Thanks for bringing your considerable expertise here! To be clear, my contention was that GiveDirectly hasn’t shown this, not that the evidence doesn’t exist. If they had made something like your comment, I would never have written this post in the first place.
That said, to engage with what you’re saying:
-Many durable goods are a permanent or long-term increase in quality of life (like the metal roofs and cement floors you mentioned) without bringing an increase in productive capacity. Those goods are important in their own right, but don’t support the claim made.
-Here I’m really going out of my knowledge zone, but based on what I currently know, I’m skeptical that kids going to school more in developing countries has a large total effect. The main reason I’m worried about this is that I’ve seen too many studies where it turns out that most of the teachers aren’t showing up at these schools, or the kids can’t actually write simple words by age 10, that kind of stuff. This opinion is lightly held because I’m not very familiar with the literature here.
-I do believe some poverty traps exist, and there is probably a long-term effect of cash transfers, mostly through investments like those you described. I just think the effect is likely small to medium.
The main reason I feel like I can make some of these statements with reasonable confidence (besides my econ background) is that, well, anyone can interpret a randomized controlled trial. And the few randomized controlled trials done show mixed to no effects, over the long term. More data coming in a few years though!
You claim that investments that improve the quality of services consumed (such as cement floors, brick walls and metal roofs) are not “productive investments” and do not produce a long-term improvement in income.
This is our key point of disagreement. I disagree with your claim. We can agree to disagree.
I think we are disagreeing on how income/poverty is properly measured.
In my work in low-income developing country conditions the most relevant measurement of income is “consumption income” the value of the goods and services that people consume.
Where I work, it is common for 1⁄3 to 1⁄2 of household consumption to be self-produced: i.e. generated with no cash income, and no cash expenditure.
In these conditions, an investment in improved housing does produce a long-term increase in consumption income because it increases the value of the housing services that the family is consuming over many years with no further cash expenditure. It is a one-time cash expenditure and a long-term consumption income increase.
Increasing consumption income is what households in rural Africa see as real, tangible poverty reduction.
I agree that GiveDirectly did not support its claims in ways that certain people can find convincing. Because many people in richer countries live in places where most consumption has an associated financial transaction, and many folks do not have familiarity with living in a subsistence economy that can enable an intuitive understanding of un-monetized production and consumption economics.
But for those who do spend time working in the practice of improving rural African household economic conditions, GiveDirectly’s claims seem well-supported because in rural Africa it is very common for people to make cash expenditures to increase consumption income over the long term. People like me consider such improvements in housing and infrastructure as productive investments even if they produce benefits that are not monetized.
GiveDirectly has shown that the impact of cash transfers are multi-year, and if the benefit lasts more than one year, then the cash transfer in an subsequent year can be less than the cash transfer in the previous year to maintain a household above the extreme poverty threshold. Thus, IMHO, GiveDirectly has shown what it needs to show to make the claim that cash transfers likely can decrease year-over-year to maintain incomes above the extreme poverty threshold in a larger scale program.
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.
Thanks for bringing your considerable expertise here! To be clear, my contention was that GiveDirectly hasn’t shown this, not that the evidence doesn’t exist. If they had made something like your comment, I would never have written this post in the first place.
That said, to engage with what you’re saying:
-Many durable goods are a permanent or long-term increase in quality of life (like the metal roofs and cement floors you mentioned) without bringing an increase in productive capacity. Those goods are important in their own right, but don’t support the claim made.
-Here I’m really going out of my knowledge zone, but based on what I currently know, I’m skeptical that kids going to school more in developing countries has a large total effect. The main reason I’m worried about this is that I’ve seen too many studies where it turns out that most of the teachers aren’t showing up at these schools, or the kids can’t actually write simple words by age 10, that kind of stuff. This opinion is lightly held because I’m not very familiar with the literature here.
-I do believe some poverty traps exist, and there is probably a long-term effect of cash transfers, mostly through investments like those you described. I just think the effect is likely small to medium.
The main reason I feel like I can make some of these statements with reasonable confidence (besides my econ background) is that, well, anyone can interpret a randomized controlled trial. And the few randomized controlled trials done show mixed to no effects, over the long term. More data coming in a few years though!
You claim that investments that improve the quality of services consumed (such as cement floors, brick walls and metal roofs) are not “productive investments” and do not produce a long-term improvement in income.
This is our key point of disagreement. I disagree with your claim. We can agree to disagree.
I think we are disagreeing on how income/poverty is properly measured.
In my work in low-income developing country conditions the most relevant measurement of income is “consumption income” the value of the goods and services that people consume.
Where I work, it is common for 1⁄3 to 1⁄2 of household consumption to be self-produced: i.e. generated with no cash income, and no cash expenditure.
In these conditions, an investment in improved housing does produce a long-term increase in consumption income because it increases the value of the housing services that the family is consuming over many years with no further cash expenditure. It is a one-time cash expenditure and a long-term consumption income increase.
Increasing consumption income is what households in rural Africa see as real, tangible poverty reduction.
I agree that GiveDirectly did not support its claims in ways that certain people can find convincing. Because many people in richer countries live in places where most consumption has an associated financial transaction, and many folks do not have familiarity with living in a subsistence economy that can enable an intuitive understanding of un-monetized production and consumption economics.
But for those who do spend time working in the practice of improving rural African household economic conditions, GiveDirectly’s claims seem well-supported because in rural Africa it is very common for people to make cash expenditures to increase consumption income over the long term. People like me consider such improvements in housing and infrastructure as productive investments even if they produce benefits that are not monetized.
GiveDirectly has shown that the impact of cash transfers are multi-year, and if the benefit lasts more than one year, then the cash transfer in an subsequent year can be less than the cash transfer in the previous year to maintain a household above the extreme poverty threshold. Thus, IMHO, GiveDirectly has shown what it needs to show to make the claim that cash transfers likely can decrease year-over-year to maintain incomes above the extreme poverty threshold in a larger scale program.
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.