Dear Editor,
That the discussion of cash transfer, conditional or unconditional, is a continuing theme in the press is a sign that Guyanese are interested in how their government uses scarce resources to enrich their lives (or make life more miserable). That level of engagement is commendable. However, while the discussion employs a smidgen of analytical thinking, most of it is premised on beliefs, dogma and emotion, and thus irrational thinking. These are the antithesis of science, economics included. I previously wrote there is a possibility that cash transfer is a good investment, but a firm decision awaits a proper, a priori, study of such an undertaking in Guyana. Perhaps cash transfer could be experimented with on a small scale for 3-5 years followed by an assessment of its benefit-cost compared to other projects.
This letter draws attention to the fact that economists make decisions based on the allocation of scarce resources to competing ends – not on the basis of a single end. They do not simply say “oh, there is some benefit from this project, let’s invest in it.” No, they look at alternative investments and the associated risk and then decide on the one with the highest yield. Let’s say you have a million dollars of cash sitting somewhere. You can deposit the cash in a savings account, invest in stocks or a small business, loan the money to a friend or relative at a certain rate of interest or hide it in under your mattress at zero rate of interest. All of these different ways of investing your cash carry risks and produce a certain return. It is riskier, for example, to loan money to a relative than depositing it in a savings account. But once risks and returns are considered, which of these ways of investing your cash produces produce the highest yield? That is how economists think about the allocation of scarce resources.
Coming back to cash transfers, few would argue they do not benefit some people or the society as a whole. The available literature supports this argument. But now the question must be asked: is cash transfer the best investment for our scarce resources? Perhaps, it is but that question can only be answered definitively by a cost-benefit study. There are two aspects here. First, such a study, after considering all benefits and costs (including externalities or non-market costs and benefits), will make clear if investment in project A yields a higher return than project B, C, … Second, and at a higher level, there is another question: how many lives will cash transfer save compared to investment in nutrition, health, early childhood, maternal wellbeing, education, roads, electricity or domestic security? This is a tough question that can be answered only if we ask another question: what is the value of a human life in Guyana? To the best of my knowledge, no one has ever attempted such an estimate.
The value of a human life in the US is estimated at US$9 million. Since Guyana’s per capita income (in purchasing power parity, current international dollars) is 13.74 percent of that of the US, it may be speculated that the value of a life in Guyana is US$1.24 million. This is highly tentative and a daring estimate, but proportional valuation is not uncommon in the literature. Would cash transfer save more lives than investment in alternative projects? If the answer is in the affirmative, there is nothing else to add. Story done.
To sum up, it is reasonable to accept that cash transfer, conditional or unconditional, produces some benefit to the recipients and to society as whole. There is growing evidence for this. But we need to go one step further and ask if cash transfer is the best way to invest scarce resources among different priorities. Economists offer advice based on a cost-benefits analysis of competing priorities, but it is politicians who decide. And in most cases, politicians take into consideration their own (self) interests rather than the interests of the society as a whole.
Yours faithfully,
Ramesh Gampat
