We saw during the pandemic that giving people cash is good for individuals and the economy as a whole. It makes sense: When people have more money, they spend it in their communities and stimulate the local economy. So why don’t we give people money all the time? Our guest today started a charity that combats poverty by giving people cash, with no strings attached, to use how they wish. The results have been really encouraging. Paul Niehaus, co-founder of GiveDirectly, explains how his program works—and more importantly, why it works.
Paul Niehaus is an economist at UCSD and an entrepreneur working to accelerate the end of extreme poverty. He is co-founder, former president, and current director at GiveDirectly, the leading international NGO specialized in digital cash transfers and consistently rated one of the most impactful ways to give.
Twitter: @PaulFNiehaus
GiveDirectly https://www.givedirectly.org
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Paul Niehaus:
GiveDirectly is a pipe. You put money in at one end and we make sure that it comes out at the other end in the hands of somebody living in extreme poverty.
David Goldstein:
It’s a unorthodox approach.
Nick Hanauer:
That money has to go someplace and mostly it goes to buy goods and services from other people who are producing those goods and services, who will now need more help to produce those goods and services. And so in a way, it gets the flywheel of economic development moving.
Speaker 4:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures. We’ve talked a lot about stock buybacks on this podcast, Nick, and I have to tell you, when we’re talking about this big direct cash transfer to people like you, I worry about the moral hazard about what you’re going to do with that money.
Nick Hanauer:
Exactly. Yeah, it’s true. It’s true.
David Goldstein:
Isn’t it weird how nobody ever worries about that? When rich people get a lot of money, nobody worries about how they’re going to spend it. And yet during the pandemic, when we did these direct cash transfers to people to provide tens of millions of people who were thrown out of work to try to prevent them from losing their homes and from starving. Oh no, that’s inflationary. Well, if there’s no strings attached, what are people going to, how do we know that they’re going to spend the money? And so where it turns out it was one of the most successful economic interventions we’ve ever done.
Nick Hanauer:
That’s right. And today we’re going to talk to somebody who very much agrees with that strategy. Paul Niehaus is an economist and he’s cooked up this organization called GiveDirectly, which is super simple. Basically it’s one of the leading international NGOs that specializes in digital cash transfers to people in countries that have extreme poverty. And the basic thesis is that if you give people money directly, this is the most effective way to address extreme poverty. And obviously, there’s traditionally been a lot of resistance to that. And I think it’s fair to say traditionally those sorts of direct cash transfers would’ve been incredibly hard just logistically to do. Like what do you do, just bring suitcases of money to poor places.
David Goldstein:
The Bush administration did that in Iraq. Helicopters full of money.
Nick Hanauer:
Yeah, it’s true.
David Goldstein:
I’m sure some of it went directly to people.
Nick Hanauer:
Yeah, saw how well that worked out.
David Goldstein:
Right. People have to understand, so they’re largely working in Sub-Saharan Africa where digital payments via cell phone is, that’s the banking system for most people. And everybody has a cell phone, and this is the way they have access to cash transfers. And so it’s not suitcases full of cash or helicopters full of cash. It’s these direct digital payments. And it’s very different from the traditional way of doing economic development, which is through governments and through large NGOs, non-government organizations, these big project oriented things that the World Bank has specialized in for the past 50 years. So it’s a unorthodox approach.
Nick Hanauer:
Yeah, I think what’s fair to say is that there’s a lot of emerging evidence that these programs work pretty well. They improve nutrition, they reduce teen pregnancies and child marriages, they improve mental health. People don’t just get this money and blow it on drugs. It does tend to really improve people’s lives. But with that, let’s talk to Paul and find out more about the program.
Paul Niehaus:
Paul Niehaus. I’m a development economist and a co-founder at GiveDirectly, and you should give money to people living in extreme poverty.
Nick Hanauer:
So give us your background. Tell us how you got to this.
Paul Niehaus:
Things really worked out, guys. You’re making these big life decisions. I think you never know. I was deciding whether or not to get a PhD in economics, which I did end up doing or whether to get straight into the doing side of development work. And I talked to a bunch of people. One wise guy said to me, “It’s a lot easier to go from thinking into doing than the other way around.” And that really panned out for me in that I have continued to do the thinking. So I’m an active researcher in global development. But when I was in grad school, my co-founders and I came across all this evidence that giving money to people living in extreme poverty was actually a really good idea. And we’re like, well, we also want to do that. We would like to be able to do that. And there wasn’t a way to do it at the time, and that’s why we started GiveDirectly, and so that has led to a chain of events, growing GiveDirectly, also starting a couple of FinTech companies, all generally about amplifying capital flows to people living in extreme poverty. And so it’s been a joy to do all of the above.
David Goldstein:
So GiveDirectly is exactly what the name says. Describe how the organization works.
Paul Niehaus:
Yes. GiveDirectly is a pipe. You put money in at one end and we make sure that it comes out at the other end in the hands of somebody living in extreme poverty. And why is that possible? That’s possible in part because the underlying technology has gotten dramatically better in the last 20 years. So it used to be that to do this, you’d have to send somebody out into remote parts of the world and deliver paper money to somebody. And there were all sorts of associated risks and costs. We now live in a world in which you can do this in most places by mobile phone. Someone’s going to get a text message, it’s going to be effectively like a digital bank account, and they’re going to go and collect the money at a nearby vendor and it’s going to cost a few percentage points of the transaction. And so a big part of the GiveDirectly’s story has been, Hey, let’s think about this world that we now live in as being sort of essentially completely financially interconnected in the sense that we can do that for just about anybody.
How would we do things differently in a world where that was possible? And I think the answer is very differently. And so GiveDirectly is trying to catalyze that change by showing you, look, hey, we can do this. It’s possible and you can do this right now.
David Goldstein:
What type of numbers are you talking about? What do you typically give directly? What amounts?
Paul Niehaus:
You mean sort of how the programs are structured? How does GiveDirectly-
David Goldstein:
Well, I’m saying from the individual perspective, the recipient, what are they looking at when they’re receiving money from GiveDirectly?
Paul Niehaus:
Yeah. Well, so we’ve done it different ways depending on who our partner is. GiveDirectly has worked in around 15 countries or so. We’ve worked with many different funders. Different people have different ways they like to design a cash transfer program. But let’s say we’re just talking about you or me. We go to the website, givedirectly.org. We want to donate to somebody living in extreme poverty. What’s going to happen? So typically what GiveDirectly is going to do is find a household living in extreme poverty and issue them with a one-time transfer that’s going to be in the ballpark of around a thousand US dollars. And so what does that mean? That would typically be maybe about one year’s budget for a family getting that. So it’s really significant. It’s probably the largest amount of money, might be the largest amount of money that they’re going to see at one point in time in their life, but it’s also one year’s income, not 50 years of income or something like that.
It’s really big compared to what a lot of other programs do. And that’s partly intentional and partly strategic because we think a lot of people have larger ticket things they would like to be able to do, whether it’s purchasing an asset to start a business or building a better home, paying school fees. And it’s often those bigger lumpier things that are hard for people to do when they’re just getting a stream of small payments, income from various sources. And so it’s also partly to be a little bit provocative, I think, because in my experience, most people when you say a thousand dollars, they say, oh, that’s so big. I’m used to this. Oh, it just takes $10 and we’re going to lift somebody out of poverty. And I think that’s just not the case. And so we want to provoke that thinking a little bit.
Nick Hanauer:
What are the countries that you operate in?
Paul Niehaus:
We’re originally in Sub-Saharan Africa, so Kenya, Uganda, Rwanda. Spread to other parts of Africa from there. Doing a little bit of works now in the Middle East and in south Southeast Asia. We’ve also done some work in the US, which has been interesting. Maybe we’ll touch on that or dig into that a little bit more. When I personally donate, I’d like to donate overseas where I know that the marginal value of my dollar is just enormous compared to what it is here. But I think for many people, there is a sense of local obligation. And it’s also been a good way, I think, to get people familiar with this idea of unconditional transfers by doing it here in a place that’s closer to home.
Nick Hanauer:
So tell us about the impact and why you think this is a scalable, effective solution.
Paul Niehaus:
Yeah. Well, the impact question, it’s important. And in some ways, it’s also a very funny question and I think of it this way. If you say to people, “I’m going to try to raise the incomes of people living in extreme poverty, so they’ll have more money to spend.” Everybody says, “Oh, that’s great. We should do that. Absolutely.” And then if you say, “Well, we’re going to give people living in extreme poverty money so they’ll have more money to spend.” Everybody says, “Oh, whoa, whoa. We’ve got to figure out what they’re going to do with it. What if they waste it?” So there’s something that’s very strange about that fundamentally that we have this suspicion about direct transfers. But to be perfectly blunt, I think that’s what I heard growing up and sort of the orthodoxy. And when we were in grad school, as I mentioned, getting our PhDs in development economics was really the first time that people started to test it directly.
It was right at the beginning of this experimental revolution in development economics. So people started doing randomized controlled trials, RCTs. They were recognized in 2019, the leaders of that movement, with the Nobel Prize in development economics. So it just really transformed the field, and it was really the first time that a lot of these basic assumptions we had been making, like you can’t just give money to people living in poverty because it’s not going to help them very much were put to the test. And so we felt like if you look at the data, and there have now been 20 years and hundreds and hundreds of good studies that they just very systematically say, that’s not the case.
Now, what they say is going to vary a lot because people are all different, circumstances are different. That’s sort of the point of cash transfers is different people are going to use them differently. So in some cases, you may see impacts on livelihoods. People are buying a cow or buying a motorcycle or starting a small retail business. In a lot of cases, you’re going to see people investing in housing because they want to have a more durable, reliable structure to live in. You’re going to see people paying school fees, you’re going to see people buying food so they have enough food to feed their kids. So you’re going to see a bit of everything. But we felt like very systematically the impacts were positive, and that was something that we had missed. That we had somehow had far too skeptical or negative of view of what other people were going to do with the money.
Nick Hanauer:
So just in round numbers, how much would it take for the west to do, to make a broad scale impact on one of these countries?
Paul Niehaus:
That’s a great question. I’d even go bigger. I’ve been thinking about this a bit recently and I’m going to give you the honest answer, which is I think there would be some more work to be done before I’d really confidently put a number on it. But I also think that if you make even very conservative assumptions and say, what would it take using simple direct transfers? Let’s literally give people enough money to get them up and over the poverty line, what would that take? I think it’s maybe half a percent of income in the rich countries to do that globally for everybody to get everybody out of extreme poverty. And I don’t think a lot of people realize that. If you survey people, most people think extreme poverty is very bad and it’s getting worse. In reality, it’s actually been getting quite a bit better. A lot of people have gotten out of extreme poverty, largely through their own efforts. And so the problem has been getting better, and it’s really now at a scale that we could do it. If we set our minds to it’s very, very doable.
There’s a lot of hard work to actually implement a vision, a plan like that, but we could do it. And so I think that’s an important thing for people to hear.
Nick Hanauer:
But generally speaking, so is a thousand dollars the right number-
Paul Niehaus:
It wouldn’t be if you wanted to do what we just described. So what you would want to do is say, well, here’s how much money it’s going to take to get Nick out of extreme poverty. That might be different from the number for Paul. And so if you wanted to do it in that way, you’d have to fine tune it a little bit more than we’re doing, and that’s where a lot of the hard work would come in. But we can then debate whether that’s the best way to do it or maybe we want everybody in a region to get the same number of things like that. But just in terms of the orders of magnitude, I think to realize that we’re not talking about 50% of income in rich countries. We’re not talking about 5%, we’re talking about maybe half a percent.
And to put that in reference, that’s kind of similar to what the US spends on pets every year. We spend about half a percent of US GDP on pets. So the problem of eliminating extreme poverty I think is in the same order of magnitude as the pet industry. I think that’s the way we should be thinking about it.
David Goldstein:
So doable, obviously, because we spend a lot of money on pets, but obviously we can afford to. How is this playing in the developmental economics community? Because it is the opposite of orthodoxy, it seems to me.
Paul Niehaus:
In some sense, it’s become very widely accepted. There are a billion or more people that now get some kind of cash transfer in low and middle income countries, typically from their government. And in some cases those will have been funded by a foreign donor, by the World Bank or the UK or the US, but in many cases also tax funded as well. And so it’s sort of a funny case here where actually the countries that have been the innovators have been the lower income countries that have been adopting these programs and rolling them out. It’s been the western donors, both private and public, that I think have been more reticent, more skeptical, had more of these doubts and concerns. I think that’s partly because they don’t have to win reelection in these countries. So we can afford to have quibbles like that.
So I think there’s sort of very wide acceptance among policymakers in low income countries. In the aid industry, I’d say there’s at least lip service now to the idea that, okay, yeah, this is actually not so crazy and we can do it. We can think about how much to do. But by the numbers, it’s still a very small share of the way that sort of aid dollars or charitable dollars get spent. And that’s where I think there’s huge opportunity for change.
Nick Hanauer:
So obviously, there’s a lot spent on foreign aid in various forms, right?
Paul Niehaus:
Exactly.
Nick Hanauer:
Probably not enough, but I know there’s dollars moving. Do you believe that most of that money would be better spent in this way?
Paul Niehaus:
Yeah, I think a lot of it would. One of the reasons it’s hard to put a number on it, it’s hard to actually figure out what the aid currently gets spent on to be able to say, oh, I keep that thing and I get rid of that thing. But the way I would say it is, I would start with this as the default and say, if we’re going to spend an aid dollar, let’s by default assume that we’re going to transfer it directly. And then let’s think about why we might not want to do that. Are there arguments for why we can do better? Maybe we can invest in a vaccine that’s going to become this enormous public good if we innovate, or maybe it’s really important to support investment in public goods and infrastructure and roads like that. Can we make that case? And so I think in many cases, that doesn’t turn out to hold water.
A very concrete example of this, which GiveDirectly has started to do and which I think has been really striking, is to run some head-to-head tests of giving people money and giving people a program designed by the aid community that costs the same amount of money and asking which of these two things does more good on the outcomes that you guys care about? So not even looking at the things that the recipients care about, but saying, if we take the program designer’s goals as the goals, what’s the most effect way of achieving them? And so even there, I’d say in the first three of these studies that GiveDirectly has done, you do better just by giving away the money to people living in poverty. So it’s not to say that there isn’t a role for expertise and for addressing some of these issues of public goods and infrastructure, but that when we actually put our ideas to the test, it may often turn out that we’re not as good it as we thought, and that’s okay. We just give them money to people, let them decide what to do.
David Goldstein:
I’m not going to suggest that there isn’t any corruption in the US. There obviously is, but we are used to assuming, presuming there’s rule of law and there isn’t a lot of graft and bribes and extortion and so forth. Obviously, that’s not the same case in all of the rest of the world. In developing countries, corruption can take a big chunk out of aid. Is giving directly more immune to that because it cuts out the middleman, or are there still opportunities for corruption to take its toll?
Paul Niehaus:
Yes, and this is actually the angle through which I came to it because we learned about what was happening with all this payments infrastructure because I was getting started working on anti-corruption. We’re doing a bunch of work, it still do work on anti-corruption in India, specifically. And so this fact that we now have ways of paying people digitally that we did not before is one of the big advances. And so certainly, I think that helps a lot. In general, you always have the option of just going directly through an organization like GiveDirectly and money never even touches the books of local government. There are some things where it’s important to do it, I think, with local government as a partner and to do it at the kind of scale that they can reach.
And so there are some risks there, but I think that in general, the thing that worries me most in terms of corruption is not the transfer programs where there may be some fake beneficiaries enrolled or some payments that go missing, things like that. But the really big things, which are the procurement projects where you give a lot of money to a government and they’re then going to go out and hire somebody to build a port or to purchase a bunch of equipment for the government. And I think that’s where things can get really dicey. And that’s the thing that worries me the most.
Nick Hanauer:
That’s classically where the corruption comes.
Paul Niehaus:
I think that’s where the really big ticket corruption comes in. So yes, it’s an issue and in some ways that’s kind of GiveDirectly core job is to make sure the money gets there. I think we generally do a good job. We just had our worst corruption incident this year in DRC, so we still have things to learn and to improve.
Nick Hanauer:
What happened?
Paul Niehaus:
We had a bunch of people who enrolled their own phone number instead of recipient’s phone numbers is the short answer. And so we’re sending transfers to themselves and there are innumerable checks and safeguards built into the system.
Nick Hanauer:
Say that again. I don’t understand.
Paul Niehaus:
So the core of the system is that we send money to people via mobile money services. So key identifier is their mobile phone number. And so we had a case where, because a number of safeguards failed for one reason or another, people were able to put their own phone numbers into the system instead of enrolling legitimate beneficiaries. So you can have a case like that where-
Nick Hanauer:
You got hacked?
Paul Niehaus:
Not in the sense that people were using their computers to sort of break into the system or something like that. It’s more of a sort of human and a systems issue than a digital technology issue. The point being that we might, in a bad year, lose one or maybe 2% of transfers and that’s something we have to keep working on and getting better at. But I think that to me, these things are much an order of magnitude smaller than the kinds of things that can happen when you get into the government procurement ball game that you described.
David Goldstein:
That’s better than the credit card industry.
Paul Niehaus:
There you go.
David Goldstein:
In terms of the amount of transaction fraud. So you have to put it all in perspective. It strikes me that this is an end-run around the networks of corruption that already exist. And I wonder if there’s resistance from governments because of that?
Paul Niehaus:
Well, governments are complex, and so there are going to be people who want to reform and people that are opposed to reform. A good example of this from work, this isn’t GiveDirectly work, but research that I’ve done in India where we studied the rollout of a payments reform. This is in the context of an employment guarantee program that the government runs and they knew that there was a lot of leakage from that program. They wanted to try to clean it up, and they would get a lot of pushback to these reforms because people would say, oh, it’s hurting the beneficiary. They’re not able to get their payments anymore. They can’t authenticate.
And so our role as researchers in that situation was to come in and document it and say, actually, corruption has fallen by a lot and there are a handful of these cases, but by and large people really like the new system more than the old one. And that was sort of what gave top levels of government the confidence to say, oh no, it’s okay. Actually, this pushback that we’re getting is in fact just the vested interests trying to come up with excuses, but we should push forward with this reform because it really is working. And so there’s that tug, there’s that give and take within government.
David Goldstein:
So I’m assuming a lot of our listeners are much more familiar with micro lending than with this sort of direct giving. Is it complimentary? Is it instead of, because I can tell you personally, I’d rather receive a thousand dollars than borrow a thousand dollars.
Paul Niehaus:
That’s right. And of course, that’s not quite the right cost equivalent comparison because those two things cost different amounts to the, so perhaps we should say, would you rather have a loan of a thousand dollars or a grant of $200 or something like that? And then that would be an interesting question, by the way. So I think that would be a good question to ask people. But I think the way I think about this is there is some similarity in the sense that part of the underlying insight is like, hey, people often have some high return things that they can do with money and that they don’t have the opportunity to do just because they don’t have access to capital.
Some of the core differences are with a micro loan, you obviously have to then go through all the cost and effort of trying to recover the money. And it only works if the person getting it can invest in something that’s going to return revenue within the relevant timeframe. So if I have an investment that’s going to pay off over six months or a year, something like that could be a great way to finance that. If I have an investment that’s going to pay off over 10 years, we don’t really have micro lending products that work well for that, or if I have-
David Goldstein:
Or a lifetime in the case of paying for your children’s education.
Paul Niehaus:
Yeah, yeah. Or there may be things that generate a stream of benefits that just aren’t monetary. So to be a great example is a lot of people use large cash transfers to build a better house. I think housing investment is a great thing, but it’s not easily monetizable. And so you can’t easily pay back a loan. You and I, we have a mortgage, we don’t pay back the mortgage using revenue that we generate from the house. We have to have separate income to pay it back. So I think grants are a good way of enabling people to make a range of investments like that, that micro credit products don’t really speak to. But credit has a scalable using private sector capital for the subset of things that it can address.
Nick Hanauer:
How much foreign aid does the US do per year? Do you know?
Paul Niehaus:
The US, I think, will be around in the ballpark of 30 billion in any given year and globally to take up all of ODA, it’s going to be maybe 150 to 200 billion a year right now.
Nick Hanauer:
In global aid. And so if it’s 200 billion in global aid, is that 200 million people at a thousand bucks a piece?
Paul Niehaus:
If we were just to turn it all right into cash transfer, so yeah.
Nick Hanauer:
Did I do that math right?
Paul Niehaus:
Yeah. 200 billion divided by a thousand is 200 million people [inaudible] thousand every year, which that would be an enormous amount of money every year.
Nick Hanauer:
But how many people are, again, I’m just trying to get a sense for scale, how many people are in extreme poverty in the world?
Paul Niehaus:
Well, the number that I find more helpful is rather than the headcount, is what’s called the global poverty gap. And what that means is you take all those people that are living below the extreme poverty line, but instead of just counting them, you add up the amount by which they’re below the line. That make sense?
Nick Hanauer:
Yeah, sure.
Paul Niehaus:
So that’s like how much money would it take to get everybody to the line if we could really precision tailor it, which we cannot do, but if you could. So our current estimates are that that number is probably in the ballpark of around a hundred billion dollars a year. So that’s maybe another way of looking at the sense like, hey, this is a problem that’s within the realm of solvability, right? A hundred billion a year, global poverty gap, 150, 200 billion worth of ODA, right? Some of that ODA is really high impact, high return stuff that we should not stop doing, but it kind of gives you a sense that, yeah, this is doable.
David Goldstein:
Much less expensive than a war.
Paul Niehaus:
Absolutely.
David Goldstein:
I think we just had what another a hundred billion request for Ukraine, which I’m not opposing, obviously, but saying it’s either this or that, but obviously, we can come up with this money in a heartbeat for things like that. You’d think maybe the world could afford this to lift everybody out of poverty.
Paul Niehaus:
And I love the way of thinking about it, sort of saying to do my part, if we were all to do this together, to do my part, if it’s half a percent or a percent of my income, that’s something that’s very manageable for me and that I’d feel really proud to do, to be able to say, I’ve done my bit towards that. So I think there’s a very pragmatic argument for all of this in terms of the longer term impacts it’s going to have on stability and the world economy and all these sorts of things. But I just think that if you view it as an exciting opportunity to be able to donate that much and then say, I did my part to end extreme poverty in the world, so much more exciting than most of the things that I spend half a percent or a percent of my income on. So I try to look at that very optimistic, positive way.
David Goldstein:
You mentioned that you were experimenting with this in the US. How does it translate into a higher income, higher cost country like the US?
Paul Niehaus:
Yeah, I think the two things to know are that the sense in which it’s the same is that I think the evidence on cash transfers to a typical person living in poverty in the US are, again, that they use it in reasonable ways. It’s not, they’re sort of abusing it. But the second thing is that a dollar just goes much less far here. And so to really move the needle in terms of somebody’s lived experience, whether they’re feeling stressed or depressed, whether they’re consistently able to put food on the table, these kinds of things, it just costs a lot more here. And that doesn’t mean we shouldn’t do it, but it also to me means that when I think about, hey, where can my marginal dollar go? The furthest is definitely going to be in places where people are poorest to start with.
David Goldstein:
But it’s relevant to how we approach poverty in the United States. This idea of, oh no, the moral hazard, if you just do direct cash transfers to people. Instead, we have to make sure that we make it as difficult, painful, and humiliating as possible to go through half a dozen different agencies to get the support that you’re eligible for. In principle, we learned during COVID that actually cash transfers can lift millions of people out of poverty. I assume there are lessons to learn from what you’re doing in Africa.
Paul Niehaus:
For sure. Yeah. And in fact, it’s been neat to see. There’s recently a group of US mayors, a lot of cities in the US have become interested in basic income, and it’s a group of mayors that traveled to Africa to learn from experiences and cash transfers there. And so it’s sort of nice to see this inversion of the sort of typical, slightly condescending, you guys can learn from us. And I think that’s right. We actually have a lot to learn from there. But part of the issue is about the moral hazards, the concerns about that as you mentioned, and that’s largely a function, more of the targeting, sort of what do you have to do to get the money as it is? Do you get money? Do you have the flexibility to use the money however you want?
But the other big issue is that the politics around this. And so in the US we do a lot of our redistribution. We give people food stamps, things like that, and that’s because it’s better for the farm industry that way. They’re a very, very influential lobby. India is the same, in fact. India gives a lot of people food, and it’s primarily because they started buying a lot of food from farmers to help farmers, and then they had to do something with it. So that sort of political economy of redistribution is a consistent theme across all of these countries as well.
David Goldstein:
It’s interesting how in Africa the payment system via cell phones has become essentially the banking system there. Do we lack a sophistication in our banking and payment systems in the US? Would people be better off receiving distributions through a system like they have in Africa?
Paul Niehaus:
There’s certainly issues here and issues of access and accessibility for lower income and less well-documented Americans, but I generally don’t think those are the first order ones in the US. Those are sort of things that can be made to work pretty well. When we’ve done programming in the US, for example, GiveDirectly has often used prepaid debit, which is, it’s a little bit clunky. It’s not quite as nifty as getting a text message on your phone, but it basically works. I think what, as you say, has been really remarkable is that Africa has moved from a world in which very few people had access to any sort of digital account, and you had to be urban and close to a branch bank to one in which huge swaths of the population have access to it, and you’re going to a local shopkeeper to conduct what are very basic banking transactions. And so they’ve been able to leapfrog a little bit.
Nick Hanauer:
Interesting. Have you attracted interest from government in your program?
Paul Niehaus:
Yes. We have a range of great government partnerships, whether that means donor governments working with organizations like USAID and FCDO in the UK, co-designing projects with the World Bank or governments in local governments in the countries in which we work. I’ll just highlight one because it’s sort of a remarkable example of what can be done now. So during the pandemic, Togo decided that they needed to respond and provide support to people that were being hit by the pandemic and also by the mobility restrictions they had in place. And of course, they didn’t have time to sort of build a safety net infrastructure and go out and enroll a bunch of people as you would typically do. And so in partnership with GiveDirectly, with the World Bank, with researchers at UC Berkeley, they came up with a system where they found people using mobile phones.
So they would survey some people over the phone and then use people’s cell phone metadata to try to predict who’s likely to be in most need of help. And then they enrolled those people over the phone and sent them mobile transfers over the phone. And so all of this was done without ever having to put boots on the ground, and they were able to pay something like a quarter of their adult population that way during the pandemic. To some extent that was born out of necessity because they’re small country. They didn’t have the kind of social protection infrastructures that others. But again, that sort of necessity can create the opportunity to leapfrog and to show what’s possible. And I think that’s a really powerful illustration of the kind of thing that we can now do if we set our minds to it.
Nick Hanauer:
So a couple of concluding questions. If you were a benevolent dictator, I think we know the answer to the question, what would you do? How would you rearrange things to solve this problem?
Paul Niehaus:
I would end extreme poverty, and I would do it with maybe a little bit of the existing aid money, but also I’d say, let’s put in half a percent of the world’s income and do it.
David Goldstein:
Half a percent of a developed world’s income? Is that what it takes?
Paul Niehaus:
Yeah, I think that would do it. I would do it. As I said before, I think there’s more work to be done to kind of really hone the number to the level that I’d feel comfortable publishing it in an academics journal. But that’s sort of the ballpark that we’re talking about.
Nick Hanauer:
Yeah. And final question, why do you do this work?
Paul Niehaus:
Oh, it’s so much fun. It’s so motivating to work on what is clearly one of the big issues of our time. And there are other good ones out there, but I find it incredibly fulfilling and I love the people that I work with. It’s great. Why not?
Nick Hanauer:
That’s fantastic. Well, Paul, thank you so much for being with us and nice, good job on this project. It sounds fantastic and really important. We wish you well.
Paul Niehaus:
Yeah, thank you. Really appreciate it. Thanks for having me on. And I enjoyed the conversation.
David Goldstein:
So one of the things that struck me from our conversation, Nick, which I didn’t bring up in talking with Paul, is that in a strange way, this is a real pro-market approach towards the problem. President Biden talks about how you grow the economy not from the top down, but from the middle out and from the bottom up. And this is more bottom up than middle out, but it turns out that when you give people money, it doesn’t just help them and their families personally. It’s a path towards economic development in the community as a whole.
Nick Hanauer:
Right. Absolutely. Because if you go to a community in which there’s all this extreme poverty and inject this money into the community, that money has to go someplace. And mostly it goes to buy goods and services from other people who are producing those goods and services and who will now need more help to produce those goods and services. And so in a way, it gets the flywheel of economic development moving.
David Goldstein:
That virtuous cycle. Just like we always say on the minimum wage, when workers have more money, businesses have more customers and hire more workers. And whether you’re getting that money from a higher minimum wage, a $15 or a higher minimum wage in a city like Seattle where you’re getting it through direct payments from givedirectly.org, it has the same sort of economic priming effect.
Nick Hanauer:
And what would be just so interesting is how self-sustaining pump priming is. In other words, could you wean people off this help over time? If you pumped in a thousand dollars a family into a place for five years, and then could you do a little bit less and a little bit less and a little bit less over time, would that investment create the economic development over time that supported people at a much higher level?
David Goldstein:
Right. I think, Nick, the answer is probably yes, though it’s probably a longer timeframe than you’re allowing for because it’s generational. One of the things we’ve seen, there’s plenty of studies from Raj Chetty and others that giving adults money directly makes them have more comfortable, less stressful lives, but for the most part does not change outcomes dramatically, but it does for their children. And so when you have countries, we’ve seen throughout the world as it develops, that the biggest thing you can do is invest in healthcare, invest in education, and whether that is through a publicly provided education system, or giving people money to pay for schooling their children, particularly educating women. When girls can be educated, that is really like the turning point in a lot of economies when you’ve got women being educated and entering the workforce, and that’s not something that happens overnight.
We’re a species that matures very slowly, and you’re educated over 10, 15, 20 years, so it pays off in the long run. It’s the type of long-term investments that are, it’s hard to calculate. It’s hard to quantify, but you definitely see it over time. And we know that in the US that the number one predictor of life outcomes is the income of the family in which you’re raised. And so why should it be different anywhere else in the world?
Nick Hanauer:
No, it’s really true. It is a very interesting idea. And you also think about it from a foreign policy perspective. All the money, as you said, all the money you spend on war and all the stuff that we do, if you took a tiny bit of that, if you took 30 or 40 billion a year and connected up tens of millions of people, maybe not at a thousand dollars a year, but hundreds of dollars a year, who knows what an impact that would have on stability. And by the way, what an impact that would have on the United States’ standing in so many of these places. You talk about a good public relations strategy.
David Goldstein:
And let’s be clear also, Nick, when we talk about things like a half a percent of your income, we’re not asking for a half a percent from every American. Obviously, we’re asking for a bigger chunk from you because of the unequal distribution of income and wealth in the United States. Things like this are easy to afford if we had a higher top marginal tax rate, if the super wealthy were being taxed at … I’m not even asking for the 1950s though. If I was benevolent dictator, I’d go back to those 90% top marginal rates. But just getting back to the 60, 70, top percent top marginal rates that we used to have, that would make a big difference in our ability to afford what we need in the United States and to be able to help improve lives throughout the world.
Nick Hanauer:
No, it’s no doubt.
David Goldstein:
There’s a lot of money out there just washing around doing nothing or nothing useful that could be put to better use.
Nick Hanauer:
10% of stock buybacks annually would cover it.
David Goldstein:
There you go. That’s right.
Nick Hanauer:
Done.
David Goldstein:
Well, we’ve solved it. If you want to support GiveDirectly, it’s easy. There’s a link in the show notes, but it’s easy to remember. It’s givedirectly.org.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunkworks and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.