Compton: cities learn wrong lessons
from ‘free money’ program
By Matthew Fleming | February 21, 2025
The results of the largest city-based experiment with what happens when low-income families receive free money from the government were just published and apparently nothing was learned.
And nothing was learned because lovers of these free money schemes ask the wrong questions.
Researchers from the National Bureau of Economic Research tracked approximately 700 households in Compton, Calif., participating in the Compton Pledge that received an average of $500 per month over a two-year period, with a control group of around 1,400 households that received no money.
This is what the study showed:
Getting free money reduced the amount some recipients worked;
Some households used the money to pay down debt;
Those who received twice-monthly payments seemed to do better financially than those who received larger payments quarterly;
The payments helped with housing security;
Recipients smoked more but either lied about it or bought cheaper cigarettes;
There was little impact overall on psychological or financial well-being.
Is any of this surprising?
Perhaps it’s a little surprising that the modest payments didn’t improve psychological and financial well-being more, but the payments were overall not very much money in an area with a high cost of living (Los Angeles County).
But it’s not surprising that smokers smoked more, that people were evicted less, that lump sum payments correlated with greater financial instability (as lottery winners have shown us time and again), that some people paid down debt and some worked less.
Compton Pledge was what’s known as a guaranteed income program, which gives free money to only low-income families. This is similar to universal basic income programs, which gives free money to everyone regardless of income.
Both schemes are deployed with lofty expectations. With the Compton Pledge, then-Mayor Aja Brown said it would end racism.
“I believe that the body of data that will be formulated through this pilot will help really lay the groundwork and make the case with empirical data that this is a necessary vehicle to begin to undo systemic racism in a tangible way,” she said. “And in a way that actually can be measured.”
This is of course a strange claim, considering many low-income white families would be recipients of either guaranteed or universal basic income if it were implemented statewide or nationally. Equally, many middle- and high-income families of color would fund these programs through taxes.
Of course, it’s not explicitly stated that taxpayers would have to fund these programs if they were ever implemented on a widespread, permanent basis. None of these experiments, like Compton Pledge or Stockton’s SEED, ever really identify funding mechanisms. But it would be difficult to envision a scenario where taxpayers do not foot the bill.
In the 2020 Democratic presidential primary, Andrew Yang pitched a universal basic income scheme that was paid for partially by repurposing existing federal spending by eliminating other welfare programs. He suggested a hefty tax to pay for the rest.
In the case of Compton and Stockton, however, the programs were meant to merely supplement existing programs. These test programs were funded by non-profits. But without identifying realistic long-term funding sources, it’s hard to take Compton Pledge and Stockton’s SEED seriously. Setting aside the fact that taking money from one group and giving it to another will inherently make the original group that much poorer, these programs do little to address issues like cost of living and poor financial habits.
In other words, there’s no way to mitigate families from going into debt again after they’ve gotten out. These programs don’t fight inflation or provide opportunities for economic growth. And they don’t appear to make people work more, which would likely be required in many instances. As Compton Pledge showed, it is more likely to make people work less.
Most of all, Compton Pledge does not support its own mission of empowering “people to build assets over a long time horizon,” since it encouraged people to work less and had only a nominal effect on debt reduction.
The goal of helping low-income families get out of debt and build wealth is noble and essential. But these guaranteed income programs are not a suitable substitute for economic growth opportunities in a market economy.
Matthew Fleming is the Pacific Research Institute’s communications director.
