Thursday, January 9, 2014

The Milton Friedman Stimulus

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London, May 2009. A small experiment involving thirteen homeless men takes off. They are street veterans. Some of them have been sleeping on the cold tiles of The Square Mile, the financial center of the world, for more than forty years. Their presence is far from cheap. Police, legal services, healthcare: the thirteen cost taxpayers hundreds of thousands of pounds. Every year.

That spring, a local charity takes a radical decision. The street veterans are to become the beneficiaries of an innovative social experiment. No more food stamps, food kitchen dinners or sporadic shelter stays for them. The men will get a drastic bailout, financed by taxpayers. They'll each receive 3,000 pounds, cash, with no strings attached. The men are free to decide what to spend it on [..]

A year after the experiment had started, eleven out of thirteen had a roof above their heads. They accepted accommodation, enrolled in education, learnt how to cook, got treatment for drug use, visited their families and made plans for the future. [..] After decades of authorities’ fruitless pushing, pulling, fines and persecution, eleven notorious vagrants finally moved off the streets.

Costs? 50,000 pounds a year, including the wages of the aid workers. In addition to giving eleven individuals another shot at life, the project had saved money by a factor of at least 7. Even The Economist concluded:

‘The most efficient way to spend money on the homeless might be to
give it to them.’ [..]

We tend to presume that the poor are unable to handle money. If they had any, people reason, they would probably spend it on fast food and cheap beer, not on fruit or education. This kind of reasoning nourishes the myriad of social programs, administrative jungles, armies of program coordinators and legions of supervising staff that make up the modern welfare state [..]. People have to ‘work for their money,’ we like to think. [..] The underlying message: Free money makes people lazy.

Except that it doesn’t.

[..] Studies from all over the world drive home the [opposite] point: free money helps. Proven correlations exist between free money and a decrease in crime, lower inequality, less malnutrition, lower infant mortality and teenage pregnancy rates, less truancy, better school completion rates, higher economic growth and emancipation rates.