Great point, I hadn’t thought of it that way. Indeed, if you consider “increase in de facto consumption income over the next 4 years” to be a production increase (which I now agree is a reasonable point of view to take), then the long term effects on production are positive. I need to think more about how exactly that works out, but you’ve possibly convinced me of this.
My remaining point of contention, then, is that you say this argument isn’t intuitive to those without experience in the field, which is true, but GiveDirectly didn’t even try to make it! The only argument they affirmatively used to support their big claim was pointing vaguely at the Eggers (2022) spillovers study, which has general equilibrium models and economic slack as its focus, saying very little about durable consumption goods at all. So if GD wants to explain their reasoning to anyone, they should do it more like you did, and IMO a
full analysis of multiple pages would be not just worthwhile but necessary.
I completely agree that GiveDirectly could explain this a hell of a lot better. I suspect that their team has a diversity of points of view and this prevents them from committing to a more concrete explanation like what I presented. I explained the capital accumulation in terms of what I see when I visit actual households: someone starts with mud walls and a thatch roof, then they take their surplus and build a bigger house with concrete floors, brick walls and metal roof, move into that and then they can buy nicer furniture because dirt isn’t falling down from the thatch roof all of the time. They have obviously invested in higher productivity housing services which increases their consumption income. But this evidence is anecdotal.
I think GiveDirectly tried to anecdotally explain how cash transfers get invested with their shop example in the video. But again, I totally agree that their explanation has holes that make it hard for people who don’t already agree with them to have the explanation that they need to understand why cash transfer requirements are likely to decrease substantially over time.
Great point, I hadn’t thought of it that way. Indeed, if you consider “increase in de facto consumption income over the next 4 years” to be a production increase (which I now agree is a reasonable point of view to take), then the long term effects on production are positive. I need to think more about how exactly that works out, but you’ve possibly convinced me of this.
My remaining point of contention, then, is that you say this argument isn’t intuitive to those without experience in the field, which is true, but GiveDirectly didn’t even try to make it! The only argument they affirmatively used to support their big claim was pointing vaguely at the Eggers (2022) spillovers study, which has general equilibrium models and economic slack as its focus, saying very little about durable consumption goods at all. So if GD wants to explain their reasoning to anyone, they should do it more like you did, and IMO a full analysis of multiple pages would be not just worthwhile but necessary.
I completely agree that GiveDirectly could explain this a hell of a lot better. I suspect that their team has a diversity of points of view and this prevents them from committing to a more concrete explanation like what I presented. I explained the capital accumulation in terms of what I see when I visit actual households: someone starts with mud walls and a thatch roof, then they take their surplus and build a bigger house with concrete floors, brick walls and metal roof, move into that and then they can buy nicer furniture because dirt isn’t falling down from the thatch roof all of the time. They have obviously invested in higher productivity housing services which increases their consumption income. But this evidence is anecdotal.
I think GiveDirectly tried to anecdotally explain how cash transfers get invested with their shop example in the video. But again, I totally agree that their explanation has holes that make it hard for people who don’t already agree with them to have the explanation that they need to understand why cash transfer requirements are likely to decrease substantially over time.