The debate over government efforts to alleviate poverty is often framed as a binary: Should we do something to help the poor, or not?
In reality, the question is actually whether we should empower Washington bureaucrats to address the problem or instead funnel resources to decentralized private charitable efforts. The COVID-19 crisis and ensuing response, in both the private and public sector, has given us a clear case study in the relative merits and shortcomings of both approaches.
Big Government Efforts Riddled With Fraud and Dysfunction
The federal government has stepped in and spent trillions of taxpayer dollars seeking to address the widespread poverty and unemployment created by the coronavirus crisis and ensuing government lockdowns. It did this primarily through the $2+ trillion CARES Act.
The crude, rushed behemoth legislative package essentially threw money at the problem, and, while some of that money no doubt ended up in the hands of those who needed it, much of it was lost to waste, fraud, and dysfunction along the way.
For example, the CARES Act created a “supercharged” unemployment system that used federal money to supplement state-level unemployment benefits with an extra $600 on top of the usual payout. This resulted in a broken system where 70 percent of the unemployed could earn more by staying home than by working. With little in the way of serious verification requirements, the program lost an astounding $26 billion to fraud—equal to the amount the entire unemployment system paid out in 2019.
Improper #unemployment payments (fraud) from CARES Act = Total amount of unemployment benefits in 2019.— The FGA (@TheFGA) July 23, 2020
Read the research: https://t.co/nMu9VG93JU #welfarefraud #unemployment #work pic.twitter.com/mPPVexie8O
In another key aspect of the federal government’s stimulus efforts, $1,200 checks were sent to many Americans. But they were sent based on out-dated pre-pandemic income data that didn’t reflect peoples’ actual financial situation under COVID-19. To top off the dysfunction, billions in taxpayer dollars were sent to dead people. (Yes, you read that right).
“The checks sent to dead people as of April 30 totaled nearly $1.4 billion, according to the Government Accountability Office”— Thomas Massie (@RepThomasMassie) June 25, 2020
This is the top of the iceberg of waste in this bill.https://t.co/RBhqoM4lNz#SassyWithMassie pic.twitter.com/HYlBgNaSnF
The saving grace of the CARES Act was, supposedly, the Paycheck Protection Program.
The massive program doled out taxpayer money to struggling businesses to try and keep them afloat amid the crisis. However, it was flawed by design from its very inception, illogically mandating that businesses use the money on payroll rather than other expenses such as rent. It also contained few verification requirements, so it too was consumed by—you guessed it—fraud and abuse.
Reports of waste and abuse in Paycheck Protection Program are inundating government watchdogs and prosecutors as Congress considers a new round of aid https://t.co/he98TJAn4v— Real Time Economics (@WSJecon) November 8, 2020
“The federal government is swamped with reports of potential fraud in the Paycheck Protection Program,” the Wall Street Journal reported. “Evidence is growing that many others took advantage of the program’s open-door design. Banks and the government allowed companies to self-certify that they needed the funds, with little vetting.”
Moreover, the efficacy of the PPP program is seriously in doubt.
“It seems that a lot of that cash went to businesses that would have otherwise maintained relatively similar employment levels,” MIT economist David Autor concluded.
A study Autor conducted found that the Paycheck Protection Program only preserved roughly 2.3 million jobs—which comes out to $224,000 in taxpayer expenditure per job.
And the Journal also reports that from just a small sample they reviewed, at least 300 major companies that received PPP money went out of business anyway.
In any honest reflection, the federal government's efforts to respond to the current recession can only be deemed an extremely blunt tool. It’s like they attempted to cauterize a wound using a flamethrower. Any good they may have accomplished clearly came at the cost of widespread fraud, dysfunction, abuse, and bureaucratic mismanagement.
This stands in stark contrast to the relatively more limited but much more visibly successful efforts of the private sector during the same time.
The GoFundMe Miracle
The most prominent example of successful private charity in action during the COVID-19 crisis is the crowd-sourcing website GoFundMe. The already-popular service has for years allowed individuals to post public pleas for charitable cases, and, in many cases, generous donations beyond their wildest expectations have poured in.
The pandemic only accelerated their success.
“Between March 1 and August 31, 2020, the GoFundMe community responded to the widespread impact of the pandemic by raising over $625 million through over 9 million donations for frontline workers, small businesses, causes, organizations, and more,” GoFundMe reports.
More than 150,000 different fundraisers were started for COVID-19 relief, with causes as varied as fundraising for small businesses ruined by lockdowns, medical fundraising, protective gear for frontline workers, memorial services, and more.
And these data are just through August, so the numbers have no doubt grown larger since. With no bureaucracy, middle-men, or political cronyism involved, GoFundMe charitable fundraisers delivered vast financial resources directly to those who needed them most.
In an example from just this week, the family of a man stricken by COVID-19 in critical condition has raised nearly $50,000 for medical bills. His wife doesn’t qualify for her state’s COVID relief program.
Yes, GoFundMe’s efforts might pale in sheer dollar-size to the federal government’s.
But keep in mind that GoFundMe is just one of untold thousands of private charities, organizations, nonprofits and services doing this kind of work. And we must consider the fact that were the government not consuming so much of our resources on poverty alleviation efforts, GoFundMe and its ilk would be doing far more to help people that is currently “crowded out.”
Big Government Replaces Private Charity
It’s difficult to quantify the exact relationship, but there’s no doubt that big government programs reduce the amount of private charity in a society.
The more individuals are paying in taxes, the less money they have for donations. So, too, the less appetite they have for funding anti-poverty efforts, seeing as that’s what they’re told, in part, their taxes are supposed to do.
This trend has played out over the course of American history.
“The heyday of laissez-faire, the middle and late nineteenth century in Britain and the United States, saw an extraordinary proliferation of private eleemosynary organizations and institutions,” Nobel-prize-winning economist Milton Friedman wrote in Capitalism and Freedom.
“One of the major costs of the extension of governmental welfare activities has been the corresponding decline in private charitable activities,” he concluded.
For example, one study found that “church [charitable] spending fell by 30% in response to the New Deal, and that government relief spending can explain virtually all of the decline in charitable church activity observed between 1933 and 1939.”
The exact magnitude of the relationship is hard to pin down, but broadly speaking, it’s demonstrably true that the more the government spends to address poverty, the less resources and desire there will be available to support private anti-poverty efforts.
In real life, resources are scarce. The most basic lesson of economics is that we must make trade-offs: The more we use in one area, the less we can use elsewhere.
When it comes to government management of COVID relief, that's bad news for the most vulnerable.