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The Logic and Effect behind Cash Handouts

Cash handouts. These words have become more prevalent in this Covid-19 pandemic era. But some might ask, what is a cash handout? Well, a cash handout is a gift of cash to individuals by anyone (be it a government body or a private entity). It seems like a great initiative to help those in need, but some believe cash handouts have adverse effects. Thus, this article aims to discuss the pros and cons of cash handouts.

The term cash handouts is not new to Malaysians. This cash handout scheme created by the government has been around for many years and has been upscaled by the 6th  Malaysian Prime Minister, Dato Seri Najib Razak under the name Bantuan Rakyat 1 Malaysia. Subsequently, a similar scheme called Bantuan Sara Hidup was then created and is now called Bantuan Prihatin Nasional under Tan Sri Muhyiddin Yassin’s ex-administration.

Due to Covid-19, many governments turned to providing cash handouts to individuals to dampen the welfare effects brought by the pandemic. For example, in the United States, stimulus checks of up to $2800 were given to US citizens as part of the government’s  plan to combat Covid-19. Similarly, in Hong Kong, cash stipends worth HK$10,000 were given to their residents. The Canadian government is also providing CAD2000 per month for up to 4 months to eligible citizens who have been terribly affected by the pandemic. Hence, what are the key benefits of cash handouts that governments around the world are willing to spend billions of dollars on?

According to Dr. Melati Nungsari, assistant professor of economics at the Asia School of Business, a study conducted in the United States shows that one-off payments to households led to a reduction of food insufficiency by 40%, a fall in financial instability by 45% and poor mental health symptoms went down by 20%. With ongoing lockdowns, many people are being deprived at home and are unable to work or have lost their jobs, which could potentially lead to anxiety and depression. Thus, it is safe to infer that a lack of money can have adverse mental health effects on people. Dr Yeah Kim Leng from Sunway University Business School also believes that giving out money directly into people’s pockets will boost consumption spending. This can help the economy recover from the recession caused by Covid-19, since 60% of the economy is made up of consumption spending.

Dr Kate Orkin from Oxford University stated, ‘In most situations, there is strong evidence that money, not food, is the most efficient way to distribute emergency aid and social programs.’ In 1997, the finance minister of Mexico conducted a trial on conditional cash schemes and since then, many countries of low- and middle-income statuses have followed suit. It has been proven that poor people spend cash stipends well as it gives them freedom to choose what to buy. 

On a personal note, from my experience doing community work, it is better to give those in need cash handouts rather than care packages as they understand their needs best and to avoid an oversupply of necessary goods. In terms of economic theory, cash handouts can stimulate the economy and increase the demand of an item due to the purchasing power of consumers. It is also cheaper and easier to disseminate compared to food as food may have a limited shelf-life. Cash on the other hand poses security threats such as theft and there is also a possibility of the cash being diverted to unauthorised people. 

Although there are criticisms of cash handouts, to downplay it as a mere political ploy to win over voters (as some levied against the Former Prime Minister, Najib Razak during the election campaign), disregards its effectiveness as evident in other countries. One may proclaim that giving cash handouts makes people lazy. While this seems to be logical and fair, studies by anti-poverty organisation BRAC in West Africa have shown that cash transfers have mitigated high pregnancy rates and increased school occupancy. In South Africa, a study also found that youths who receive pension benefits are more likely to find jobs. There is also no evidence of cash handouts being the reason for increased spending on alcohol and cigarettes.

However, public figures such as Andrew Yang (Democratic presidential candidate) and Elon Musk (technology billionaire) argue that Universal Basic Income (UBI) is the way forward in lieu of cash handouts. According to the International Monetary Fund, UBI is a ‘regular cash payment given to people with minimal or no requirements for receiving the money, in order to increase people’s income’ (IMF). Elon Musk and Andrew Yang think there is a possibility of the introduction of UBI as they believe automation will gradually displace humans from the workforce in the future. UBI may also possibly close the wealth inequality gap in the States. However, debates on who pays for UBI are ongoing and no one has a precise answer. A CNBC commentator also highlighted how former presidential candidate Hillary Clinton campaigned for UBI but failed to figure out reasonable ways to pay for it. Facebook founder, Chris Hughes said the wealthiest 1% should pay for it. In this era, one can  argue it seems to be a populist move- appeasing the masses without any clear plans for executing it. Considering the heated debate, there is still a long way to go in perfecting UBI to alleviate poverty and assist those in need. Hence, a tried and true method like cash handouts seems like the way to go.

With that being said, handouts should not be seen as an easy way out. Dr Barjoyai Bardai suggested that the government should also invest in human capital development. He also added that the government must find a way to retrain and re-skill workers for them to meet current job demands. SME president Datuk Michael Kang proposed that it is time for SME operators to look towards digitalisation to meet the challenges of the economy. The Wage Subsidy Program conducted by the Social Security Organisation (SOCSO) has also helped 2.8 million people from all sectors by giving wage subsidies.

In conclusion, cash handouts are effective and much needed in this current pandemic era. Given the prolonged lockdown, seeing individuals barely make ends meet is extremely painful.  This dire situation warrants more effort by policy makers to alleviate the hardship experienced by our people. As times change, we could work towards a better way to help those in need but for the time being, cash handouts are one of the best short-term solutions. As the old adage goes, hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.

References

Clifford, C.C (2019, December 19). Why everyone is talking about free cash handouts-an explainer on universal basic income. [online] CNBC. Available at: https://www.cnbc.com/2019/06/27/free-cash-handouts-what-is-universal-basic-income-or-ubi.html

Rajvinder, R.S (2020, June 9). Cash handouts will boost consumption spending, experts say. [online] The Sun Daily. Available at: https://www.thesundaily.my/local/cash-handouts-will-boost-consumption-spending-experts-say-NB2542960

Yen Nee, Y.N.L (2020, February 28). Hong Kong’s cash handout could boost the economy by 1%, says financial secretary. [online] CNBC. Available at: https://www.cnbc.com/2020/02/28/cash-handout-could-boost-hong-kong-economy-by-1percent-financial-secretary.html

Kate, K.O (2020, May 12). The evidence behind putting money directly in the pockets of the poor. [online] University of Oxford Research. Available at: https://www.research.ox.ac.uk/article/2020-05-12-the-evidence-behind-putting-money-directly-in-the-pockets-of-the-poor

CodeBlue (2021, June 25). Give Cash Handouts To Middle Class, Government Told. [online] CodeBlue. Available at: https://codeblue.galencentre.org/2021/06/25/give-cash-handouts-to-middle-class-government-told/


Researcher(s): Emil Zaydan

Reviewer(s): Muhammad Bahari

Editor(s): Nadiah Mohd Sobri

Download Article: The-Logic-and-Effect-behind-Cash-Handouts.pdf


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