The conversation on basic income is heating up as we careen toward a post-work world, and World Bank researchers David Evans and Anna Popova collected 19 different studies from across the world in an attempt to determine how free money impacts the purchase of so-called “temptation goods.”
The results surprised even them.
According to a report from Business Insider, Evans, who has spent years studying “cash transfers” – direct infusions of money to the poor – agreed with the conventional wisdom that, rather than putting that money to its intended use, it would, as a report from the Overseas Development Institute (a UK think-tank) put it, reflect the “widespread belief that cash transfers would either be abused or misdirected in alcohol consumption and other non-essential forms of consumption.”
Evans said that he expected those who normally spent a small amount of their money on temptation goods to continue doing so. Alcohol, in particular, is what economists call a “normal good” – as income increases, people spend more money on it. It’s been one of the most prominent objections to basic income programs; the idea that poor people will not only “waste” money given to them, but negatively impact their health in doing so.
Evans was floored to find that alcohol and tobacco consumption did not increase – and in many cases, it actually fell.
“There is a sideshow on this belief that people are poor because they are spending their money on alcohol and cigarettes.
“This absolutely puts the questions to bed. We find that almost without exception that there is no significant impact and even in some cases a significant negative impact of cash transfers on alcohol and tobacco. And that is striking.”
Puzzled, if pleased by their results, Popova and Evans set out to determine why tobacco and alcohol spending decreased, eventually putting forward three theories, according to Quartz. “We dug into what might be going on there,” said Evans.
The first, while rather simple, is quite elegant in its conclusions: plainly, that the money was usually given to women. Other studies have shown evidence that, when given money, women heads of households are more likely than men to spend it on food and things that help children or the family.
Their second theory is that additional cash, in bolstering a household’s financial outlook, makes them more likely to save for positive outcomes – buying a house, sending the kids to college, so on. Essentially, when the goal actually starts to look plausible (because now they’re partway there, or they have more funds freed up from essential spending), it doesn’t look futile and people start saving toward it as well as cutting back on their luxury consumption to meet those goals.
The final theory, which Evans and Popova credited as most likely, was something psychologists call the “labeling effect” and economists call the “flypaper effect.” In all of the studies that the researchers looked at, the money came with some sort of verbal “label” – recipients were told that the money was to improve the lives of their children, or for the family’s welfare, or to improve their business. And while they weren’t forced to use the money for any specific purpose, “if you tell people money is for a certain thing, then they’re much more likely to spend that money on that thing.”
The handouts across the various studies ranged from a 5 percent to 30 percent increase in the recipient’s income. “It is striking,” said Evans, “that we don’t see an average increase in any of these cases.”
Meanwhile, I would like to offer our own theory for the consideration of Ms. Popova and Dr. Evans.
When people living in poverty are given money, free and clear, and their financial burdens ease, and their standard of living increases, they are less likely to be stressed, depressed, and miserable. They are more likely to be healthy and to be able to seek healthcare – notably, mental healthcare. They may have hope where they didn’t before. And because of all of this, they may feel less need for the solace of drugs and alcohol and turn toward better pursuits.
Not to mention, people probably get used to cheaper brands. Moving up from poverty is a very different experience from moving from one middle-class income to a higher one, and people tend to keep the habits they formed while poor.
Whatever the case one thing is certain, this study is one more step in the road toward legitimizing basic income.
[Featured Image by John Moore/Getty Images]