Eliezer, I think inflation caused via cash transfers results (under some fairly basic assumptions) in unchanged—not negative—total real wealth for the aggregate set of people experiencing the inflation, because this aggregate set of people includes the same set of people that causes the inflation as a result of having more currency. There may be situations in which “N people receive X units of currency, but the supply of goods they purchase remains fixed, so they experience inflation and do not end up with more real wealth”, but not situations in which “N people receive X units of currency and as a result have less real wealth, or cause inflation for others that lowers the others’ real wealth more than their own has risen.”
If you believe that GiveDirectly’s transfers cause negligible inflation for the people receiving them (as implied by the studies we’ve reviewed), this implies that those people become materially wealthier by (almost) the amount of the transfer. There may be other people along the chain who experience inflation, but these people at worst have unchanged real wealth in aggregate (according to the previous paragraph). (BTW, I’ve focused in on the implications of your scenario for inflation because we have data regarding inflation.)
It’s theoretically possible that the distributive effects within this group are regressive (e.g., perhaps the people who sell to the GiveDirectly recipients then purchase goods that are needed by other lower-income people in another location, raising the price of those goods), but in order to believe this one has to make a seemingly large number of unjustified assumptions (including the assumption of an inelastic supply of the goods demanded by low-income Kenyans, which seems particularly unrealistic), and those distributive effects could just as easily be progressive.
It also seems worth noting that your concern would seem to apply equally to any case in which a donor purchases foreign currency and uses it to fund local services (e.g., from nonprofits), which would seem to include ~all cases of direct aid overseas.
If I’m still not fully addressing your point, it might be worth your trying a “toy economy” construction to elucidate your concern—something along the lines of “Imagine that there are a total of 10 people in Kenya; that 8 are poor, have wealth equal to X, and consume goods A and B at prices Pa and Pb; that 2 are wealthy, have wealthy equal to Y, and consume goods C and D at prices Pc and Pd. When the transfer is made, dollars are traded for T shillings, which are then distributed as follows, which has the following impact on prices and real consumption …” I often find these constructions useful in these sorts of discussions to elucidate exactly the potential scenario one has in mind.
Eliezer, I think inflation caused via cash transfers results (under some fairly basic assumptions) in unchanged—not negative—total real wealth for the aggregate set of people experiencing the inflation, because this aggregate set of people includes the same set of people that causes the inflation as a result of having more currency. There may be situations in which “N people receive X units of currency, but the supply of goods they purchase remains fixed, so they experience inflation and do not end up with more real wealth”, but not situations in which “N people receive X units of currency and as a result have less real wealth, or cause inflation for others that lowers the others’ real wealth more than their own has risen.”
If you believe that GiveDirectly’s transfers cause negligible inflation for the people receiving them (as implied by the studies we’ve reviewed), this implies that those people become materially wealthier by (almost) the amount of the transfer. There may be other people along the chain who experience inflation, but these people at worst have unchanged real wealth in aggregate (according to the previous paragraph). (BTW, I’ve focused in on the implications of your scenario for inflation because we have data regarding inflation.)
It’s theoretically possible that the distributive effects within this group are regressive (e.g., perhaps the people who sell to the GiveDirectly recipients then purchase goods that are needed by other lower-income people in another location, raising the price of those goods), but in order to believe this one has to make a seemingly large number of unjustified assumptions (including the assumption of an inelastic supply of the goods demanded by low-income Kenyans, which seems particularly unrealistic), and those distributive effects could just as easily be progressive.
It also seems worth noting that your concern would seem to apply equally to any case in which a donor purchases foreign currency and uses it to fund local services (e.g., from nonprofits), which would seem to include ~all cases of direct aid overseas.
If I’m still not fully addressing your point, it might be worth your trying a “toy economy” construction to elucidate your concern—something along the lines of “Imagine that there are a total of 10 people in Kenya; that 8 are poor, have wealth equal to X, and consume goods A and B at prices Pa and Pb; that 2 are wealthy, have wealthy equal to Y, and consume goods C and D at prices Pc and Pd. When the transfer is made, dollars are traded for T shillings, which are then distributed as follows, which has the following impact on prices and real consumption …” I often find these constructions useful in these sorts of discussions to elucidate exactly the potential scenario one has in mind.