Opinion | Why Milton Friedman would have liked Michigan’s Rx Kids program

Policymakers are often skeptical of handing out taxpayer-funded cash subsidies to the needy. Government welfare programs typically restrict eligibility, tightly control how funds may be used, and require regular financial reporting of how the money was spent. This is in contrast to what economics teaches us: that cash payments can be the most effective and efficient way to help the poor.

Lawmakers in Lansing are considering an expansion of a program called Rx Kids that demonstrates the promise of cash subsidies to alleviate poverty. It started in Flint last year and is expanding to new communities throughout Michigan, aimed at helping new families get a solid start. Rx Kids provides expectant mothers $1,500 in cash payments during pregnancy and monthly stipends of $500 for at least the first six months of their baby's life. 

There are no strings attached to these payments. Mothers can use it for whatever they think is their most pressing need. The program is universal in the low-income communities it serves — everyone qualifies; there are no income requirements. Rx Kids has served almost 3,000 families across several Michigan communities, the vast majority of whom have incomes below the federal poverty level. 

The late great economist Milton Friedman taught that there are only four ways to spend money: (1) Spend your own money on yourself; (2) Spend your own money on someone else; (3) Spend someone else's money on yourself or (4) Spend someone else's money on someone else. Spending your own money on yourself is the most efficient from an economic perspective, because we are more careful to put it to good use. 

Typical government spending, on the other hand, is the least efficient. The spenders (i.e., Congress, legislatures, city councils) have weak incentives to spend other people's money wisely. And the bureaucrats and program administrators receiving the funds have little need to get the best bang for the taxpayers' buck. This is a major cause of the inefficiency and waste that plague many government programs.

Friedman's insight helps explain why cash payment programs like Rx Kids can be more effective. Instead of distant bureaucrats, the people in need get to decide how these funds would best help them. In the Rx Kids program, participants spend the most on baby supplies, food, rent, utility bills, and clothing. Prenatal care jumped in Flint, as pregnant women used their cash for health care appointments. Rx Kids moms appear to suffer less postpartum depression compared to moms in similar communities.

Direct cash programs do not prevent all waste of course. Some recipients, no doubt, will squander the aid. But compared to typical government programs, cash subsidies are more likely to put taxpayers' money to good use. There's minimal overhead, no middlemen siphoning off a slice, and fewer bureaucratic obstacles to get in the way. 

These are lessons for policymakers. They should consider converting existing government programs to make them function more like Rx Kids. This could reduce waste, increase efficiency, boost effectiveness and decrease costs. Policymakers could achieve what might seem far-fetched: reduce welfare spending while simultaneously alleviating more poverty.

This is not a new idea. Charles Murray, a scholar at the American Enterprise Institute, suggested something similar in a 2006 book called “In Our Hands: A Plan to Replace the Welfare State.” He calculated that the US could afford to give every man, woman and child $10,000 if it converted all local, state and federal welfare spending into direct cash payments. This included replacing Social Security, Medicaid and Medicare. The grant would be reduced for individuals with higher incomes.

Murray emphasized the positive social effects of replacing the welfare state. It would enable more people to pursue vocations that brought them self-fulfillment. Putting the poor in charge of their pathway out of poverty generates self-respect. Direct payments assume the recipients are well-meaning and capable, treating them with dignity. These are necessary components of personal happiness.

Other social benefits include increased marriage and birth rates, as staying together pulls two incomes and raising children under one roof even more. Local communities might be revitalized as government bureaucracies would no longer crowd out private organizations and charities. 

State, local and federal governments have spent trillions fighting poverty for many decades. And despite constantly reforming and expanding welfare programs, the poor remain. We should stop assuming that politicians and bureaucrats know best how to help the poor.

Milton Friedman was a champion of personal freedom and defended it as a moral right. It's why he advocated for direct cash subsidy programs — they alleviate poverty while leaving as much room as possible for individual liberty. Policymakers should try this approach and redirect welfare spending to direct payment systems similar to Rx Kids. They should grant the poor the freedom and dignity everyone deserves, trusting that they can help themselves.