Cash versus in-kind benefits.

[pktechgirlbackup]

I only touched on this briefly, but how benefits are delivered is important. On a theoretical level, I'm in favor of cash for a number of reasons, but enough people have said that using in-kind or dedicated vouchers improves the behavior of bad-but-better-than-foster-care parents that I have to consider that, even accounting for the fact that vouchers aren't always used in the way they were intended. In all honesty, this may be a place where theory fails and we just need numbers. But I at least want to talk about why I think cash produces better incentives.

First, cash isn't subject to capture by special interests. I'm in favor of making sure kids get meals, but against the current school lunch program, because it's run by the Department of Agriculture for the benefit of farmers. WIC is even worse: you're restricted to an list of foods that changes based on who bribed the USDA most that week. Or look at Medicare, whose reimbursement schedule strongly favors surgery over preventative medicine even though preventative is more cost effective. Or public education, where middle class kids disproportionately go to the better schools (within a given district, in schools technically open to everyone. I'm not even talking about the districting insanity), because their parents are disproportionately likely to have the knowledge and resources to get them in.

Second, spending cash wisely is a skill that transfers well. Knowing how to calculate "if I live here it will cost X more but I'll save Y in transportation costs and Z in time costs that I can use to prepare food, thus saving me A dollars" will always be useful. Knowing how to call for an apartment viewing, asses the apartments quality, and go through a pre move-in checklist is always useful. Knowing how to get on the wait list for public housing is only useful as long as you're eligible for public housing.

But cash does give people more ability to screw themselves. More importantly, it gives them the ability to screw their children. At best, you have a learning curve in which they make some costly mistakes. At worst they never learn. In the mean time, their kids are suffering. I honestly don't know if we make the learning curve better or worse with more money. On one hand, it makes mistakes less costly, which means less starving children. On the other hand, it makes mistakes less costly, which means you have less incentive to learn. I flat out don't believe the government can teach these skills in a class, the only thing it can do is set good incentives, or at least stop setting incentives that make things actively worse.

So what do we need to know to decide if cash is better? I've refined this down
to 6 questions:

1. Between cash, in-kind benefits, and dedicated vouchers, which produces the
   least sick system, defined more-or-less as a system that incentives learning the
   skills you need to get out of poverty and into a system where you can take care
   of yourself and your kids without government assistance? I think everyone's on
   board that the answer here is "cash"
   
2. Between those same choices, what produces the best immediate-term outcome,
   defined more-or-less as meeting poor children's immediate needs? There's a lot
   of evidence that the answer is still cash, but most of the studies were done in
   the 3rd world, and I find it plausible-but-not-proven that 1st and 3rd world
   poverty respond to cash differently. I also find it extremely plausible that
   cash has a higher average return but in-kind benefits have a higher floor on
   outcomes. Since the purpose of welfare is to provide a safety net aka floor on
   outcomes, this is worth considering.
   
3. How long does it take people to reach the point where cash is better? This
   sounds a little pejorative, but it's not: budgeting and evaluating purchases
   are skills like any other, and the fewer chances you have to practice or watch
   your extended social network practice, the worse you will be at it. The
   government has made it worse by incentivizing people to learn the WIC rules
   rather than learn nutrition. My guess is that poor people learn faster than
   non-poor people because mistakes are so much costlier, but that doesn't shorten
   the learning time to zero.
   
4. What's the damage done while people are learning?
   
5. Is there a way to mitigate the damage while leaving the incentives in
   place? Foster care is one example, although it comes with a lot of its own
   problems. More cash is also a possibility, but risks ruining the incentive to
   learn. I'd love to see pilot studies on a number of different possible fixes.
   
6. How many people will need that additional mitigation? Does the mitigation
   scale well enough to accommodate that volume? What are the costs of that mitigation as it scales (e.g. increasing fear among families that CPS will take their kids away)?