After Harvey, One Group Is Hoping Giving Away Cash Will Help Houstonians Rebuild
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Rose City is a small town outside Houston. And like many towns in southeast Texas, it was hit hard by Hurricane Harvey. Donations of all kinds - water, clothes, diapers - have been streaming into Rose City. But many people there are finding themselves frustrated by what they still can and cannot get. Julia DeWitt of our Planet Money podcast has this look at one organization that's trying hard to solve that problem.
JULIA DEWITT, BYLINE: Michael Faye says there is a problem with hurricane relief - too much of the wrong stuff.
MICHAEL FAYE: One of the people we had talked to in Rose City said look; everyone keeps sending me stuff that I couldn't even sell at a garage sale. Well, just imagine the frustration of looking at a pile of water bottles when the thing on your mind is removing the mold from your house. But when you talk to their recipients, they'll tell you you can't repair your house with a bottle of water.
DEWITT: Back in 2008, when Michael was a graduate student in economics, people started to raise some questions about this kind of aid, aid that comes in the form of stuff. For the first time, economists were testing the effects of giving people stuff.
FAYE: And what we found is what you'd think you'd find if you hadn't done that for 50 years. A lot of things that you assumed worked well didn't, and the thing we all assumed was completely silly and naive - giving capital to the poor and letting them make their own decisions - worked much better.
DEWITT: So Michael decided to give this a try in the field. He founded an organization and he called it GiveDirectly. What GiveDirectly does is they take cash donations and then they give that cash directly to people in need. What is distinctive about GiveDirectly is a basic assumption that they make, and that is that in general people will be smart with their money. Whether people do or don't make the right decisions for themselves, this is a debate that has existed at the core of economics for a long time.
Classical economists say people will always make the best decisions for themselves given the right conditions. But increasingly, a newer school is arguing that people aren't rational robots. We're weird, and sometimes what we do with money doesn't make a ton of sense. So far, GiveDirectly has done most of their work in Africa, where they also have been testing the effects of the cash they give out. Piali Mukhopadhyay, the COO of GiveDirectly, says for proof that their model works just look at the numbers.
PIALI MUKHOPADHYAY: It is completely an empirical question. You know, there's tons and tons of research that's been done that shows when you give poor households cash they make wise spending decisions. They earn good returns.
DEWITT: So I asked her, why are so many aid organizations still buying stuff for people? Piali says part of that's structural. Many aid organizations are big and old and slow to change. But another part of it is the worry that poor people will do the wrong thing with cash.
MUKHOPADHYAY: I think we often don't want to acknowledge it, but a lot of this whole structure is predicated on the fact that people have retained inaccurate and frankly disrespectful stereotypes about who poor people are and what they're capable of achieving.
DEWITT: This is a misconception GiveDirectly wants to fix. Next week they will set up a registration station in a church and go door to door in Rose City, Texas. They'll hand out debit cards with $1,500 on each, one per household. It will be the first time they have tried this model in the U.S. and, for now, probably the only time. After Rose City, they plan on turning their focus back to their projects in East Africa. Julia DeWitt, NPR News.
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