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Sunday, January 23, 2011

Provide Cash, or Benefits in Kind?

Uwe E. Reinhardt:

Provide Cash, or Benefits in Kind?, by Uwe E. Reinhardt, Economix: ...Is it better to give people for whom one has compassion goods or services they ought to have (what we call benefits in kind), or is it better simply to give them the equivalent in cash...? Economists believe ... cash is superior. ...

The economists’ reasoning is simple. Suppose one were prepared to purchase $10,000 worth of in-kind benefits for a poor family... Now if one gave the family $10,000 cash instead, it could ... procure for itself the bundle of services the donor originally had in mind... On the other hand, the head of that family might buy ... a quite different bundle of services that he or she or the family would like even better...

Ergo, conclude economists,... one should give the recipient cash rather than benefits in kind. ... How can anyone argue with that? ... Whether in democracies or other systems of government, politicians the world over have through the ages preferred to redistribute economic privilege mainly through benefits in kind, rather than through cash. What must they be thinking? ...
Could it be that politicians have a much better understanding of the typical taxpayer’s preferences on the use of their tax dollars than economists have dreamed of? ...
A plausible ... hypothesis might be that taxpayers merely wish to see the poor have access to certain kinds of goods and services that taxpayers deem essential and meritorious, but do not trust the poor to purchase those goods and services were they to be given just cash. It is a paternal posture, to be sure, but what if it actually describes the median voter?
Can we even imagine, for example, Congress dumping $400 billion a year in cash into the pockets of Medicaid beneficiaries and a similar amount into the pockets of Medicare beneficiaries, without opprobrium from American voters?
A compromise position between pure cash and pure benefits in kind is to give the poor cash-like vouchers – such as food stamps — that can be spent only on a limited range of specified goods and services. It allows the recipients some more sovereignty than would pure benefits in kind, but not total sovereignty. ...

    Posted by on Sunday, January 23, 2011 at 03:07 AM in Economics, Social Insurance | Permalink  Comments (44)


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