Johan Fourie's blog

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One policy to rule them all

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The holy grail for development economists is to identify an affordable policy intervention that will help the poorest escape poverty. We know that living a longer and better life is correlated with many things: higher income from having a job, living in a house with clean water and sanitation, and access to better schools and health facilities, to name a few. But the trouble comes when we try to write policy to improve these things: which investment, given limited resources and political constraints, will most benefit children from poor households? And why?

A new paper* published in the American Economic Review last month by a team of economists and psychologists offers an answer. It uses a longitudinal unconditional cash transfer programme – the Great Smoky Mountains Study in North Carolina – to examine how a cash boost for parents affected children’s outcomes. Children from 11 counties were interviewed annually from age 9 until the age of 16. Their parents were interviewed at the same time. One subsection of these children are American Indians. These American Indian families began to receive, five years after the first survey, direct cash transfers from the Eastern Band of Cherokee Indians tribal government as a result of a new casino that came into operation. The cash transfers were provided to all adult citizens of the tribe, regardless of their employment conditions, marital status, or the presence of young children. This is basically equivalent to a universal Basic Income Grant, a policy that is gaining popularity in academic circles.

Because the surveys were initially undertaken for the purpose of collecting information about behavioural and mental health, the authors have a lot of information about the children’s emotional and behavioural well-being at their disposal. Most importantly, the surveys began before the introduction of the unconditional cash transfer, so they can compare the mental health conditions of children in households who receive the transfer to those in households who never received it. This ‘natural experiment’ is the closest thing economists get to a laboratory experiment.

The results are remarkable. They show that the increase in unconditional household income improves child personality traits, emotional well-being and behavioural health. Because of the unique nature of their data, they can demonstrate that these improvements are for the same child using the same measures over time. The formation of positive personality traits, like conscientiousness (individuals who do your duties diligently and thoroughly) and agreeableness (individuals who are kind, sympathetic and cooperative), is ‘crucial in determining long-term socioeconomic standing and may also have strong effects on long-term health, educational attainment, and economic outcomes’. We know from earlier research that mental health conditions, such as attention deficit disorder, are more likely to affect poorer children. The authors concur: ‘We find that the children that start out with the most severe personality or behavioral deficits are the ones who exhibit the greatest improvements.’ A universal cash injection, like a Basic Income Grant, is likely to have the largest impact on children from the poorest households, improving personality traits and health outcomes even during their teenage years.

Such improvements in personality will have large repercussions in adulthood. A large literature now shows that such traits are strong predictors of finding a job, living in a good neighbourhood and living a longer and healthier life.

Most remarkably, because the surveys also included questions about parental health, the authors could discuss potential mechanisms through which additional household income affects child personality traits. They find that the unconditional cash transfers resulted in ‘an improvement in parental mental health, the relationship between parents, and the relationship between the parents and children in the treated households’. A Basic Income Grant may improve long-run child outcomes via the improvement in parental behaviors, stress-reduction, and improvements in decision making in the household.

A Big Income Grant is an expensive policy. A back of the envelope calculation reveals that, with 56 million South Africans, a Basic Income Grant of R758 per month – what is classified as the lower-bound poverty line by StatsSA – will require R509.4 billion annually. This is a lot of money, but not impossible to find. We already spend R193.4 million on social protection, and another R66 million on social security. We pay R180 million on debt servicing, which can be drastically reduced if we sell government-owned assets and repay our debt. A Basic Income Grant will also help reduce the reliance on free government services, such as fee-free schools, and increase VAT income as consumption increases.

A Basic Income Grant not only eliminates extreme poverty with the stroke of a pen, but as the Great Smoky Mountains Study show, it can drastically improve the emotional well-being and behavioural health of both children and parents in our poorest communities, with massive implications for their futures and that of South Africa. If we are serious about addressing the stark inequalities in our country, inequalities that ultimately help explain societal challenges like hopelessness, desperation, crime, violence, and even populism, then a Basic Income Grant is a policy we can no longer afford to ignore.

*Akee, Randall, William Copeland, E. Jane Costello, and Emilia Simeonova. 2018. “How Does Household Income Affect Child Personality Traits and Behaviors?” American Economic Review108 (3): 775-827.

**An edited version of this article originally appeared in the 10 May edition of finweek.

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Written by Johan Fourie

June 19, 2018 at 08:15

2 Responses

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  1. This is totally awesome.Although variety of article on this topic,this article contains some of the precious
    points which were never be read in other articles.

    quote of the day

    June 25, 2018 at 09:29

  2. Great article about UBI. The biggest reason I think UBI is ignored is not only the expesiveness, but the fact that it will reduce populism as rightfully mentioned in your article.

    Schalk Burger

    June 19, 2018 at 08:52


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