Over the past two or three decades in the United States there has in fact been a big shift away from targeted anti-poverty programs in favor of just giving cash

Over the past two or three decades in the United States there has in fact been a big shift away from targeted anti-poverty programs in favor of just giving cash to the poor. At the federal level, this has meant big increases in the earned-income and child tax credits and relatively less funding for housing and food subsidies and other hand-outs in kind. The idea that people can allocate resources for themselves better than somebody else can do for them has an interesting tie-in to today's debate about what policies we should pursue to stimulate economic growth. The basic Keynesian proscription for reviving a moribund economy is to put idle resources to work through more government investment, and for many years economists have tried to figure out which investments offer the best bang for the buck by measuring fiscal multipliers, etc. But this approach assumes that a dollar of output is a dollar of output, when in reality—if we're doing economics, and not mere accounting—people often value a dollar's worth of one good very differently from a dollar's worth of another. (And a disparity between accounting value and economic value is likelier to exist when investment decisions are made by politicians, at a remove from the mainstream of economic activity.) This suggests we should try to allocate stimulus spending in a way that mirrors as closely as possible the distribution of resources we'd get if our economy were chugging along at a good clip, with all our people and capital doing the things the market would arrange if were working properly. Greg Mankiw, the chairman of the Harvard economics department, wrote a paper with his colleague Matthew Weinzierl [0] a couple of years ago that tries to get at what that would look like. Their simple model suggests, unsurprisingly, that traditional make-work government investment programs should be a last resort: getting the same amount of money into the hands of investors and consumers who can allocate it more effectively might be, well, more effective. 0. http://scholar.harvard.edu/mankiw/files/exploration_of_optimal.pdf http://scholar.harvard.edu/mankiw/files/exploration_of_optim... [PDF]