Knowable, but not known to me

In the futile hope that maybe, just maybe, folks' views about welfare policy might just stand to be informed by data, here are a few testable hypotheses I've seen floating around. They posit things that are knowable, and I'm sure data exists to resolve things. Let's walk through a few of them.

First, how do poor people use money? I tend to say we ought to just give money to poor people if we want to make poor people better off. Other folks think that they'll just waste it on booze and cigarettes rather than helping their kids. I don't discount that that's also possible; it's an empirical question.

@ericcrampton Is there any research on how people on low incomes spend their money, and what changes when get more cash per week?
— Jackson James Wood (@_jjw_) May 28, 2013

Now why does this matter? If you think that parents will waste money given them, you might prefer in-kind benefits provided directly to the children of poor parents rather than cash transfers. School breakfast programmes can fall into that category, despite that they're rather ineffective and largely go towards feeding kids who would have been fed anyway. I think that some of the support for wrecking the GST by exempting merit goods also comes from this kind of view, though I think this rather misguided: vouchers for merit goods could be a rather less ruinous way of achieving the desired end.

So, the test. Get household consumption survey data, look for some shock to benefit payments, and check the effects on different consumption categories. If extra money going to poor households disproportionately increases consumption of lotto tickets and booze, then the paternalists who want to make sure that money given to the poor is used for particular things are right in wishing for more in-kind benefits; if not, then the paternalists should back down on such assertions.

I can't imagine that this empirical test has not been done by somebody somewhere; I just don't know the results. I also don't expect that it will change many minds. Paternalists will want paternalism for its own sake, and anti-paternalists won't mind that poor people enjoy some consumption goods. I'm one of the anti-paternalists, but if the data showed little benefits to kids of cash transfers to families intended for kids, I'd shift towards preferring rather more in-kind benefits to kids. Any readers able to point to relevant NZ studies are welcome to do so in the comments.

Second, "can't feed 'em, don't breed 'em". Twitter and the NZ blogs have a bunch of folks yelling at each other about whether the main problem in child poverty stems from poor people's unwillingness to engage the prudential constraint or whether it's bad luck. Those on the right note that if poor people stopped having kids they couldn't afford, then child poverty would be less of an issue. People on the left instead remind those on the right that birth control can fail and that people in good financial circumstances can fall on hard times for reasons outside of their control and after they've set their family size.

So, a test. Start with DPB numbers. What is the current fertility rate of women receiving the Domestic Purposes Benefit, and how does it compare to the fertility rate of women of similar age and marital status who are not receiving government support for the raising of children? If the fertility rate among women on the Domestic Purposes Benefit is roughly what we would expect given known rates of contraception failure, then score a point for the left. If women on government support are instead choosing to have more children while in poverty, then score a point for the right. I would bet that the data shows rather more childbearing than would be expected from contraception failure alone, but less than the fertility rates among similar-aged women not on the DPB, but I've not seen the data.

Again, I'd be surprised if this kind of data didn't exist somewhere. I expect that the data could actually potentially make some difference here, though it depends which way it goes. If current rates of childbearing by women in poverty are consistent with failure rates of reliable and available birth control methods, I don't think many on the right would shift to demanding abstinence and abortion. But if current rates of childbearing by women in poverty are consistent with deliberate choice to bring more children into poor households, I expect that most on the left would shift to a fairness argument about that those in poverty shouldn't be constrained against choosing to have more children. And then there'd be the obvious counterargument about how it's a bit perverse that richer households deciding to have fewer children because of the costs are compelled to subsidise the fertility decisions of those happy to raise a kid in very bad circumstances; those on the right then might wish to advocate for that reliable birth control be a precondition of welfare receipt. Those are values-based arguments I can't adjudicate, though I expect that if, for many, the point of social insurance is to insure against bad outcomes, and if there were reasonable evidence of that many on the DPB were choosing to have many more children, there could be reasonable support for that birth control be among the conditions of welfare receipt.

A second test: what is the elasticity of childbearing among the poor to changes in benefit rates? Those on the right worry about paying women to have children they can't afford and think that paying more to benefit existing poor kids does a lot to bring more poor children into the world; those on the left think that the elasticity is pretty low and that we need to focus on the potential first-order benefits of higher transfers to existing poor children. I don't know if this elasticity is known, but it's definitely knowable. Find some shock to the generosity of payments to poor children and see whether it has any effect on subsequent fertility decisions. If little to no effect, score a point for the left; if things are reasonably elastic, score one for the right.*

Again, those with data or studies that might help resolve the second question are welcome to provide pointers in the comments.

If this stuff turns out to be in the "knowable, but not known to anybody" category rather than just "not known to me", file this under "future honours projects".


* I'm on some orthogonal dimension where I reckon it's good that more kids be brought into existence conditional on their enjoying their existence, even if they are poor. I worry instead about net effects when higher income people forbear from having their third child because of the income effects of the taxes taken from them to subsidise the bringing-into-being of a lower income person's third child. And then we get into the empirical question of relative elasticities and some rather thorny questions about trade-offs.