Why won’t Dodd fight for Elizabeth Warren?
Posted: August 7, 2010 Filed under: Uncategorized Comments Off on Why won’t Dodd fight for Elizabeth Warren?Dodd’s pushing for Sheila Bair for the head of the Consumer Financial Protection Bureau (CFPB) even though she doesn’t want the job. Every one wants Elizabeth Warren, but Dodd seems unlikely to back her and is showing public unwillingness to fight for her.
The New Republic’s Noam Scheiber wrote that “after surveying a dozen insiders over the last few days — congressional aides, industry officials, progressive activists, and a few administration officials — I’ve concluded that the odds are good that Warren would be confirmed if nominated by the White House.” And Dodd now seems to have shifted his rhetoric, saying that even if Warren is confirmable, it’s not worth a potential fight to get her the job:
“What you don’t need to have is an eight-month battle for who the director or the head or chairperson of this new consumer financial protection bureau will be.”
Republicans overwhelming voted against the Dodd-Frank Reform bill, so why the sudden fear of the Republicans? Does it have something to do with his coming exit from the senate and most likely entrance into the FIRE lobby or is there some one inside the White House (like Geithner and/or Summers) who don’t want her in the position and want Dodd to take the fall?
Could the world’s food supply be the next speculative bubble?
Posted: August 6, 2010 Filed under: Uncategorized Comments Off on Could the world’s food supply be the next speculative bubble?
Speculators are always looking for places to speculate. The clarion call of the big money and the adrenalin thrill of the kill don’t always happen on an actual killing field for the very rich. They frequently happen with some carefully placed shorts and momentum. They do have the same results as a hunting party. Something dies. In this case, it could be the world’s hungry.
I know that wasn’t exactly a profound way to open a thread but I didn’t know how else to begin a conversation on food inflation and this UK Guardian headline: “Commodity prices soar as spectre of food inflation is back; Speculation and rumour could be the driving force behind sudden market rise in food prices”. It sounds like one of my dry economic topics when I put it this way. But, really you need to notice this.
I’ve talked about how incenting farmers to grow biofuels instead of food in a world where the population is still growing faster than it should is a dangerous bet. It may be that a few some ones are taking that bet since it’s been raised by a Russian Drought and an Indian Plague. Witness one of the few markets where we’re seeing asset prices rise above a normal rate of return. No, it’s not really the stock market that’s been floating around the same numbers for months now. It’s not the housing market or the commercial real estate market that still appears to have some downward momentum. The new asset bubble appears to be in commodities. It also seems centered in food.
The price of wheat, oil and copper soared this week but the picture looks much less clear this time. Old-fashioned supply and demand is still at work, but there are fears that wild rumours and speculation are driving up prices.
Wheat prices, which are up 40% over the last month, reached a two-year high as concerns about a drought in Russia and rotting stocks of grain in India exercised markets in London and Chicago. Claims that a major crop failure in Australia, following an invasion of locusts and a wet summer in Canada, could lead to a worldwide shortage, have pushed up prices in recent weeks to levels not seen since 2008.
The rise in futures contract prices traded on the major markets also follows a United Nations report in June that warned food prices could rise as much as 40% over the coming decade, amid growing demand from emerging markets and for biofuel production
The World Development Movement said reports pointing to a long-term upward trend in prices and the recent weather-related farming crisis had proved fertile ground for speculators who bet on rising prices.
Tim Jones, policy adviser to the WDM, said figures from US commodity futures trading commission showed the majority of contracts on foodstuffs over the past six weeks, including wheat, had bet on rising prices.
“There is strong evidence that speculators have seen an opportunity to drive up prices. But the damage caused by their activities is higher prices for everyone and people in developing countries can ill-afford to pay the cost,” he said.
One of the strong signals that the speculators have switched to creating a food asset bubble is this tidbit. “The CFTC figures showed there was a 35% increase in contracts since June betting on a rise in prices.” That means commodity futures traders are betting on price movements. Food inflation (the rise in food prices) should be solidly linked to those pesky real things that shift demand and supply curves like drought (Russia does have one), plagues of locusts, or lots of hungry babies. Is this the case in the current run up of food prices?
There are temporary reasons behind high food price inflation—drought, petroleum products price hikes, mismanagement of trade policies, transportation dislocations, debt waivers, speculation and so on. Per se, inflation numbers are also not really the point. There is no reason to expect that food price inflation will remain at 12.47%, which it was for week ending July 10. Such numbers are function of the base last year and will undoubtedly soften when the kharif crops arrive post-September. While short-term declines in prices of individual agro-commodities are possible, does one really believe that food price inflation will disappear?
It will moderate from double digits to 7% or thereabouts, but 7% is still inflation. And that 7% will remain, because there are medium-term causes behind the increase in food prices—NREG (which continues), increase in rural incomes (there is no reason to presume public expenditure in rural sector will taper off), increase in urban incomes, changes in consumption patterns and warped incentives through procurement prices and hikes in these (that isn’t going to be reversed either). We are talking about increasing demand imposed on an inelastic supply. (Increases in production and productivity have been marginal.)
These kinds of things make a market ripe for speculation. This is from The UK Guardian.
But critics maintain that spikes in prices of global commodities are increasingly driven by speculators. They said the effects of a block on Russian exports by the Russian government were overplayed. Russia sends most of its wheat exports to Egypt, Syria and other middle eastern countries, which can access grain from other sources.
Reports that large amounts of India’s wheat stockpile could rot were premature, they said. Also, while India is the world’s second largest rice and wheat producer, it only exports a fraction of its output and would have little impact on global supply.
“Fears have been piqued that we may be heading back to the 2007-8 food crisis,” notes Sudakshina Unnikrishnan, an analysts at Barclays Capital. “In our view, market fundamentals are less compelling this time around with many of the key factors that propelled prices in that period missing.”
While India and Russia are expected to have very bad harvest, the EU and the US are expected to have abundant wheat. So, some of these price increases do not make sense in terms of traditional economics which leads us to speculators that like to create momentum and ride it to big profits.
So, what to do? When speculators in futures markets start destabilizing a market and introducing increased volatility and momentum that is likely to hurt the underlying market, the answer is limit the trade. New financial reform laws allow Congress to do that and they should consider it right now before we have a mess in the food markets the same way we’ve got a mess in the housing markets. Fortunately, the capital markets appear to have stabilized. This would not limit farmers who hedge for risk management purposes. It would limit big traders, like Cargill and most definitely hedge funds who are only in it for the kill. There are so many big players these days that I’m beginning to think that speculators do more than just ‘add liquidity’ to the market. They seem capable of creating and driving momentum which is not what we want happening in markets. Believe me, the world’s food supply is nothing you want to leave to adrenaline and testosterone. Volatility in prices may give a few of those guys a thrill, but for the rest of the world who worries about food on the table, that’s a deadly game.
Not good news
Posted: August 5, 2010 Filed under: Uncategorized Comments Off on Not good news
If this is true–and I have no reason to believe it isn’t–then one of the few economic voices in the administration that is not a Wall Street insider is leaving her post.
Christina Romer, chairwoman of Pres. Obama‘s Council of Economic Advisers, has decided to resign, according to a source familiar with her plans.
Romer, an economics professor at the University of California (Berkeley) before taking the key admin post, did not respond to repeated calls to her office.
“She has been frustrated,” a source with insight into the WH economics team said. “She doesn’t feel that she has a direct line to the president. She would be giving different advice than Larry Summers [director of the National Economic Council], who does have a direct line to the president.”
“She is ostensibly the chief economic adviser, but she doesn’t seem to be playing that role,” the source said. The WH has been pounded for its faulty forecast that unemployment would not top 8% after its economic stimulus proposal passed.
Instead, the jobless rate is 9.5%, after exceeding 10% last year. It was “a horribly inaccurate forecast,” said Bert Ely, a banking consultant. “You have to wonder why Summers isn’t the one that should be taking the fall. But Larry is a pretty good bureaucratic infighter.”
Romer’s highly respected in the community and I always thought she would bring a voice of reason to the White House. Instead, she always got put in front of the camera trying to explain away economic bad news. I’m not sure who the replacement will be but it I venture a guess to say that it will be some one that plays nice with Geithner and Summers who appear to get their way when ever they can. I’m hoping it won’t be another Wall Street insider, but it would figure. It would also figure if the next one didn’t have a vajajay too. That seems to go along with playing well with the Obama inside team.
The American Dream Perverted
Posted: August 4, 2010 Filed under: Voter Ignorance | Tags: Bobby Jindal, Grad Act of 2010 Comments Off on The American Dream PervertedI have been known to bitch and moan about the number of students that show up in my class that aren’t either ready, prepared or able to take a university class. (Most of this would be taken care of if they’d allow student loans to cover remedial courses, but they don’t. They force the unprepared into classes where they will most likely fail.) Yes, it would make my life easier and yes, it seems like it somewhat makes sense to spend precious resources on those with the greatest chance of actually benefiting from higher education. Still, there is something in me that is quite bothered by the recent move in Louisiana to solve its education problems with a samurai budget sword. I want to address the mess the Governor and the Legislature here in Louisiana is making of higher education due to budget cuts and ‘reorganization’. I think the budget is just the excuse just as Hurricane Katrina has been an excuse to remove some things from New Orleans. The result will be that fewer students will get into public universities, fewer programs will be offered to students, and all of this will boil down to fewer opportunities for the populace of Louisiana. I think, actually, this may be what they want to achieve. They want to ensure that the majority of our populace become deadenders in dead end jobs with no place else to go.
Anyway, I’m going to quote from the monthly Chancellor’s Letter to the students, faculty and staff at the University of New Orleans. I will mention that I like Dr. Ryan and that he’s had a tough job since Hurricane Katrina nearly brought UNO to it’s knees while the legislature kneecapped our funds at the same time. Oddly enough, he’s an economist by training and taught in the Econ/Finance program before moving from Dean of Business to Chancellor of the University. He knows some of these issues as well as any of us. However, he’s an administrator now and a bit of a politician so the hat change has led him to a different path. These are his words.
Under the Louisiana GRAD Act, which Governor Jindal signed into law this summer, the State has made it clear that raising the bar is the only acceptable course of action. In order for UNO to be eligible for incremental tuition increases, we have to achieve certain performance benchmarks. UNO will remain affordable, but this tuition authority is a necessary component to ensure that we are giving our students the best chance to succeed.
One of the ways we will address the budget shortfall is by eliminating or consolidating certain programs so that we may focus on the programs that have the most notoriety, student demand or economic impact in the community. Regardless of how acutely we are affected by future budget cuts, our vision remains unchanged. We are in the process of restructuring the University so that it is a leaner, more efficient, and more focused institution that maximizes its resources. We are committed to enrolling superb students and providing them the support they need to flourish.
We continue to see this shift in the approach to many public goods. We want them to run like for-profit businesses. But, frankly, public goods are for the public good and there is nothing public or good about for-profit businesses. They are for profit. Period. Good is–at best–a side consideration. So why is there this rush to force expensive and ineffective models on public goods? Public goods are peculiar things and the economic theories that rule them are quite different from those that define the private sector and free market. Mostly, there are several unique characteristics that make them public goods. (Follow the wiki link for a general discussion of that.) This makes them ill-suited for for-profit models.
People that hate government hate all government and seem to be ideologically blind to the economics of public goods. When they take a sword to the beast, they hit at the very heart of the characteristics that make a public good poorly suited to be privatized. Some really examples of bad things to privatize have been jails and many functions of the military. Privatization distorts incentives in already weird markets. By inserting profit motives into these goods, you actually motivate the society to incarcerate people and start wars. In situations like education you distort incentives also. But in this case, the distortion leads not to increased provision of undesirable things. It leads to decreased provision of desirable things with massive public benefits.
In both cases, we have examples of externalities. Externalities occur when the benefits of the good or the costs of the good cannot be limited to just the consumers or the producers. They spill over into society. Education has a positive externality and there fore tends to be under-provided by any one seeking profit. A business can’t turn the benefits into profits, so therefore the business won’t do it. Pollution has a negative externality and is overproduced by a profit seeking company because it doesn’t have to take on all the costs. It can pass it onto society and taxpayers. Since costs are underrepresented to the private provider, it will keep on overproducing and passing on those costs to some one else.
Well, one of the reasons here is that Governor Jindal is one of those horrid supply-siders who wants to kill the beast rather than make it more efficient and effective and let it serve the public. He worships at the alter of the perfect free markets because he believes it to be true. He has no interest in truth as founded in the scientific method, theory and data. He found God and the Free Market during his university days and never thought to question the dogma since. Our state has become a vast experiment for false economic theory. We’re turning our children’s futures over to false economic hypotheses. Jindal completely misunderstands the nature of public goods and private goods and the nature of externalities and he has no interest in hearing that he might be wrong. He’s a zealot on all accounts.
The GRAD Act of 2010 seeks to radically change access to higher education and its purpose as a public good. This so worries me. I don’t want it to become a holy grail of any other place and I’m afraid it will spread like the nature of all bad religions. It will move with a huge sword and a group of true believers.
The GRAD Act seems to be a step towards a more market-based pricing system, but it has limitations. In a market system, higher prices discourage marginal buyers. In the case of higher education, this would impact those who are less fully committed to pursuing higher education.
But our higher ed system features extensive federal intervention, which distorts the market. Higher tuition leads to more federal aid. Federal aid shifts the burden of education costs to taxpayers. The buyer is insulated from the higher cost of and the demand for education is artificially inflated.
In a true market economy, higher tuition costs will cause fewer people to apply to college. While we may initially view this as a problem, the Cato Institute argues that there are too many college students:
“While college attendance is up, overall adult literacy has barely budged. A federal assessment found that in 2003 only 13 percent of Americans 16 years old or older were ‘‘proficient’’ in reading prose, understanding written directions, or performing quantitative tasks. This dismal score was down from 1992, when 15 percent of Americans were proficient in prose and document literacy. To a significant extent, it seems a college degree may just be replacing a high school diploma as a sign of minimum competence.”
It appears that our current system of government subsidization has made education more affordable but less valuable. The GRAD Act can only have a limited impact on the market for higher education while government artificially inflates demand.
I hope you’re beginning to catch my drift here. The idea is to limit the demand for a university degree via tighter standards, higher tuition, and limited supply. That sort’ve sounds good. It sounds like we’re increasing efficiency. But that’s not what’s happening. Actually, some of the things that are going on is the elimination of successful programs at successful colleges. No one is closing down the administrative and cost-heavy smaller colleges for their inefficiencies because they’re in parts of the state that typically vote for the likes of Jindal. Rather than trying to focus on efficient delivery, this focuses on strangling public education. This includes the Med Centers and the Law school for the state also. It guarantees that a state education will be more available to the kids that don’t need a leg up and less available to the kids that don’t have much of chance of success or entrance to higher education anyway. We’re further disenfranchising the disenfranchised.
The business community loves Jindal’s plan. Jindal has made it pretty clear that he wants us to graduate less students from four year colleges. He prefers them to go to trade schools/community colleges where they can be slotted into working the state’s oil rigs among other things. This basically is announcing that you’d like to stop whatever upward mobility in the state there might be. You’re ensuring that certain industries can fill their employment rolls with people with no place else to go. We’re prioritizing the training of dead-enders under the guise of “centers of excellence” at state community colleges.
House Bill 1171, authored by House Speaker Jim Tucker, would give university boards the power to raise tuition and fees in 10 percent increments until the colleges reach the average of a peer group of institutions. Upon reaching the cap, increases would be limited to 5 percent.
The purse-string power would help colleges offset state funding cuts of nearly $300 million in the past two years. The coalition backing the bill is known as BILD, or Businesses for Improving Louisiana’s Development. The Baton Rouge Area Chamber, Greater New Orleans Inc. and the Greater Shreveport Chamber of Commerce are among more than 40 business groups backing the tuition measure and other bills that would grant the state Board of Regents the power to install funding formulas that reward colleges for performance and that would establish centers of excellence at state community colleges, among other things.
Jindal is radically restructuring access to higher education in the state in the guise of saving money and efficiency. Next year, I’m sure we will witness one of the biggest brain drains ever as university after university rids themselves of tenured faculty because of financial exigency. Many of these universities are already short on junior faculty. I can’t imagine how you’re going to attract any one to ever teach in a state that has already shown such contempt for tenure, traditional success in a program, and academic research. This situation preempts the tenure system. I’m sure that’s part of the plan because movement conservatives hate tenure as much as they hate teacher’s unions. It’s easier to get rid of people that disagree with you and won’t teach your failed economic theories.
The emphasis now is on the programs that have the most bang for the buck. In the business college, we will produce more MBAs with the professors that can teach a bunch of classes, not the professors that have distinguished themselves in their field through publication and turning out other scholars. Those professors and the PhD program will be eliminated as part of the financial exigency plan. This is just the example that I know of because it’s in the department that I know well.
I am reminded of my days as a consultant to manufacturing and my training with Dr W. Edwards Deming as I watch the weirdest metrics being used to assess what is useful in education and what is not. Dr. Deming used to tell us that the “most important numbers were unknown and unknowable.” To this day, I can hear his deep voice telling us that over and over. I also remember sharing my experience as consultant to an AT&T manufacturing plant that was engaged in metrics but not in the mentality it takes to do the job right. The late night shift was always going around changing the tags and the numbers on things so that there would be no blame on labor. The data was played because of the fear. Dr. Deming would use these examples of showing us how so many workers lived in fear of doing their jobs right.
This brings me to another reason that I do not think this will work. Even teachers will cheat if metrics are held over their heads and the heads of their students. If you build enough fear into people, they will make sure you get the results that you want, even if they have to fudge the numbers to get them.
More than 100 Atlanta educators may be sanctioned for suspiciously erasing wrong answers on elementary school students’ standardized tests and replacing them with correct responses, the Atlanta Journal-Constitution reports.
An official inquiry into the alleged cheating began last year following a six-month Atlanta-Journal Constitution investigation of possible cheating on the Criterion-Referenced Competency Test, the standardized test used to determine whether schools are meeting national and state education standards. According to the AJC’s analysis of sweeping test score gains between 2008 and 2009, which showed some of the lowest performers mysteriously become some of the highest, the odds of making leaps in proficiency like those seen at some Atlanta schools were less than one in a billion.
In a report released Monday, investigators wrote that widespread cheating seemed to be limited to 12 schools—far fewer than the nearly 50 initially flagged by state officials as suspicious. But more than a third of the educators deemed at fault are principals and other school administrators, indicating the possibility of inter-school collusion in the cheating scam.
This is what happens when you bring the corporate mentality into an institution that is built for the public good. This is what happens when cost cutting takes on a religious zeal. The results that you get are not the ones the public really wants or needs. At best, you’ll see schools do wrong by students just to meet the metrics and the rules of the game foisted upon them. I guarantee, eventually they all will cheat. They will cheat the students, the system, and the taxpayer. But by then Governor Jindal will undoubtedly be running for higher office on how he tamed the size of Lousiana’s government.
Hand Outs can be Hand Ups
Posted: August 2, 2010 Filed under: Economic Develpment | Tags: conditional cash transfer programs Comments Off on Hand Outs can be Hand Ups
The one thing that I frequently notice about people that consider themselves conservatives (compassionate or otherwise) is that they are more prone to ideology that’s based more on philosophy or faith than data and experience. This is very frustrating for those of us that argue based on something a bit bit more pragmatic like seeing what works in reality and repeating it.
I’ve said before that voodoo economics, supplyside economics, or Reaganomics–whatever you want to call it–doesn’t work. All you really have to do is look the economic data using economic models and it comes up more than short. However, that doesn’t stop people from saying it’s still valid because that’s what they want to believe. It reminds me of folks that are religious based on what they want to believe rather than what is. As an example, evolution is a well-proved and well-accepted theory (i.e universally accepted truth based on huge amounts of observations and experience via the scientific method.) Still, folks believe what the want to believe and there in lies a huge problem. The pick and choose their facts to fit their fancy and that’s a dangerous behavior. What they believe is harmful and has bad results from society, but they just keep on keepin’ on as if just saying it enough times will make it so.
One of these memes is that people living in poverty are there because of some character defect . The compassionate conservative typically labels the poor as lazy. These folks that believe this have also typically been recipients of huge amounts of government hand outs and hand ups from public schools, to tax incentives, and from government guaranteed students loans to mortgages from an early age to their elderly years. They’ve enjoyed subsidized school lunches in every school, yet to get the school lunch free is some how a dismal display of lack of character on the part of others. It appears that there must be degrees of differences between hand outs and hand ups, but yet, if you look at the facts and the data, there’s not much difference. The results are positive and astounding. How much more economic is it to help children grow up to become productive adults rather than social problems and criminals? I guess that’s what you think if you look at the facts and use your logic rather than think that a lifetime of punishment for some perceived shortcoming is some how just, fair, and compassionate.
If you haven’t heard about conditional cash transfer programs (CCT), be prepared to learn something new about hand outs and hand ups. One of the biggest memes we have is that giving poor people cash means they will spend it on frivolous things. Of course, you may have heard the anecdotal evidence of Katrina cash cards, as an example, being used for strip clubs, guns and porn. My guess is that was a very small number of people that did that, but we heard it all the same. You never heard about the people who got to feed their families because of the generosity of all Americans.
Ronald Reagan made a political career out of telling stories about ‘welfare’ queens and with each telling, his stereotype grew larger than any possible reality. It’s easier to use caricatures than real people when you’re trying to damn an entire group of people to endless suffering. I would like to add that as a recipient of your largess in the form of Katrina cash, I bought a winter coat that I sorely needed, clothing, and food. I think the most adventurous things I bought were flannel pajamas because it’s cold in Nebraska in September and I arrived with not much else than shorts and t-shirts. I was and I continue to be thankful for that because I needed it. (And I needed it because the university messed up my pay checks for nearly 4 months.) Actually, by the time I got them and my food stamp card, the Red Cross had wised up on how to administer the programs. They were a CCT program of sorts. I could use the money at a SuperWalmart or a SuperTarget and it was limited to food items or clothing. Those big box stores could program the cards to check to make certain that my purchases were acceptable to the purpose of the help. You could also get vouchers to get shelter also. I didn’t need that since I preferred staying with my friend Jane to staying in a motel. I also went home to a undamaged, dry house so I didn’t need any thing from that point forward except for the electricity to work in my house.
So, back to why it’s okay to help people under extreme situations and why the data shows that it works in the overwhelming number of cases. The program is based on the idea that you pay people to do the right behaviors. As an example from Brazil, f you’d rather see children in school, than working to support the family, pay the family for a child in school. Other examples include paying mothers who bring their children in for vaccines. Most of these programs help children in poverty.
Here’s a good article about the program in a recent The Economist.
CELIA ORBOC, a cake-seller in the Philippines, spent her little stipend on a wooden shack, giving her five children a roof over their heads for the first time. In Kyrgyzstan Sharmant Oktomanova spent hers buying flour to feed six children. In Haiti President René Préval praises a dairy co-operative that gives mothers milk and yogurt when their children go to school.
These are examples of the world’s favourite new anti-poverty device, the conditional cash-transfer programme (CCT) in poor and middle-income countries. These schemes give stipends and food to the poorest if they meet certain conditions, such as that their children attend school, or their babies are vaccinated. Ten years ago there were a handful of such programmes and most were small. Now they are on every continent—even New York City has one—and they benefit millions.
The programmes have spread because they work. They cut poverty. They improve income distribution. And they do so cheaply. All this has been a pleasant surprise: when they were introduced or expanded, critics feared they would either make the poor dependent on hand-outs or cost far too much. In fact, they are cheap (Brazil’s, the biggest, costs 0.5% of GDP). And they show income transfers can work nationally: in the past, middle-income countries usually left income-transfer programmes to local governments—if they bothered at all.
These CCT programs are now popping up every where including New York City. (You’ll have to mind my links from now on out because they will point to research articles.)
In 2007, New York City’s Center for Economic Opportunity (CEO) launched Opportunity NYC: Family Rewards, an experimental, privately funded conditional cash transfer (CCT) program to help families break the cycle of poverty. CCT programs offer cash assistance to reduce immediate hardship and poverty but condition this assistance—or cash transfers—on families’ efforts to improve their “human capital” (typically, children’s educational achievement and family health) in the hope of reducing their poverty over the longer term. Inspired by Mexico’s pioneering Oportunidades program, such programs have grown rapidly across lower- and middle-income countries, and evaluations have found some important successes. Family Rewards is the first comprehensive CCT program in a developed country. The program was targeted toward families who lived in selected community districts and who had incomes at or below 130 percent of the federal poverty level. It ties cash rewards to prespecified activities and outcomes in children’s education, families’ preventive health care, and parents’ employment. Two national, New York-based nonprofit organizations
Again, these programs tend to be behavior-based and usually have goals in three areas: education, health or work. The results from the New York program are reported in the above research article. Here is just one of the positive outcomes noted.
In this area, Family Rewards substantially improved families’ economic position in its first two years. Counting the value of the reward payments, it boosted average monthly income for the program group by $338, or about 21 percent relative to the control group’s income. It reduced the proportion of families with household income at or below the federal poverty level by 11 percentage points, and cut “severe poverty” (defined as having income less than 50 percent of the federal poverty level) by nearly half, reducing it from 30 percent of the control group to 17 percent among the program group. (All impacts discussed in this summary are statistically significant unless otherwise noted.)
If you’d like a more global perspective, here is a World Bank publication that talks about programs around the world. This particular papers looks at programs in Mexico, Jamaica, Brazil, and Colombia. Some of the “hand outs” include school supplies, savings accounts that accumulate money and are granted to the child upon graduation, nutrition supplements, and health and wellness education. Most of these things are very basic like food and cash incentives for children that attend school. The World Bank finds these programs are worth continuing.
CCT programs have shown considerable achievements under a variety of circumstances. They are at the forefront of a new thinking on social protection, which reexamines the presumed trade-off between equity and efficiency by considering the long-term social and economic costs of uninsured risks and unmitigated inequalities and the potential role of safety nets in addressing these issues. By providing incentives to parents to invest in the long-term human capital development of their children, they have promise for addressing issues of deep-seated exclusion and the inter-generational transmission of poverty.
Here again, is more information from The Economist on the program in Brazil called Bolsa Familia.
By common consent the conditional cash-transfer programme (CCT) has been a stunning success and is wildly popular. It was expanded in 2003, the year Luiz Inácio Lula da Silva became Brazil’s president, and several times since; 12.4m households are now enrolled. Candidates for the presidency (the election is on October 3rd) are competing to say who will expand it more. The opposition’s José Serra says he will increase coverage to 15m households. The ruling party’s Dilma Rousseff, who was Lula’s chief of staff, says she is the programme’s true guardian. It is, in the words of a former World Bank president, a “model of effective social policy” and has been exported round the world. New York’s Opportunity NYC is partly based on it.
Much of this acclamation is justified. Brazil has made huge strides in poverty reduction and the programme has played a big part. According to the Fundaçao Getulio Vargas (FGV), a university, the number of Brazilians with incomes below 800 reais ($440) a month has fallen more than 8% every year since 2003. The Gini index, a measure of income inequality, fell from 0.58 to 0.54, a large fall by this measure. The main reason for the improvement is the rise in bottom-level wages. But according to FGV, about one-sixth of the poverty reduction can be attributed to Bolsa Família, the same share as attributed to the increase in state pensions—but at far lower cost. Bolsa Família payments are tiny, around 22 reais ($12) per month per child, with a maximum payment of 200 reais. The programme costs just 0.5% of gdp.
It’s time to change in those policymakers that wish to punish the poor based on some nightmare fallacy they’ve gotten from a demagogue to more compassionate and reality based politicians. These programs work and are cost efficient. It is much cheaper to help a child when you can than to pay for a failed adult. It is time we trade a future in our now profit-seeking private prisons for hand outs and hand ups.






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