

All of the new businesses created a boost in the economy that was worth the risk. According to what we have learned in Macroeconomics, this makes sense. If you look at it from Milton Friedman’s consumption perspective, this cash “give out” could be considered an increase in the lifetime average income instead of a transitory form of income because in the long run, the cash that the young people received did make their lifetime average income greater. Of course, this is because they decided to make good investment decisions instead of blowing the money on wasteful things such as lottery tickets or extravagant vacations. So, because their decisions resulted in an increase of lifetime average income, there was also an increase in consumption. As we have learned, consumption has a direct impact on GDP, which is what drives every economy.  An increase in consumption results in an increase of GDP. This is made clear in the article where it says “[a]ll in all, the annualized return on the “investment” of the cash transfer worked out to a whopping 40 percent.” That is a fairly substantial return and I would consider the move by the government to be pretty rewarding.