Why cities are experimenting with giving people cash payments
| Chelsea, Mass.
Chelsea, Massachusetts, has become a national test bed for a provocative idea to help those in need: simply give them money. Not a housing voucher or food stamps, but a cash-equivalent payment that ensures people have a basic income that they can spend any way they want.
Chelsea is one of several U.S. cities experimenting with unconditional cash transfers to help residents – an idea that could become the basis for an alternative to traditional welfare and other safety net programs that have existed for decades. The rationale is that people know best what they need, and letting them make decisions on how to use the money, without restrictions, gives them agency, and doesn’t require a big bureaucracy to implement.
Why We Wrote This
Providing people with a basic income is gaining ascendancy as a way to help those in need. It’s direct – just give people cash – and empowering: People can spend the money as they see fit. But it’s also controversial.
“We can trust people to spend money appropriately. Just because people are poor doesn’t mean that people are irresponsible,” says Tom Ambrosino, Chelsea’s city manager.
Critics see basic-income programs as too expensive and not a substitute for welfare and other programs. For now, basic-income programs are gaining ground to help people hurt by the pandemic. The question is: How far will they go?
Inside the hillside church where she works part time as custodian, Ana Vanegas-Rivera rests on a wooden bench and pulls out her phone wallet. She holds up a blue debit card, similar to the others in her wallet, minus her name or any issuing bank.
The card belongs to Chelsea, a blue-collar city outside Boston that is using it to give cash to around 2,000 low-income residents during a pandemic that has disproportionately hit its Latino-majority population. Every month the card is reloaded with between $200 and $400, depending on family size, allowing recipients to spend the money as they see fit.
Ms. Vanegas-Rivera’s $400 goes toward buying food, household items, school supplies, and shoes for Dylan, her third grade son. For now, the family is getting by on her modest custodian salary and disability checks, along with what her husband earns from sporadic construction jobs, so every extra dollar counts.
Why We Wrote This
Providing people with a basic income is gaining ascendancy as a way to help those in need. It’s direct – just give people cash – and empowering: People can spend the money as they see fit. But it’s also controversial.
“It has been a big help. I’m very happy that we have this opportunity,” she says.
The pilot income program, which began in November and runs until May, has been underwritten by federal and state COVID-19 relief dollars, as well as private donations, and is geared to feeding families, as its name, Chelsea Eats, suggests. “Our overriding goal is to get people through the spring,” says Tom Ambrosino, the city manager. “For some of our families that is the only money they have.”
Chelsea is also a national testbed for a simple idea: to help people by giving them money. Not a housing voucher, not food stamps, but a cash-equivalent payment that ensures recipients have a basic income that they can spend any way they want. The rationale is that people know best what they need, and letting them make decisions on how to use the money, without restrictions, is direct and empowering, and doesn’t require a big bureaucracy to implement.
Chelsea is one of several U.S. cities experimenting with unconditional cash transfers to help some residents quickly – an idea that could become the basis for an alternative to traditional welfare and other safety net programs that have existed for decades. Indeed, advocates see these cash experiments as a building block toward a federal guarantee of a basic income for all, or at least all who manifestly need it.
The idea of a universal basic income that would fill in some of the crevasses in capitalist economies isn’t new. Its supporters run the gamut from Silicon Valley millionaires to Pope Francis, who said last year it could “acknowledge and dignify the noble, essential tasks.” But UBI has always been a provocative notion that seemed just a little too provocative, an unfathomable expense – free money for all – that nobody would want to pay.
That was before the pandemic. Once economies started closing down, governments around the world began to dig deep and spend freely, putting cash directly in people’s hands.
“I think we’re at a watershed moment,” says Luke Shaefer, a professor of social policy at the University of Michigan in Ann Arbor. “We used money to respond to an economic crisis and it wasn’t perfect, but we got money out quickly.”
Most U.S. social assistance is modest and conditioned on certain requirements, such as work and family size. Except for older adults or people with disabilities, it rarely arrives in the form of cash. This reflects an ethos of self-reliance, as well as decades of conservative criticism that welfare is wasteful and breeds dependence. Backers of basic income believe these traditional assistance programs no longer work.
Yet the politics of governments handing out cash remains complicated. Many liberals like UBI but some don’t. Many conservatives don’t like UBI but some do.
For now, momentum is building for at least some form of basic income in the face of a lopsided economy that seems to generate more losers than winners, even before the pandemic. But the question is: How far will the idea go?
In 1967, Dr. Martin Luther King Jr. turned his attention to what he called the next phase of the civil rights struggle: an agenda for economic justice and structural reform. In his final book, “Where Do We Go From Here: Chaos or Community?,” he proposed a radical fix to the economic insecurity that many Black families faced.
“I am now convinced that the simplest approach will prove to be the most effective – the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”
A year later, Dr. King was dead. The baton for basic income then passed to President Richard Nixon, a Republican. In 1969, he proposed what was essentially a negative income tax – a tax refund for people who made little or no money. Under his plan, a family of four with no earnings would receive up to $1,600 a year, roughly $11,000 in today’s dollars. The idea was backed by free market economist Milton Friedman, who had long favored an income guarantee based on the federal tax system. But the proposal failed to pass the Democratic-run Senate in 1971 and slipped into near-obscurity.
Fifty years on, interest in UBI as an anti-poverty tool continues to attract odd bedfellows. On the left, basic income is framed as economic justice and a corrective to corporate exploitation. Andy Stern, former president of the Service Employees International Union, considers it a sort of “national strike fund.” In a 2016 book, “Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream,” he argues a cash allotment would allow workers to walk off the job, or threaten to walk off the job, in protest, giving them leverage to demand better pay and working conditions from corporate overlords.
On the right, there is some appetite for a basic income because it could shrink the size of government – dispersing cash doesn’t take the bureaucracy that welfare does – and give more control to recipients. According to this argument, people couldn’t try to game the system to extend or get higher payments, as critics say they do now. They’d just get money.
Charles Murray, a conservative author, hails UBI as a slayer of a welfare system that “has severely degraded the traditions of work, thrift, and neighbourliness which enabled the system to work at the outset.”
One reason UBI is back in vogue is the seemingly inexorable march of automation, which heralds a dearth of jobs in the future for all but the most skilled workers. In this scenario, UBI is not so much a safety net for hard times as a futuristic way to re-imagine wage labor and human striving. Those who can’t find paid work would have a basic income to fall back on. Others could work in jobs they like, even though they don’t pay well, because they would have a supplemental income.
While this tech future hasn’t arrived, many entrepreneurs seem convinced that it will. Twitter Chief Executive Officer Jack Dorsey and Y Combinator, a startup incubator, have separately poured millions of dollars into basic-income experiments and advocacy. So has Chris Hughes, a Facebook co-founder who is a co-chair of the Economic Security Project, an advocacy group.
It took another tech millionaire, Andrew Yang, to turn UBI from a policy abstraction into a national conversation about the future of work. He ran for the Democratic nomination for president on a proposal that all adults receive a “Freedom Dividend” of $1,000 a month, a plan based on dire predictions of robots and computers replacing humans in the workplace.
By the time Mr. Yang ended his candidacy in February 2020, UBI was part of the political lexicon in imagining what governments should do if work does, in fact, go away. A month later, the U.S. and other major economies froze. Virtually overnight, work went away.
Back in Chelsea, Mr. Ambrosino, the town manager, had a problem. It was summer 2020 and he had his hands full distributing food to residents whose incomes had evaporated during lockdowns. The densely populated city of 40,000 on Boston’s North Shore, once studded with shoe and paper factories and now home to workers in the hospitality sector and at Boston’s airport, had become a pandemic hot spot during the first wave.
Mr. Ambrosino also felt for the men and women who stood in line for hours and lugged heavy boxes of food home. “That didn’t seem like a dignified way to feed them,” he says.
So he turned to Jill Shah, an entrepreneur who, along with her husband, Niraj Shah, the founder and chief executive officer of Wayfair, has a family foundation in Boston that was supporting statewide food security initiatives. Ms. Shah looked at the logistics of trucking in food to Chelsea and wondered if there was a better way. What about just giving people cash? she asked.
Ms. Shah had grown interested in basic income through her work on community resilience and saw that Chelsea was willing to experiment in an economic crisis, provided the money could be found. “This was a perfect opportunity for us to study it,” she says.
By pooling COVID-19 relief dollars with $1 million from the Shah Family Foundation and donations from United Way and Massachusetts General Hospital, Chelsea had enough funding to support more than 2,000 households during winter months. Now it needed to select them.
When Ms. Vanegas-Rivera heard about Chelsea Eats, she decided she would apply, not just for herself but also so she could guide other families in her WhatsApp support group who might not understand the application process. In the end, most filed to join the program, which was open to all residents on low incomes.
Before the pandemic, Ms. Vanegas-Rivera, who was born in Guatemala and moved to the United States in 1997, had been making extra money by selling jewelry and cosmetics to her friends. But the family still struggled to pay bills, ran up debt, and had no savings. “We had nothing else to spare at the end of the month,” she says. “That’s how it was.”
Then her husband’s construction work dried up. So when Chelsea held a lottery in September to pick the program recipients, she was elated when she found out her number had come up. But she didn’t let on that she had gotten picked because others in her group hadn’t been selected.
“It’s a big help, definitely. We’re very grateful it happened to us,” she says. “But I’m very sad that other people don’t have access to the program.”
Perhaps the worst was telling Carina Meza, her neighbor, who, like her, lived in a cramped one-bedroom apartment with four children. Ms. Vanegas-Rivera’s son Dylan played with the younger kids. The two women cooked together. Now Ms. Vanegas-Rivera had a $400 debit card to pay for groceries and her neighbor didn’t. “It felt so, not good,” she says, removing her glasses to wipe her eyes.
Of the roughly 3,600 residents who applied for Chelsea Eats, 2,074 were selected. Researchers from the Harvard Kennedy School are surveying around 1,100 of these recipients, along with 800 others who didn’t get the money, says Jeffrey Liebman, a professor of public policy who is leading the study and plans to release his findings this summer.
Thanks to the debit card, Mr. Ambrosino can track where the money goes. He says most is spent at local food markets, which means a program designed to feed Chelsea, and get city hall out of the food pantry business, is working. He also sees some liquor-store purchases and other discretionary items, as well as Amazon orders.
But he’s not worried about frivolous expenditures.
“We can trust people to spend money appropriately. Just because people are poor doesn’t mean that people are irresponsible,” he says.
While it’s too early to judge Chelsea’s experiment, a similar privately funded pilot program ended recently across the country in California’s Central Valley. For two years, 125 randomly selected residents in Stockton had received $500 a month; a control group received no money.
The Stockton Economic Empowerment Demonstration (SEED) was the brainchild of former Mayor Michael Tubbs. Elected in 2016 at the age of 26, he alighted on basic income as an approach to tackle deprivation in Stockton. Residents suffered poor health and economic insecurity. Proximity to Silicon Valley’s booming tech sector hadn’t trickled down to its mostly nonwhite population of 310,000. Mr. Tubbs cites Dr. King’s writings on basic income and his own family’s struggles as inspiration for SEED.
Independent researchers have analyzed data from the program’s first year, from February 2019 to February 2020. They found that the extra $500 had a significant positive impact on household incomes, physical and mental health, and debt management. SEED recipients were more likely to be in full-time employment and to have a cushion for financial emergencies.
None of which would surprise Johannes Haushofer, an economist at Stockholm University, who has studied cash transfers in Kenya. When he analyzed the effects of cash transfers on 500 households, he found that recipients had higher incomes and more assets – in other words, they didn’t quit their jobs and just collect the assistance money. Most used it to supplement what they were already making. Levels of domestic violence among recipients fell sharply compared with a control group, too. The Kenya program, run by a U.S. nonprofit, GiveDirectly, has since expanded to around 20,000 households in 197 villages, making it the world's largest basic-income experiment. Some began receiving monthly transfers in 2018 that will run for 12 years, giving researchers an approximation of a UBI as an entitlement. Another group will receive two years upfront as a lump sum.
Researchers are curious how the different payouts will affect people’s lives and spending habits. “Will those bigger amounts allow you to do something more dramatic?” asks Jonathan Morduch, a professor of public policy and economics at New York University.
Perhaps the ultimate UBI experiment is underway in Maricá, Brazil, a commuter city outside Rio de Janeiro. The government there is giving cash to 42,000 of its 162,000 residents, using a local digital currency. Experts say this could show the macroeconomic effects of cash transfers locally on inflation and other measures that don’t show up in smaller trials in cities like Stockton and Chelsea.
Still, the prospects for basic income becoming a reality in the U.S. seem more likely to turn on the success of domestic experiments. A Pew survey last August found that 45% of adults favored a $1,000-a-month federal guaranteed income; Democrats and younger voters were more likely to support the idea.
Last summer Mr. Tubbs founded Mayors for a Guaranteed Income, a national network of 40 city leaders exploring or developing basic-income pilots. Mr. Dorsey, the Twitter CEO, has donated $18 million to help seed these programs. The largest so far, in Compton, California, is giving $300-$600 a month to 800 people over the next two years.
Mr. Tubbs says the goal is to see a national income floor for families living paycheck to paycheck, but concedes that a basic income for everyone may be a step too far. “While we work towards that great goal, we need to know those who absolutely need it, get it first,” he says.
To advocates, basic income is a stabilizer that builds on federal expansions in social insurance passed during the Great Depression and to alleviate poverty in the 1960s. Natalie Foster of the Economic Security Project notes that many of the mayors drawn to basic income are millennials who see the effects of economic inequality on their communities.
“This is our generation’s addition to the safety net,” she says. “It’s the way we need to expand it for the modern economy.”
Thanks to the pandemic, this expansion may be coming into focus sooner than expected. More than 10 pieces of Democrat-sponsored legislation currently in Congress would, if enacted, provide cash to hard-up families until the U.S. economy recovers – and possibly longer.
Critics see the push as opportunism. “Policymakers are using the pandemic to advance an agenda that already existed,” says Matt Weidinger, a resident fellow at the American Enterprise Institute who studies poverty. Like other conservative scholars, he’s skeptical of the benefits of no-strings cash transfers and of the huge costs and unknown effects of a universal income.
A 2019 study found that giving $1,000 a month to every adult in the U.S. would cost roughly $3 trillion a year, or 75% of total federal spending. Eliminating Social Security, food stamps, and all other anti-poverty programs and tax benefits would only cover $1.2 trillion of that cost.
The prospect of taking money from existing programs is one reason some liberals oppose UBI. They’re worried it would gut initiatives that largely target poor people, replacing them with a program that helps everyone, which would be less progressive.
The immediate debate over the issue is less around the broad idea of giving everyone a basic income and more about using it to help families with children. In March, when Congress passed President Joe Biden’s $1.9 trillion stimulus package, it included a fully refundable child tax credit starting at $3,000 per child, of which a portion will be paid in advance. The temporary credit phases out for individuals earning more than $75,000 a year or $150,000 for couples. It’s essentially a cash dispersement by the IRS, similar to what President Nixon wanted to do.
While Mr. Biden’s stimulus was passed on strictly partisan lines, the idea of a child allowance has Republican support in Congress as well. In February, Sen. Mitt Romney, a Utah Republican, proposed a similar child benefit plan that would cut funding to other social programs to make it permanent. Both plans would lift millions of children out of poverty.
Taken together, the two plans show how far the political pendulum has swung toward social assistance that lets recipients spend money on what they need.
“There is a shift towards a comfort [among lawmakers] in giving cash. This is a profound shift in thinking about safety nets,” says Professor Morduch.
In Chelsea, Mr. Ambrosino doesn’t really focus much on whether the idea of a basic income is gaining ascendancy in Washington or not. His priority is simply to help families in a tough spot, and he’s happy with what he’s seeing so far with Chelsea Eats. “We’re getting money in the right hands,” he says.
Roseann Bongiovanni, a former city councilor and now executive director of GreenRoots, a local nonprofit, agrees that the extra money is helping families. But Chelsea faces challenges of housing affordability and environmental justice, and overall demand at food pantries hasn’t gone away. “This is a short-term fix,” she says. “It’s not resolving a larger structural issue.”
Ms. Vanegas-Rivera knows that her debit card is temporary. Though she owes less on her credit cards and is managing better, her money problems haven’t gone away. What has changed, she says, is that she and her husband are no longer lining up daily at food pantries.
Every night, her son Dylan prays that the family moves into a house big enough for him to have a dog. “It breaks your heart when you hear that from a boy,” she says.
But she believes that her family can forge its own way once the pandemic is over. “I don’t want to get stuck, and we’re not going to get stuck. That’s not who we are,” she says.
Editor's note: This story was updated to clarify the details of the cash transfer program in Kenya.
