For over two centuries, work or perhaps more precisely, “labor,” has been lifted up as the Achilles’ heel of capitalism. The essential narrative of Marxism and derivative socialisms is that capital exploits labor and workers deserve much better than what they get from free markets.
Recently, a focus on social injustice and Thomas Piketty’s documentation of the inequality between the very rich and the rest of us has continued to pit labor against capital.
As one American writer and commentator on social class, F. Scott Fitzgerald, said to another writer, Ernest Hemingway, that “The rich are different from you and me.” Hemingway supposedly replied “Yes, they have more money.”
Was Hemingway inferring that “money,” all by itself, bestows status and elevates us up the social hierarchy?
I recently read a report by Allysia Finley of the Wall Street Journal’s editorial board on research on what happened when some “poor” people were given free money.
The findings are here:
Did pandemic stimulus payments harm lower-income Americans? That’s the implication of a new study by social scientists at Harvard and the University of Exeter.
Liberals argue that no-strings-attached handouts encourage better financial decisions and healthier lifestyles. The theory is that low-income folks become more future-oriented if they’re less stressed about making ends meet. The Harvard study put this hypothesis to the test and found the opposite.
During a randomized trial conducted from July 2020 to May 2021, researchers assigned 2,073 low-income participants to receive a one-time unconditional cash transfer of either $500 or $2,000. Another 3,170 people with similar financial, demographic and socioeconomic characteristics served as a control group. The trial was funded by an anonymous nonprofit.
Many received cash allocations from the American federal government in the form of a card:
Participants earned an average of about $950 a month and had $530 in unearned income (e.g., food stamps). About 80% had children and 55% were unemployed. Over 15 weeks, they were surveyed about their physical, mental and financial well-being. Forty-three percent also agreed to allow researchers to observe their bank balances and financial transactions.
The top-line result: Handouts increased spending for a few weeks—on average $26 a day in the $500 group and $82 a day in the $2,000 group—but had no observable positive effect on any individual outcome. Bank overdraft fees, late-payment fees and cash advances were as common among cash recipients as in the control group.
Handout recipients fared worse on most survey outcomes. They reported less earned income and liquidity, lower work performance and satisfaction, more financial stress, sleep quality and physical health and higher levels of loneliness and anxiety than the control group. There was no difference between the two cash groups.
These findings contradicted the predictions of 477 social scientists and policymakers the researchers surveyed. That’s not surprising. Most liberal academics and politicians believe government handouts are the solution to all problems. If transfer payments were a ticket to the middle class, the War on Poverty would have succeeded long ago.
The researchers posited that perhaps the cash payments weren’t generous enough to generate a positive result. “Receiving some, but not enough money may have made their needs—and the gap between their resources and needs—more salient, which, in turn, may have made them feel distressed,” they write.
“Needs” is a subjective term. The theory is that low-income people who got handouts became more stressed when they realized they still couldn’t afford everything they “needed” or more likely, wanted. If that’s true, simply giving people even more cash would surely lead to the same problem.
More plausible, the payments made work less rewarding, which reduced feelings of personal well-being. Cash recipients reported less earned income and felt worse about their work. It’s no surprise that people who received a large percentage of their monthly income for doing nothing were less motivated to work and less satisfied with their work. Earning a paycheck can give workers a sense of personal agency that encourages them to make better financial and health decisions. Receiving a handout may do the opposite.
As for financial outcomes, poor people often struggle to manage money and this is one reason why many remain poor despite receiving plentiful government assistance. Merely giving people more money won’t make them better stewards of it, as the study showed. In some cases, people spend more than they receive and become overextended.