Economics101 predicted the failure of special card payments for refugees, 3 months later whole of Germany wants to adopt it

post by Yanling Guo (yanling-guo) · 2024-07-31T21:09:33.673Z · LW · GW · 3 comments

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Three months ago, a county in Brandenburg, Germany introduced a special card payment for refugees to replace cash payment so that the refugees no longer need to fetch cash at the foreigner’s office every month. Besides, it’s thought that this special card, which can only be used locally, can prevent the refugees from paying Euros to human traffickers and give them more incentive to find a job to earn money.

This practice actually violates the teachings from Economics101 which says that it’s most efficient to directly pay the beneficiaries in money so that they can optimize their spending on their own.

However, like any other model in economics, this model is based on a bunch of assumptions, one of which is there are no mention-worthy externalities, namely the purchasing decisions of the beneficiary receivers are in line with what the society wants for their best. But this assumption doesn’t hold in this case: there were reports that refugees gave in large-scale money received from foreign offices to human traffickers who helped them come to Europe.

In one of the cited news articles below, the two interviewed refugees denied that they would forward received benefits to human traffickers. Of course, two cases are too few to serve as statistically significant evidence, and for lack of data I won’t speculate on how large the scale of paying human traffickers out of refugee benefits is, the point is, you can’t apply a theory or a model on real-life case without first checking the assumptions.

The above-cited model, while only having limited application in this case, does point out that printing a special card would cost more than simply handing out cash. I don’t know how much that additional cost is, but seemingly less than the benefit, because three months later, the whole of Germany wants to introduce this card. The introduction has to be delayed by some legal issues, and then a few counties want to introduce it independently. So popular is this special card!

Sure, the popularity among the refugees is lower, both interviewed refugees complained that they can’t use this card everywhere, but only in a few popular supermarkets. They also said that this reduced comfort won’t change their decision to stay as they face death threats in their home countries, and one of them found a job anyway and so no longer needs this special card, while the other had to go to school. So the discomfort encountered by the individuals varies from person to person, and if you look at the total, 132.000 applied for refuge in Germany in the first half year. Extrapolated to the whole year, it would be less than in 2023, but still more than in 2022. (Source: Statista)

So the resonance of this special card for refugees is quite positive after three months. While three months is too short to draw a final, comprehensive conclusion, the evidence so far is rather supportive of this measure. And for those who are also interested in economic theories and not only in social issues: the economic models can be helpful to understand the world, but don’t forget to check the assumptions before applying them to a special case.

References:

https://www.merkur.de/deutschland/brandenburg/weitere-landkreise-wollen-bezahlkarte-notfalls-in-eigenregie-zr-93216406.html
https://www.msn.com/de-de/finanzen/top-stories/abdul-und-rames-berichten-die-bezahlkarte-ist-eine-katastrophe-jeder-sieht-sofort-du-bist-ein-fl%C3%BCchtling/ar-BB1qWWPz?ocid=BingNewsVerp
https://de.statista.com/statistik/daten/studie/76095/umfrage/asylantraege-insgesamt-in-deutschland-seit-1995/

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