During the holiday season, we are all reminded to be grateful for all the good things in our lives. It should also be a time to think about how many of our fellow Americans are far less fortunate than we are.
The level of inequality in the U.S. is far above that in other rich countries. The poorest 10 percent of Americans get a mere 1.6 percent of total cash income, own earnings and government transfers included. In comparison, France and Sweden’s poor receive more than twice as much.
Even more unfortunate is the fact that children are most likely to be poor. When we add in the opioid epidemic, some of these children also end up without a family. They are orphaned or placed in foster care. Yet, we are not powerless. Research shows that something can be done: public programs are particularly cost-effective when aimed at the most disadvantaged children, with returns on investment as high as 13 percent.
When children must be placed in foster care because parents can no longer take care of them, the burden often falls on kin. Typically, these family members are not in a very strong economic situation themselves. Yet, the foster care system pressures these family members to take in their relatives, often without giving them much support. Between 2012 and 2016, 44 states saw increased foster care placements with kin. In 2016, 23 of those states reported that more than half of the foster youth placed with kin caregivers received no payments from the state foster care system. Simply put – relative caregivers are getting short changed as compared to non-relative (stranger) foster parents.
Again, we are not powerless. Prior research, as well as my own work in progress shows that increases in compensation can facilitate the placement of children in the homes of their relatives. Increasing compensation to foster care parents, especially kin, is both fair and effective in helping kids find a home.
But we also need to look beyond mending broken glass to preventing breakage in the first place. If we are willing to give money for foster care, why not give more money to disadvantaged families and reduce problems in the first place? This may seem too easy: what, we can just solve poverty and its problems by giving people more money? In fact, the research is convincing in showing that cash payments are effective.
One way to give more money to poor families is through a universal basic income, where each adult and child receives the same sum of money, no questions asked. A key advantage of such a system is that no one falls through the cracks, since there is no need to prove eligibility through a long and arduous process. This is also the reason why such a system is more effective, saving on administrative costs, as pointed out by libertarian economist Milton Friedman. Friedman was a lover of freedom, and the freedom for people to spend the money however they see fit and not be controlled by the government was an appealing aspect of a universal cash payment. But will freedom be abused?
In reality, when universal cash payments are made with no strings attached, drug abuse decreases and mental health improves. This is what we learn from the experience of the Eastern Band of Cherokee Indians, who receive regular payments from the casino operated on their reservation. By comparing tribe members with non-tribe members living in the same area after the casino payments started, researchers could measure the effects. They found that drug abuse decreased and mental health improved, especially among young Cherokees. Thus, far from cash encouraging drug consumption, more cash decreases it.
Education also suffers from poverty, and the education of children improves when poverty is addressed. For example, among the poorest members of the Eastern Band of Cherokees, completed education increased by as much as a full year thanks to the casino payments. Cash therefore serves to improve the human capital of these most disadvantaged children, getting them a better start in life, which will lead to higher wages down the road.
In the U.S., high levels of inequality leave many children behind. More support for these children is both fair and effective. Cash gives poor children a better start in life by improving their health and education.
We should be grateful for what we have, and think about more universal ways to help others too.
Ioana Marinescu is an economist who studies the labor market to craft policies that can enhance employment, productivity, and economic security, and a faculty research fellow at the National Bureau of Economic Research.
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