Is Poverty Caused by Irrational Behavior?

Is the poverty trap caused by a fundamental change in behavior once the number of problems an individual faces crosses some critical threshold?:

The sting of poverty, by Drake Bennett, Boston Globe: ...In the community of people dedicated to analyzing poverty, one of the sharpest debates is over why some poor people act in ways that ensure their continued indigence. Compared with the middle class or the wealthy, the poor are disproportionately likely to drop out of school, to have children while in their teens, to abuse drugs, to commit crimes, to not save when extra money comes their way, to not work.

To an economist, this is irrational behavior. It might make sense for a wealthy person to quit his job, or to eschew education or develop a costly drug habit. But a poor person ... would seem to have the strongest incentive to subscribe to the Puritan work ethic, since each dollar earned would be worth more ... than to someone higher on the income scale. Social conservatives have tended to argue that poor people lack the smarts or willpower to make the right choices. Social liberals have countered by blaming racial prejudice and the crippling conditions of the ghetto... Neoconservatives have argued that antipoverty programs themselves are to blame for essentially bribing people to stay poor.

[Charles] Karelis, a professor at George Washington University, has a simpler but far more radical argument to make: traditional economics just doesn't apply to the poor.

When we're poor, Karelis argues, our economic worldview is shaped by deprivation, and we see the world around us not in terms of goods to be consumed but as problems to be alleviated. This is where ... bee stings come in: A person with one bee sting is highly motivated to get it treated. But a person with multiple bee stings does not have much incentive to get one sting treated, because the others will still throb. The ... poorer one is ... the less likely one is to do anything about any one problem. Poverty is less a matter of having few goods than having lots of problems.

Poverty and wealth, by this logic, don't just fall along a continuum... They are instead fundamentally different experiences... At some point between the two, people stop thinking in terms of goods and start thinking in terms of problems, and that shift has enormous consequences. ...

If Karelis is right, antipoverty initiatives championed all along the ideological spectrum are unlikely to work - from work requirements, time-limited benefits, and marriage and drug counseling to overhauling inner-city education and replacing ghettos with commercially vibrant mixed-income neighborhoods. ... "It's Econ 101 that's to blame," Karelis says. "It's created this tired, phony debate about what causes poverty." ...

Karelis ... remains relatively unknown... A few, though, have taken notice... "There's not much evidence in the book, and there are a lot of bold claims, but it's great that he's making them," says Tyler Cowen, an economics professor at George Mason University. It "was a really great book, and it was totally neglected."

The economist's term for the idea Karelis takes issue with is the law of diminishing marginal utility. In brief, it means the more we have of something, the less any additional unit of that thing means to us. ... In many cases, Karelis says, diminishing marginal utility certainly does apply: Our seventh ice cream cone will no doubt be less pleasurable than our first. But the logic flips when we are dealing with privation rather than plenty.

To understand why, he argues, we need only think about how we all deal with certain familiar situations. If, for example, our car has several dents on it, and then we get one more, we're far less likely to get that one fixed than if the car was pristine before. ...

Karelis argues that being poor is defined by having to deal with a multitude of problems: One doesn't have enough money to pay rent or car insurance or credit card bills or day care or sometimes even food. Even if one works hard enough to pay off half of those costs, some fairly imposing ones still remain, which creates a large disincentive to bestir oneself to work at all.

"The core of the problem has not been self-discipline or a lack of opportunity," Karelis says. ... The upshot ... for policy makers, Karelis believes, is that they don't need to fret so much about the fragility of the work ethic among the poor. In recent decades, experts and policy makers all along the ideological spectrum have worried that the more aid the government gives the poor, the less likely they are to work to provide for themselves. ... It was this concern that drove the Clinton administration's welfare reform efforts.

But, according to Karelis, that argument is exactly backward. Reducing the number of economic hardships that the poor have to deal with actually make them more, not less, likely to work, just as repairing most of the dents on a car makes the owner more likely to fix the last couple on his own. ... (One federal measure Karelis particularly likes is the Earned Income Tax Credit, which, by subsidizing work, helps strengthen the "reliever" effect he identifies.) ...

Karelis ... believes ... the strength of his arguments is less in how they fit with the economic work that's been done to date on poverty - much of which he is suspicious of anyway - but in how familiar they feel to all of us, rich or poor. "The bee sting argument, or the car dent one," he says, "I've never had anybody say that that isn't true." [See also On Poverty, Maybe We're All Wrong]

Comments

[hari]

Education! Education! Education!

Stupid as it may sound there's no other choice in a modern social system to get value without some formal education. Govs have to focus on providing a decent and fundamental educational base for society to develop. Otherwise development of society cannot be guranteed without social distortions and uphevals, as we have seen thru human history.

Recall, when Florence introduced Renaissance and its intellectual impact on the age was essentially made possible by introducing Greek language...and the Socratic dialogue.

[BJ Feng]

"One federal measure Karelis particularly likes is the Earned Income Tax Credit, which, by subsidizing work, helps strengthen the "reliever" effect he identifies."

I like that program too because it provides an incentive to work. In the end, it will take the effort of the poor person in question to get himself out of poverty, programs should provide incentives to point poor people in the right direction. Merely giving them money doesn't seem to work as well, probably because there's a calculation that's made. Gee, I could work 8 hours a day and make a marginal amount more, or I could just not work, have free time, and still collect enough to get by.

Across countries and societies, the most important factors for generating a wealthy society are strong property rights, an independent judiciary that evenly enforces the law, lack of corruption, and ease of creating businesses. The amount of money spent on "helping" the poor does not seem to create a wealthy society. Small businesses are the backbone of most wealthy societies. They are the fastest way out of poverty for individuals, and create jobs as a secondary benefit. We can help alleviate poverty by easing the path for small businesses. Government should spend more effort to help small businesses succeed and work with them whenever possible, instead of creating excessive regulations and requiring tons of filings.

[anne]

"Let me tell you about the very rich. They are different from you and me."

There is a problem here, and though I will read fully later I am already not much interested. The problem is in telling us that the poor are a distinct sorts of creature, uniform in poorness and uniform in response to poorness and uniform in being beyond help for being poor so that even if rich they would still be poor, or something.

Sort of like generalizing about Catholics, who I know from intimate experience (being such) are beyond help, only different. All Catholics are the same, but some are different and not the same even being Catholic. Beyond help; again, I know this for such.

[anne]

Never have I understood so clearly the rottenness of the earned income tax credit (a compassionless conservative dream). Now let us all hire people at 5 cents an hour, and treat them appropriately.

[Mark Thoma]

I think he is saying anyone - old poor, new poor (fallen rich, say through no fault of their own) - anyone with sufficient weight on their shoulders will respond in this way.

I wondered about causality - and I *think* for him it runs from the situation to the behavior. The behavior doesn't cause the situation. That's a point some will disagree with, but I think it's an important distinction.

[anne]

Mark Thoma:

"I think he is saying anyone - old poor, new poor (fallen rich, say through no fault of their own) - anyone with sufficient weight on their shoulders will respond in this way.

"I wondered about causality - and I *think* for him it runs from the situation to the behavior. The behavior doesn't cause the situation."

Having read the article fully and carefully now, I read unfairly initially. The argument is that the condition, which is so broadly effecting for a person, creates the problem. I still have to read Charles Karelis further, and ask myself whether the argument is really a tautology.

[Robinia]

Agreed, Professor Thoma-- what is being focused on here is the effect of multiple problems in the suppression of hope for success in coping with problems through one's own efforts. There is a tipping point, at which the effects of privation (compounded by loss of the respect and faith of others) causes people to doubt the efficacy of their own actions, resulting in a "what's the use?" response-- resignation and an attempt to endure, rather than change, circumstances.

Such behavior is arguably very useful as a means for homo sapiens weathering extraordinary events-- famine, drought, or earthquake, say-- in which individual problem-solving would be a waste of precious stored resources, while simply waiting out calamity would give the next generation a chance.

Evidence of this kind of behavioral shift can be found in all sorts of situations where there is great privation and/or a loss of personal power-- from prisoners of war who break under "harsh interrogation" (aka torure) to battered women who can't conceive of simple plans to excape their batterers (called "learned helplessness") to unfairly-accused defendents who accept plea-bargains on charges for crimes they did not commit. When we estimate that too much power is arrayed against us, we hunker down and pray to Greater Beings to survive, rather than play the game to win. All the humans I know act this way.

Now, Anne is a little right here, too, though. Not everyone responds to these pressures the same way. Some people seem to be able to conjure hope and self-confidence in the most unlikely situations. Others seem to feel doom is inevitable, even when it looks from the outside as if their resources are adequate and their luck pretty good. I suspect, although I don't know, that these differences may have a good bit to do with health and hormonal balance over time-- generally healthy people do seem to usually be more hopeful and optimistic in outlook.

Which brings us back to social response. I also agree with B.J. Feng about small business opportunity being an important element in allowing people to find their own path of hope that allows them to escape the many problems of poverty. The lack of a system of universal health care in the US creates a situation in which many people are overwhelmed by problems as a consequence of their inability to overcome health problems (their own or a family member's) on their own. At the same time, the tying of health insurance to employment, and the HUGE price of obtaining health insurance if self-employed, ensures that the poor are not able to believe in the possibility that they might organize a means by which to capitalize on their own saleable talents or assets.

How do we end poverty? Provide assistance in maintaining health to all citizens, and access to capital on a meritocratic basis to those who show responsibility in repaying their loans. Allow and encourage microenterprise for all, poor included. Let them believe in themselves and what they know how to do. Make hope pay, and hopelessness will be less common.

Oh-- and a few judicious regulations to prevent social acceptance of wife-beating, the collapse of the financial system, the development of antibiotic-resistant bacterial strains, or global warming-induced ubiquitous tornados and hurricanes would help, too. Catastrophe has always spawned bumper crops of poverty.

[robertdfeinman]

Charles Karelis is Research Professor of Philosophy at The George Washington University

I suppose a philosopher can opine on any topic that he wishes, but that doesn't make his observations science.

There have been many studies by sociologists, psychologists and other actual experts on this topic. It only gets "studied" again when conservatives and libertarians don't like the conclusions that these studies reached. The simple fact is that the poor cannot appreciable alter their lives by working harder or being more "prudent", just look at the income mobility statistics.

If you know that you are going to be stuck in the same economic class for the rest of your life what difference does a bit of extra money make? That's why windfalls are quickly spent. At least there is some temporary enjoyment. How would the poor "invest" it anyway? Isn't the fact that the poor will spend any additional income immediately used as a justification for giving them the biggest slice of the rebate package?

Sorry, I just see this as another example of blaming the (obviously inferior) lower classes for their situation. It's always tenured professors who tell other, less fortunate, individuals how to live.

[save_the_rustbelt]

Certainly there is an issue of personal reaction to the conditions.

My parents grew up in poverty, and my father grew up in extreme Okie Dustbowl poverty far beyond what most people today can imagine.

Many members of his family climbed into a bottle or the county jail, but he decided to compensate for his conditions, perhaps maybe overcompensate, which was somewhat of a burden to him. Even in the same household there were different reactions.

My late father-in-law had a very similar story and a very similar reaction.

I agree with the thesis, reducing obstacles reduces stress which allows more concentration on constructive endeavors. This will not, however, overcome the tendency of some to self-destruction.

[baileyman]

Couldn't someone propose that riches are caused by irrational behavior? Excessive risk taking, governmental subsidy, lobbying influence, legalizing certain business activities which ought to be called theft, etc.

[ken melvin]

The circle is completed, philosopher to economist to philosopher.

Amazed, I am simply amazed that we hear that poverty is the result of individual decisions or attitudes. Poverty, and unemployment, represent the failures of an economic system. People are poor because they have been selected out. If all were educated and of high morals and there were still the same number of jobs, the number poor and unemployed would be the same.

[ken melvin]

To coin a phrase, this is called 'blaming the victim',

[ken melvin]

Some anti-social, mentally disturbed, etc. are poor (and some of each who are rich), but these are not the cause of poverty.

[2slugbaits]

Sort of helps explain why the poor are more likely to buy lottery tickets. If you're surrounded by overwhelming problems, the ability of the marginal dollar to improve one's happiness is virtually zero, so throwing it away on a chance to win big is seen as costless.

[save_the_rustbelt]

..."I am simply amazed that we hear that poverty is the result of individual decisions or attitudes...."

Well, in my experience, at least some poverty is caused by individual decisions, conduct and attitudes. Included in that are four of my uncles, who despite smarts and talent, decided to make their lives bad into imitations of Hank Williams Sr. Three of them took large families into that pit with them.

In my experience, really bad decisions are very common at both ends of the spectrum, the rich and the poor. Some of the poor, including my father, make outstanding decisions, follow through and remove themselves from the pit.

Disclaimer: this does not explain in total anything.

[Lafayette]

Article: ... one of the sharpest debates is over why some poor people act in ways that ensure their continued indigence. Compared with the middle class or the wealthy, the poor are disproportionately likely to drop out of school, to have children while in their teens, to abuse drugs, to commit crimes, to not save when extra money comes their way, to not work.

No reasonable person should think that people "choose" poverty by deliberateness. If one does, then they haven't the foggiest notion of what poverty is and does. Above all, it is an incarceration in poorness and, often, lifelong debt.

Incarceration is the right word, because it is very difficult for anyone born into poverty to climb out, despite our notions to the contrary. "Those who can ... will" is the notional stuff of plutocrats born with a silver spoon in their mouths. Without supervision, prompting, tasking, guidance there are too many popular enticements that hinder a poor adolescent -- unless they are intuitively ambitious. Which happens, but not typically.

The first step to taking the escalator to a middle-class existence is education / training. If you miss that boat, then you are stuck at the quay. And, many do just that ... miss the boat.

More often than not, it is because they have no family tradition of tertiary education or training. There is no role model to show the way. "Mommy and daddy went to university, so will I."

A rich nation should be able to guaranty its children both health and education as a birthright. The rest will be up to them.

The faults cited in the article above are correctable given the will and wherewithal to do so. A child should not have to depend upon family experience / discipline to assume the responsibility of a meaningful education. Both of those components assist the child, but a good secondary school education should be able to assure them the necessary supervision to see it through to a series of diplomas that offer students the necessary credentials to obtain decent work.

And, my bet is that the state must show the poor the way out of poverty. It doesn't just happen by itself.

[Jenna's Bush]

Across countries and societies, the most important factors for generating a wealthy society are strong property rights, an independent judiciary that evenly enforces the law, lack of corruption, and ease of creating businesses.

Too bad BushCo has worked to destroy every one of these factors.

[ken melvin]

STR- it remains a matter of selection; of who is selected.

[anne]

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/28/AR2007082801669_pf.html

August 29, 2007

On Poverty, Maybe We're All Wrong
By Steven Pearlstein - Washington Post

Karelis isn't an economist or social welfare expert but a philosopher by profession with wide-ranging curiosity, a dry wit and a weakness for unconventional wisdom. And after doing lots of reading and giving it extensive thought, Karelis concluded that the reason some people are perpetually poor is that they don't have enough money.

Let me say that this isn't as self-evident, or tautological, a truth as it might appear. Rather, the argument goes something like this:

The reason the poor are poor is that they are more likely to not finish school, not work, not save, and get hooked on drugs and alcohol and run afoul of the law. Liberals tend to blame it on history (slavery) or lack of opportunity (poor schools, discrimination), while conservatives blame government (welfare) and personal failings (lack of discipline), but both sides agree that these behaviors are so contrary to self-interest that they must be irrational.

After all, the reason we study, work, save and generally behave ourselves is that these behaviors allow us to earn more money, and more money will improve our lives. And, by logic, that must be particularly true of the poor, for whom each extra dollar to be earned or saved for a rainy day is surely more valuable than it is for, say, Bill Gates.

In economics, this insight -- that the fifth ice cream sundae is less valuable than the first one -- is enshrined in the law of diminishing marginal utility.

But what if this iron law of economics is wrong? What if it doesn't apply at every point along the income scale? If you and everyone around you are desperately poor, maybe it's perfectly rational to think that an extra dollar or two won't make much of a difference in reducing your misery. Or that you won't be able to "study" your way out of the ghetto. Or that if you find a $100 bill on the street, maybe it's logical to blow it on one great night on the town rather than portion it out a dollar a day for 100 days.

On the other hand, maybe the point at which people are most willing to work hard, save and play by the rules isn't when they are very poor, or very rich, but in the neighborhoods on either side of the point you might call economic sufficiency -- a motivational sweet spot that, in statistical terms, might be defined as between 50 percent ($24,000) and 200 percent ($96,000) of median household income. And if that is so, then maybe the best way to break the cycle of poverty is to raise the hopes and expectations of the poor by putting them closer to the goal line.

Admittedly, this is only a theory, supported by logic and anecdote. But if Karelis is right, it could provide a solid economic argument to replace the old moral ones for spending more money on programs like food stamps, subsidized child care and the earned income tax credit.

In recent years, conservatives have dominated the poverty debate with their strategy of breaking the cycle of dependence. But after a decade of welfare reform, budget cuts and calls for individual responsibility, poverty is still very much with us. Maybe it's time for liberals to regain the upper hand in the debate by arguing that the vicious cycle that needs to be broken isn't one of dependence but one of declining expectations.

[Differently understood and analyzed.]

[save_the_rustbelt]

Ken:

No one selected my father or father-in-law into the middle class, they selected themselves by their decisions and actions.

Does this mean that no one is stuck in poverty by circumstances, no. Does this mean that everyone is stuck poverty by circumstances, no as well.

[bp]

the newt gingrich
contract for poverty

more is better
for those who cater

to self-made notions
of bootstrap potions

the haves deserve
what the have-nots seek

the carrot of wealth
the stick of bleak

will drive the best
to the hedge fund peak

worth a million times more
than the freak in the street

it's the gov, not the corps
a moral hazard feeding frenzy

of poverteers and thieves
not motivational speakers like me

[JRossi]

I've had a lot of experience with poor people in medical settings, and this rings true to me, at least in part. People get overwhelmed and essentially give up. It happens all the time. Everyone knows this; you can see it on daytime TV.
But why do some hits sink one person and not another? And why do some people (we all know them) make one stupid decision after another, setting themselves up for a situation in which they are vulnerable to a vicious cycle? I'm talking now about people who start out in the middle class in this rich country and then sink.
And what is to be done? Even if the causes of poverty are complicated, blunt solutions (EITC, welfare reform) might have some efficacy. Seems like a good research topic.

[bakho]

"It was this concern that drove the Clinton administration's welfare reform efforts."

The welfare reform plan proposed by the GOP Congress was to "punish the poor" base on "kick the dog" philosophy.

The Clinton mantra was "make work pay".

David T. Ellwood, a former Clinton welfare official, calculated that a single mother who left welfare for full-time minimum-wage work would have come out ahead by only $2,005 in 1986; by 1997, largely because of the expansion of the EITC, work was some $7,100 more valuable than welfare.

[jamzo]

"traditional economics just doesn't apply to the poor"

seems to me, this statement can be interpreted as a challenge
to traditional economic theorists to correct their theory so that it is a reliable predictor for this part of the economic population as well as other segments of the economic population

after all, how can a social scientist say "this group is screwed up, they don't behave right, they don't do what we theorize they should do"
according to theory"

[Sonja]

As someone who is poor, (and lazy, haha) I sooo identify with the feeling that one dollar (when it's your last dollar)~ 0 dollars. That dollar compared to the dollars you need is just meaningless.

On the other hand, there are reasons for some of the habits Karelis cites that are rational. For example:

Some of the people in my poor cohort don't save extra money when it comes their way because they owe quite a lot of money either to the justice system in fines or restitution orders, or to the mothers of their children in child support, or to other lenders. They are afraid that if they put money in a bank, it will get taken away by their creditors.

A smaller number of people in my poor cohort are flat out making money illegally, making it impossible for them to save the money they earn in a bank or spend it on something big, an investment, for fear of attracting the attention of the IRS.

In terms of dropping out of school - the degrees obtained from inner city schools are, in fact, worthless. I live in Philadelphia, if any readers are from Philadelphia and are familiar with any of these schools, you will know what I mean. Graduates of Gratz, Bartrum, William Penn etc. can't really read. The jobs you can get as an 8th grade drop out from these schools are the same as the jobs you get as a graduate.

I got nothing for commit crimes or not work except that work sucks, OK?

[bmh]

@ safe the rustbelt
The story of yout father sounds interesting. Would you care to elaborate? What did he do to get out of poverty and who/what helped him to get over obstacles?
Best
BMH

[acerimusdux]

Robinia says...

"When we estimate that too much power is arrayed against us, we hunker down and pray to Greater Beings to survive, rather than play the game to win. All the humans I know act this way."

Very true. And a very perceptive post overall.

The other thing most people will do when the game seems to be too much stacked against them, is find another game to play.

It is perhaps worth considering here also that probably 90% of what we do actually consume isn't really necessary for human happiness. Once one does have enough to get by, covering the basics of food, clothing, shelter and health, what motivates people to achieve more economically is in good part simply ego gratification. Dollars are simply the points by which we keep score.

Does a $50,000 vehicle really provide much more utilty than a $10,000 vehicle? Or even a good condition used model for much less?

Of course there are also many different personality types amongst both poor and rich. For those who are the greatest risk takers, often the personality types who are unable to work for someone else, if they have the means, they become entrepreneurs. Those without the means might have a greater tendency to become criminals. Can anyone deny that some of our more successful business leaders have shown at times a similar tendency to think that ordinary rules of morality did not apply to them?

And for the more passive, less inclined to risky behavior, but who lack the means, and education, for something more, yes there is welfare. And I have no doubt there are at least some who would not prefer to work for twice the income.

But perhaps there are other things that some contribute which can not be measured in dollars of income or productivity? There have been studies which show that for most of us, happiness is not determined by how much we have, but how much we have relative to our neighbors. This is the behavior that drives most of the economy. Are we really the rational ones?

[robertdfeinman]

Class mobility in the US is much less then in western Europe and even less than it was at earlier periods. Perhaps some of you may recall seeing this graphic from the NY Times:

http://www.nytimes.com/packages/html/national/20050515_CLASS_GRAPHIC/index_03.html

Now if there were some inherent characteristics of the "poor" then why is the mobility different over time and place. Are the "shiftless" born or made? Go into the inner cities and ask the young men standing around what they most need and you will hear: good jobs. It's not their conditions that are the problem, its the lack of opportunity. I don't even believe the mantra of the lack of education, rebuilding dilapidated housing is a skill that can be learned on the job - just ask Jimmy Carter.

There are plenty of such potential jobs not being filled, the US just has other priorities. We can spend billions on a new generation of fighter jets, or a non-functional anti-missile system, but can't find any money for urban renewal or civil engineering projects. The CCC put lots of the unskilled to work, we still have the same needs.

Things are the way they are because of government/business policies, they don't just happen.

[cm]

If I may try to summarize, in most cases lack of (meritorious?) effort can be adequately explained by lack of a credible perspective for improvement (for the person or the "community"), or gratification. This holds not just for the poor, but for everybody, and for every area of human endeavor.

Something similar can be observed in corporate environments -- for many, in all not just the lowest ranks --, a certain amount of effort and "playing along" is required to "survive" in one's job at a reasonable level of "comfort", and additional effort will be to little avail. Advancement (which often requires going some kind of extra mile) is from a strictly numerical perspective only available to a minority, so most are just "soldiering".

Compare also Maslow's "Hierarchy of Needs". Taking each step requires not just effort, but importantly, enabling factors. If they are denied, efforts will come to little.

[Real Person from the Real World]

I work plenty of hours to cover my expenses as it is, but despite low pay, there are times I put my foot down.... my time may not be worth a lot, but it's mine. There there is the spirit draining aspects of the hassles you deal with, when your pay is too low. For example, hassles over overcharging or mistakes on a credit card. Credit card are more interested in avoiding a fight with a seller, than listening to grievances from the payee, and cutting off the money spiggot. I quit an ISP after it was bought by EarthLink, and EarthLink has been surreptitiously charging me on a yearly basis, so I didn't notice immediately. When I finally got wind of what was going on and complained to the credit card, they do not back me up, so I have gone to the state's attorney who also do very little to help. Now EarthLink has changed the charge to MindSpring, another EarthLink company, and again surreptitiously reinstated the charge, so I am going another round to fight a $150 charge by a company I have never directly dealt with! And the credit card company employees must be ever so careful not to condone my complaints! Our firm recently hired a sales lady, who lives in a house that is more expensive than mine, she is paid better than me, and whose blue collar hubby is cyclically employed. She works for her kid, lies and ethics do not get in the way of making the money they need to maintain themselves. They have even gotten some gains by suing employers in the past. She sells sincerely, after memorizing but not really understanding our services, and gullible business contacts amazingly, buy, altho their business with us may eventually languish for other reasons. We have abandoned education that values culture for business and vocation based training called education. I think that is another issue here as well. Political Correctness has devalued western Judeo-Christian cultural values, and replaced them with consumption based globalization. There are just too many technologies, in the name of market competition, to deal with, so at least in technology, workers are no longer humans with unique skills, but commodities, some with more skills and and better personality than others, but still disposable. Until we abandon employment based on fake psych and honesty tests, or on quick disposable employees that can be thrown away, and replace them with people who have some loyalty to the company, and are not being exploited for the lowest wage, you will continue to have growing poverty. While I am not condoning a fascist, jingoistic patriotism, I do think we need to start valuing western civilization again.

[jean]

Perhaps the Bell Curve will always be with us, but that doesn't mean that the extreme ends (sonja and murdoch) have to be SO extreme. Can people be relatively poor without the misery and helplessness? With health and social programs does an income of 100k or even 50k become a necessity? We may not be able to 'redistribute' wealth (highly unpopular, I understand), but the first third of the Bell shouldn't be so onerous. Maybe just lifting the health care burden and some legalizing of drugs legislation and putting MORE MONEY INTO EDUCATION will do the trick. Not 'just', I know that, but I am a die-hard Liberal/Progressive; I will pay more taxes, willingly, as long as there is accountability. I curse Prop 13 in California. My small town in California gives out over 200K annually in grants and scholarships to the graduates of the HS. And many disadvantaged kids go to university or tech school. But so many still go to the military because that is all that is open to them. A death lottery. Our schools are struggling, and now the governator wants another 10 percent. Blood from a turnip. He is worse than Gray Davis. What a scam that 'recall' was.

[donna]

Poverty is created in any system that fails to value individuals and regards them as a group.

I have a friend in LA down to his last few dollars right now, about to lose his apartment and have to move in with family, and when he goes to try to get a warehouse job, they tell him his resume says graphic artist and send him to another department, where they say he doesn't have the skills they need, and he's out of luck again.

They don't see him as someone who needs a job, they see a skill set. This is what's wrong with the way things work in America today. You can train people to do a job - but you have to value them as a person, first, and see what it is they need.

Someone with a lot of bee stings doesn't need one of them "fixed", they probably need an antihistamine to stop the swelling of all the stings.

Someone who is poor has a lot of problems, yes. But the one basic thing they need is self-esteem, to somehow find value as a person and see that they are valued by others.

Instead, they get trashed for being "poor", as if that is all that matters about them.

[Farrar]

Lots of great insight here, and no self satisfied disdain for the poor. (What ever happened to Icarus? This is his favorite type of thread.) Many poor people behave in a way that appears irrational to the non poor. Why? Obviously, due to the hopelessness of their situation, because the deck is stacked against them. The exceptional, like Rusty's father work their way out. Other alpha males may turn outside or against the system - to crime. The rest adapt or despair and stay poor.

Free or nearly free education, medical care, child care etc could level the playing field. If it were financed by confiscatory inheritance taxes, everyone would have a more nearly (but not completely) equal chance at the start.

As a certain J Christ supposedly said, The poor will always be with you.

But at least fewer could complain that the deck was stacked against them.

[TStockmann]

Karelis ... believes ... the strength of his arguments is less in how they fit with the economic work that's been done to date on poverty - much of which he is suspicious of anyway - but in how familiar they feel to all of us, rich or poor. "The bee sting argument, or the car dent one," he says, "I've never had anybody say that that isn't true."

Karelis is saying that his entire argument depends on how convincing his analogies are. Okay, to be the first: "That isn't true." On the "bee sting" side, I generally ignore (with a curse) a single sting, but multiple sent me to the emergency room for adrenalin. Having a child without the means to support yourself or developing a serious drug habit isn't another incremental "dent" in a car - it's more like, oh, losing your third and fourth gears in the first case and having a cracked block in the second. Now, that you have a tyhoroughly dented car may make you care less than you otherwise would if it runs, but that doesn't make it a rational reaction if you need the transportation. Dented cars work as well as any other.

[save_the_rustbelt]

bmh:

My father graduated from high school, which was a rarity in his family, and then hopped a bus to Ohio to visit his sister (sister had gone to work as a nurse aide at age 15 and had eventually married a service man from Ohio), looking for something better.

Upon arrival he started dating the girl across the street, and eventually married my mother.

He would do any job, any hours, anything legal to make a living. He always worked harder than anyone else, and his intelligence and immense amount of common sense made him a valued employee.

In 1953 someone suggested he take a construction job in the big city. He progressed from laborer to heavy equipment operator to foreman to bridge foreman to regional superintendent to running field operations for one of the country's largest highway construction companies by 1966.

Very few people can go that far that fast or ever. He had a special knack for finding and developing young people, and a generation of construction managers owe him a debt for that.

He never had any union problems, although his crews always worked harder than any other crews. Union members fought over being assigned to his crews.

I didn't realize it at the time, but about 1958 he risked his career by insisting that a black laborer be made a permanent member of his concrete crew. Quite a statement by a 26 year old hillbilly from Oklahoma.

Although daddy missed WWII by a few years, he had a lot in common with the "greatest generation." Not everyone can rise as he did, but there is a lesson here.

And on the downside, my father never really shook the legacy of poverty and a wildly dysfunctional family. At least three of his brothers had the same intelligence and talent as he, but they choose drinking and gambling and chasing women and lived to regret it.

[save_the_rustbelt]

bmh:

My father graduated from high school, which was a rarity in his family, and then hopped a bus to Ohio to visit his sister (sister had gone to work as a nurse aide at age 15 and had eventually married a service man from Ohio), looking for something better.

Upon arrival he started dating the girl across the street, and eventually married my mother.

He would do any job, any hours, anything legal to make a living. He always worked harder than anyone else, and his intelligence and immense amount of common sense made him a valued employee.

In 1953 someone suggested he take a construction job in the big city. He progressed from laborer to heavy equipment operator to foreman to bridge foreman to regional superintendent to running field operations for one of the country's largest highway construction companies by 1966.

Very few people can go that far that fast or ever. He had a special knack for finding and developing young people, and a generation of construction managers owe him a debt for that.

He never had any union problems, although his crews always worked harder than any other crews. Union members fought over being assigned to his crews.

I didn't realize it at the time, but about 1958 he risked his career by insisting that a black laborer be made a permanent member of his concrete crew. Quite a statement by a 26 year old hillbilly from Oklahoma.

Although daddy missed WWII by a few years, he had a lot in common with the "greatest generation." Not everyone can rise as he did, but there is a lesson here.

And on the downside, my father never really shook the legacy of poverty and a wildly dysfunctional family. At least three of his brothers had the same intelligence and talent as he, but they choose drinking and gambling and chasing women and lived to regret it.

[Lafayette]

anne: If you and everyone around you are desperately poor, maybe it's perfectly rational to think that an extra dollar or two won't make much of a difference in reducing your misery.

Conventional wisdom plays a great role in influencing our wishes, desires, hopes and therefore choices and comportment. After all, what is the American Dream if not to make a Megabuck and to hell with the rest of the world?

The point of education is not just the 3R's. It is to install not only knowledge but a sense of Personal Wisdom. That wisdom permits one to understand that those who surround you do not necessarily possess the best values to live by. Wisdom prompts one to question the habits, mores and custom that society would have us believe in order to belong .

Let's be confidant that an Applied Secondary School education can and will permit people to better themselves. Because, if that idea is neither true nor self-evident, mankind has not much of a future ... or even a hope of one.

You can't teach wisdom? Oh, yes you can.

[save_the_rustbelt]

Could it be that irrational behavior is caused by poverty?

I recently attended research presentations by newly minted PhDs in developmental psychology (I get into the most interesting projects).

The presentations reinforced what I believe, that negative environments can damage young children (poverty, dysfunction, etc.).

There is plenty of evidence that some people can overcome poverty, or dysfunction, but it could be that some youngsters are so damaged that good decisions are not possible. This creates a vicicous cycle.

Can the government solve all of the problem? Not likely. Can we make progress? Certainly.

[lark]

"Never have I understood so clearly the rottenness of the earned income tax credit (a compassionless conservative dream)."

anne, please don't go there.

I get the EITC and is the sum total of my savings for my son's college. It is the only reason I am genuinely fond of the Clinton admin.

I think your comment reeks of class privilege. It lowers my opinion of you.

We don't live in dreams. We live in difficult realities. The EITC is the best thing the politicos have done for the working class in the last 30 years.

[Noni Mausa]

save_the_rustbelt said: Could it be that irrational behavior is caused by poverty?

Exactly!

More to the point, in a deep poverty situation, the "rational behaviour" of the better-off becomes irrational or even destructive.

Example: Your cheque comes in. Most people sit down with a chequebook and pay rent and all the bills, buy groceries, put some in savings -- like an ordinary sensible person.

But if the cheque is always smaller than the size of essential services and purchases, then the link has to be broken, and the person goes into a cycle of paying for what is most necessary as he receives disconnect notices. Heat is off half the year while he struggles with other bills, and one whole cheque goes for heat in September, just before the snow falls.

"Cash flow" becomes irregular spurting of cash on an emergency basis. Friends and relatives get tapped for help which cannot be repaid, thus weakening the social network overall and punishing those most willing to help. Creditors get stiffed, not cause the struggling person is greedy but because they don't have the resources to address those bills.

Need I mention how inefficient this is? I bet easily 10% of the monies paid by the poor go to service charges, penalties, bank charges etc.

But the big problem, which none of you have mentioned, is this: being poor is physically and emotionally exhausting. Failing all the time, being shamed all the time, looking forward and knowing that tomorrow can't be better than today, is profoundly depressing. Having enemies pursuing you to your very door (bailiffs, angry relatives, government agencies, etc) is profoundly destabilizing. Living precariously is predictive of mental and physical ill health.

I've ordered a copy of Karelis' book. I think I will order a few more and give them to my buddies at the legislature.

Noni

[frank detroit]

ahh...; excuse me.... with all due respects to the great folk who publish to this site, that i follow every day and respect. even at 69 if i needed $$$ to survive i would not let problems, social programs, or self diluting math become an excuse to not work. i would get my butt going and do something. i give credit to those in poverty who do not cave in to the ready provided excuses. those that are able to milk the wefare system and also earn $$$ otherwise ( legal or shady )in the underground economy deserve respect. it's all that underground earning that along with welfare that gives areas like detroit inner city a unique-ness that most folks don't know exists. thank you welfare and employers that pay in cash. kinda tired now. any thoughts: thanks

[odd1]

It's a supply and demand issue. There are more working aged people than jobs. Without the opportunity to earn an income, one falls into poverty.

[anne]

Lark:

"I get the EITC and is the sum total of my savings for my son's college. It is the only reason I am genuinely fond of the Clinton admin."

Oh, I understand perfectly well; but the point is to be paid well enough, to have benefits such as health care and pension subsidies and even vacation time enough, to have free public colleges and universities enough, to have child care provisions enough, that Americans can live as well as even the French.

[anne]

Lark:

"We don't live in dreams. We live in difficult realities. The EITC is the best thing the politicos have done for the working class in the last 30 years."

That may well be the case, even likely so, and though I want a lot more, more has been politically impossibly. So, I agree.

[dale]

"But the logic (of marginal utility) flips when we are dealing with privation rather than plenty."

That doesn't seem correct to me. I see us surrounded by cultural role models that never seem satiated with wealth- no matter how great their wealth is. I belive it breaks down with both privation and plenty.

[ken melvin]

STR - all things are possible; we humans just get to diddle th odds. Your father's actions improved his odds. They did not change the overall poverty rate one whit. They did not change the number of jobs available one whit. what they did was make him more eligible for an existing job. Specifically, his actions more him more eligible than some other bloke.

[dale]

And who better than a philosopher to point out the short comings of a one-sided model of economic rationality. Philsophy worked through positivism decades ago- but economics refuses to move on.

[ken melvin]

2nd try:
What they did was make him more eligible for an existing job. Specifically, his actions made him more eligible than some other bloke.

[cm]

jean: Part of the issue, and arguably "a feature not a bug", is that more or less a dignified living with baseline provision of shelter, healthcare, and nutrition is predicated on being a participant in the "rat race", perhaps with the caveat that one is generally allowed to be "on the bench" for brief periods (6 month unemployment benefits, and COBRA continuation of healthcare -- if you can pay the premiums).

There is close to no concept of "dignity lite" for the reserve army of the economically un(der)utilized. "Core" European nations (still?) have a semblance of it, in various degrees of adequacy. But then they allegedly suffer from "slow growth" and "eurosclerosis".

[cm]

STR, ken melvin: This kind of reasoning that is very much related to the Musical Chairs metaphor can be applied in many cases. Often the particular reasons why somebody succeeds or fails are literally unknowable, but in the aggregate when numerically not everybody can succeed, some will fail for either simple or arcane reasons.

The larger a percentage of the reference cohort is unsuccessful, the less credible will pointing to morality and virtue become.

[Noni Mausa]

Ah! This explains the bee stings much better:

Karelis has one dab of salve at hand and he applies it to our bee sting. Our pain is relieved. The salve has a high degree of utility for us.

Now instead of one sting on the hand, we are stung on the hand and on the neck. There is still only one dab of salve. Its application to one sting will decrease the pain some but will still be left in considerable distracted discomfort. A second dab of salve would have more marginal utility than the first did.

But now let’s say we have six bee stings at various locations on our body and still only on dab of salve. The one dab of salve provides minimal relief for us. But each successive dab supplies an increasing quantity of relief.

So what if you woke up every day with six bee stings and you had been supplied with six dabs of salve to cover your next six days. Would you allocate them one a day across the next six days or would you use them all in one day to have at least one day out of the six pain-free? The chronic poor routinely choose the one blissful day.

Taken from this blog: http://krusekronicle.typepad.com/kruse_kronicle/2007/12/an-economic-fal.html

That makes more sense.

[Icarus]

Hi Farrar...I'm here.

A few thoughts...

- Hoping for more handouts sounds great in these blogs, but it's just not going to happen, and probably not prudent (people will game the system, and we'll collectively regress to sloth)

- We already spend too much money (in the US) on education. More money is not the problem, and schools are not "failing our children". It is the parents who are failing THEIR children.

- The root cause of the cycle of poverty seems to be the birth of children within parental structures which are dysfunctional, under-skilled, unplanned, and irresponsible. As long as people have children they can't afford, the cycle of poverty will rationally continue.

- People must move to get jobs. The poor person in Detroit cant just wait until the auto industry recovers. They may have to move to Vegas or Nashville, or anywhere else. They may have to retrain into a skill. They should save enough to have a reserve fund of money which enables that re-training. If they don't function with such mobility, others simply will, and the cycle of poverty will only continue for them. This is another reason to refrain from having children until some career security is developed. Children make mobility more difficult.

- The poor don't act "irrationally"...they simply have a notion of rationality which does not have long term economic security in mind. Rationality is about the pursuit of utility, given limited choices. Perhaps impregnating a person haphazardly sounds 'fun' for the moment. If our time period of analysis is 2-3 hours, then, that act of impregnation seems like a path to higher utility. When looking at such behavior over the course of years, we see the pathetic futility in this. "Rationality" has to be contextualized. This is part of the problem.

- There are plenty of poor people in the US who do eventually rise out of it. The key is to develop the right behviors. Think of the typical college student. They choose to live quite poor for years, in order to one day experience better job security and wealth. They will share space, eat cheap food, and refrain from incurring significant costs, and even go into debt. This is a path. As well, there are countless immigrant populations which go through roughly analagous routes...living poor, working on skills, and planning a future before incurring debilitating costs.

- In the US, we have a culture of privacy which is overkill. Every person doesn't need their own apartment, their own TV, their own this/that/the other thing. The 'cost' of living can be brought down to close to $1300/month (I know, because I've lived like that for years). $400 for rent (share a place), $100 for utilities, and $500 for food/transportation, $300 for healthcare. Anyone willing to work for $8/hour can initially live accordingly. THe key is to not incur further expenses. Unfortunately, it seems like this is asking for too much.

- In a free society, people are free to embrace sloth and stupidity as well. There simply will always be people with poor student skills, with poor career skills, who still pop out children, whom they don't discipline. What is the collective responsibility over the irresponsibility of others? That's a tough question, because handouts don't change behavior, and a 'big-brother' concept will scare people. That said...we spend enough money (too much)...we need to cut Medicare/aid, get out of the illegal Iraq war, and cut taxes.

We have a conceptual gap in the US these days, rooted back from the post WW2 days. We now are living in a economy dedicated to the global supply chain. Labor must compete across nations. The days of feeling entitled to a middle class life with simply a high school degree and a lunch pail are over. (thank god) Every rust belt american now has to compete with chinese, indian, and all sorts of other labor pools. They better get ready, becuase no one will really have too much sympathy (except anne and save the rustbelt types) if their world comes crashing down. We need to get ready for the idea that Detroit and Indianapolis may slowly dissapear. For much of the globe, it's not a big deal. American Capitalism has caused significant social/cultural/ecnomic dislocation over the past century. That citizens of the US now have to suffer from the effects of their own economic models is the proverbial chicken coming home to roost.

It's easy to blame capital, blame the wealthy, blame the weather. But, none of that really grabs the attention of anyone outside labor unions and the leftist academic crowd. Most people in the US have bought into the myth of capitalism, and the potential path it provides. The problem is that this path requires exacting strategy. The good news is that many are doing it. Go to a UC campus, and you'll see plenty of students paying their way through college. It's still possible.

[dtrapp]

I believe he is onto a valuable insight.

I recall encountering the same problem when I was assigned to teach high school students who hated math. Based on earlier experiences, many students had developed value systems which seemed to make it impossible for them to now make produent decisions which would help them overcome earlier difficulties and now learn skills which they previously failed to do. Perhaps if I could have offered some rewards meaningful enough to change their entire value systems there might have been more success. But my oral encouragement, grades and even parent threats were rarely powerful enough. Apparently once a person develops their value system, it is often very difficult to ever change it significantly.

[save_the_rustbelt]

Ken:

I disagree. I think high quality managers and leaders do make a difference, such as my old man...

1) helped grow a medium sized company into a larger company
2) trained and mentored many future managers and leaders
3) built immense amount of infrastructure in an efficient manner
4) off the top of my head I can name a few dozen men who earned college-sized income with a high school education because they were given opportunities (see #2)

All of this helped grow the pie, rather than simply creating a world of musical chairs.

Which is why we do not live in caves.

Do you think government creates most opportunity? Most progress?

[peterbob]

The car dent and bee sting analogies seem to make some sense if it's relative position that matters: You fix one dent, but your car is still a beater, or you treat one sting, and your face is still puffy. Maybe that's why so many people try to avoid ANY dents or stings!

But I'm not sure if the analogy is correct for poverty. Yes, you may still be dirt poor if you earn $4K per year versus $2K. But you can BUY a lot more, and it's the consumption that would seem to matter. We hear all the time about the poor spending all of their rebate check, and how they are liquidity constrained. They WANT to spend money. Money is good for them. Sure, they may still be poor, but they will have more stuff.

Maybe the real problem is education. They may simply not know how large an impact on wages having a kid as a teenager will have, or they might not know how much more income they can earn by finishing high school. Or maybe Greg Clark is right, and the poor have cultural or genetic based tendencies toward a high discount rate, and they can't think of tomorrow.

[ken melvin]

STR- Now you are talking about creating jobs; a different subject.

[Noni Mausa]

It is apparent that few of you have lived in real poverty, at least after your college years.

I have many poverty level friends, most of them disabled. I lived for two years earlier this decade without any formal income, and damned little informal. But I'm not truly poor because of having the house paid off and having finally gotten a bit of a pension.

Being deeply poor is quite a lot like Guantanamo Bay Lite. Too cold or warm, too noisy, no predictability, insects, mice and geckos in your room, (well, maybe not the geckos.), ugly clothes, no control over one's life or conditions, often undeserved persecution based on appearance, name or nationality, a limited right to due process, and being told its your own fault for being cold, dirty and a bit nuts. Oh, and you might be shot, too.

The myth of the noble poor guy working his way up is brought out as a sort of reverse straw man. Scarecrow is kicked about like a cartoon character hit by an anvil and dropped off a cliff. They tell stories of the hard times he endured and all the had work he did, stooping over his law books by candlelight while munching on the stub of a tallow candle for sustenance, and now he's a circuit court judge! The reverse straw man, unhurt and apparently better than ever, is paraded around to show how poverty can't keep a good straw man down.

But real men of bone and belly and blood suffer under poverty, it makes real changes to their habits, their body chemistry, their diet. They're sicker, and often full of despair. They often kill themselves, whether quickly or more slowly with drink and drugs.

Progressives are accused of living in a dream world, but the conservative dream image of hundreds of thousands of people suddenly behaving completely differently, desperately poor American men and women working a couple of jobs and then studying by candlelight after work each night for 10 or 12 years, forgoing marriage and children on the chance they can succeed at something someday and have the money to raise kids (when they're too old to engender them, perhaps) -- does this not sound a little Orwellian to you?

American have been running up to Lucy's football pretty regularly for the last three decades, trying to give it a kick, and haven't done much better than Charlie Brown.

Really understanding the effects of poverty is what's needed to alleviate it. Not telling people to just buckle down and then maybe, possibly they might succeed, if the androids don't take their jobs first.

Noni

[evagrius]

Couldn't help thinking about this B. Traven short story.

B. Traven was a great story writer and quite insightful into the psychology of both the capitalist and pre-capitalist views of reality.

This story should be mandatory reading for economists. :)

http://brentblack.com/pages/story_assembly_line.html

[btgraff]

bj feng "Across countries and societies, the most important factors for generating a wealthy society are strong property rights, an independent judiciary that evenly enforces the law, lack of corruption, and ease of creating businesses."

but in a society that starts out with an extreme level of inequality in the distribution of wealth, this will not solve the problem - if the laws are stacked in favour of property owners, then the independence of the judiciary doesn't matter, particlarly if the judiciary itself is drawn from the propertied classes. i am thinking 3rd world type banana republics, where a few families own 90% of the land , the press, and most of the key sectors of the economy.

[btgraff]

there are too many different reasons why people live in poverty for any one theory to provide an adequate explanation...

there are single mothers stuck with several kids, and the father has abandoned the family, and no matter how hard the mother works at low paying jobs, the family will never escape poverty.

there are people who have learned the behaviours that keep them trapped in poverty from a young age - culture in effect - attitudes that makes it difficult for them to keep a job - in Canada (and some other countries), the aboriginal populations come to mind.

[lonesome moderate]

Ken MelvinSTR - all things are possible; we humans just get to diddle th odds. Your father's actions improved his odds. They did not change the overall poverty rate one whit. They did not change the number of jobs available one whit. what they did was make him more eligible for an existing job. Specifically, his actions more him more eligible than some other bloke.

Ken - just curious, what do you think increases the number of available jobs? Personally, I think of an economy as essentially the sum total of the actions of the individuals in that economy, so it's very likely that STR's dad did create jobs.

[Mikko]

This resonates with the idea of diminishing marginal utility as an S-curve I've seen somewhere (and grounding as a psychological phenomen). The idea is that we ground ourselves to a certain baseline and make comparisons from there, in this case certain level of economic well being.

If in addition to this, the diminishing marginal utilities apply, not only to upside, but also to downside. That is, we consider the loss of first 10000$ to be greater (measured from the baseline) than the second and so on. If this is true, and the poor are far from the 'baseline', then each dollar they receive actually has rather small utility with increasing returns (up until the baseline).

This would create an S-curve, where the baseline is where the derivate is highest.

The baseline, of course, would be measured somewhat individually, with person's history and general economic well being affecting it.

I know I've read things on behavioral economics and experimental game theorey side that would support this view, but can't remember where.

What do you think?

[burritoboy]

Er, you've got an even worse theoretical problem:

if poor people (a large segment of society) are behaving economically irrationally, then economic rationality is not really actually very widespread or common. Further, since poverty (equated here with economic irrationality) seems to pass down from one generation to another - i.e., that economic rationality is not driving out economic irrationality. The economic irrationality seems persistent (good information traders aren't driving out the noise traders, in other words).

That means that the assumptions of neoclassical economics themselves become extremely dubious.

[Lafayette]

The smell of burnt feathers (redux)

Icarus: Hoping for more handouts sounds great in these blogs, but it's just not going to happen

Icarus keeps harping about "handouts". Because, evidently, in the world he inhabits, those who have should keep -- and the have-nots treated as acceptable road-kill on the highway of life. Often couched as "God's will".

This notion (or greed) is typical of a mindset that has survived, and often prevailed, in America since its inception. It is of a bygone era and should be discarded with other notional waste that is part of the nation's hand-me-down Ethical Values. Namely, "To the victor, the spoils".

We are first a nation of people and only then a nation of individuals. Let no one be left behind ... particularly when so much of the country's riches goes to so few.

[TStockmann]

Lafayette -

As long as inclusion in "we" who are first a nation of people is completely voluntary, I am happy you have company. Otherwise, "What you mean 'we' paleface?"

Still one of the all-time great lines. - Paul

[Winslow R.]

My view on job creation.

Two main types (third type labor swap - no money exchanged)

Government created jobs.
Government spends dollars that cycle through the economy and are absorbed through taxes and 'savings'.

Finance created jobs.
Borrowers spend dollars that cycle through the economy and are absorbed through loan payments and 'savings'.

Point, 'savings' reduces employment as a reduction in spending reduces employment. Remember, borrowing is not 'savings' constrained.

Did STR's dad 'save' or spend? It sounds like he spent so he would have added to employment. Did he spend enough? Did he make wise choices with his spending? We'd need to know if those bridges are still standing. The quality of his investments separates his spending from others.

Currently, to keep paine's 'jobbled masses' employed, Government spending must rise as Finance falls unless the 'Savers' decide to dissave.

Main point. There is no good reason why everyone that desires a job should not be able to have one. The only limitation is the limited imaginations of those with access to money finding reasons to spend.

[reason]

Winslow R.
Be careful in that discussion not to forget the external sector. Americans are very want to. It is true savings are a minus from the system, but if those savings mean accumulating foreign assets (through exports - imports) that generate future income then they definitely are a plus for the home side.

[reason]

dtrap...
I think you are missing something.
I deal with people with delusions of incompetence quite often. Usually, the problem is not necessarily motivation, it is confusing means and ends. Someone looks at complex problem and thinks they should immediately see the answer. Only genuine genuises can do that (and only through experience). Learning to take one step at a time is the key. Don't concentrate on what the end result is, concentrate on what steps we can take to move towards it. Our society is chronically impatient. It is a huge problem.
We need more a more buddhist philosophy, the way is the goal.

[reason]

Windslow R.
To put that more specifically, the US as a whole now consumes something like 6-7% more than what it earns. As a lot of what it imports is essential fuel (which is becoming ever more expensive), the US must start earning more externally - it must substantially increase exports. I see no other possible salvation. And exporting more relative to imports inevitably means that the savings rate must rise. I don't know why this is so hard to understand. The US has been befuddled by having the reserve currency for so long.

[Icarus]

Lafayette...

It's not exactly "those who have should keep"...but, "those who EARN should keep". We must reward earning and hopefully saving.
I know it's easy to feel entitled to other people's wages/salaries, which essentially is jacking them of their labor hours...but, we should restrain from such a path. It will only lead to malincentives.

It's not that the rest of society is 'roadkill'...the idea is that each person is responsible for their welfare, and their decisions. To promote a system which offers to take people's irresponsible actions (ie, unplanned children), and finance those 'mistakes' through the wages of law abiding professionals, is mistaken, and doomed.

The very concept of 'Nation' is a fiction, buttressed via uncritical myths, and vacuous symbols such as flags. Lets move on from such problematic notions. As I've mentioned before, I doubt most americans really care if Detroit dissapears. Perhaps it's meant to. As the world globalizes, the pull of nationality will wax and wane, and lose its 20th century valences (thank god).

The "America" you seem to speak of ascended economically through strategic exporting in the early 20th century, forcefully opening markets, using underhanded politics to ensure the success of its capital.
Well, some of that has turned. The very capital that was once "american" has abandoned any real nationalist connection (ie, Haliburton in Dubai), and is now truly multi-national in flavor, selecting favorable tax havens, and moving production to more hospitable locations.
This process will change the fate of the once valorized american middle class. The decades of 'middle class' living in the rustbelt in exchange for low skilled labor are over. We can now get roughly equal labor for $.10 on the dollar. This is good news for most of us, as we can now purchase electronics, textiles, etc, etc, for lower and lower prices points. Yes, there will be populations who suffer, and must adjust. The US middle class of the mid-20th century never was really concerned for the people they displaced. Why should anyone really care for them now?

[Real Person from the Real World]

I want to call attention to a book that may shed some light on behavior, by a behavioral economist: Dan Arielly: Predictably Irrational. A lot of factors come into play in the decisions we make and in the marketing/advertising exploitation of how to manipulate us. I've just started it, but I hope that people will read and learn enough to want to change how they buy. Maybe that will start a revolution.

[ken melvin]

Lonesome - In the beginning: It was about what causes people to be poor. Winslow gives the job creation a good college try. Govt. spending (any spending) can create markets directly or thru jobs which can create markets which create jobs. Other things, such as innovative new products can create markets which create jobs. Consversely, obsolescence can create markets which create jobs. Someone struggling to rise might bring forth a new idea/process that would create jobs ...
My point is that poverty and unemployment are not caused by the poor nor by the unemployed. They have been selected by the hazard of the die and their own quals. The overall numbers remain the same whether they as individuals rise or fall. It may be important to the individual to blame themselves (socity seems to need to assign them the blame), but they are but chafe in the wind.

[ken melvin]

Lafayette, as a wee lad on the farm, i tried talking to featherless bipeds and found it to be fruitless, i.e., the one-eyed chicken stare doesn't equal intelligence.

[Winslow R.]

reason wrote:"[America] must substantially increase exports. I see no other possible salvation. And exporting more relative to imports inevitably means that the savings rate must rise."

I don't think we disagree exports require the foreign sector to dissave as the domestic sector saves. But America has little power to force foreigners to buy our exports, something the rest of the world has a hard time understanding.

I wrote: "Currently, to keep paine's 'jobbled masses' employed, Government spending must rise as Finance falls unless the 'Savers' decide to dissave."

I don't need to distinguish between the foreign and domestic sector savings as it really shouldn't matter to the Fed/Gov who is creating aggregate demand. Whomever is holding 'savings' needs to spend to maintain aggregate demand. If those savers fail to spend, be they foreign or domestic, goverment spending must rise to maintain domestic employment.

[Cynthia]

Since so many people get rich by being irrational, it's hard for me to believe that irrational behavior causes poverty...

[Patricia Shannon]

I didn't see anybody mention the fact that our government, in the service of the plutocracy, deliberately keeps the unemployment rate up, in the name of avoiding inflation by keeping wages down.

[reason]

Winslow R.
I don't need to distinguish between the foreign and domestic sector savings

I beg to disagree. It affects policy. The aim should be stop importing capital to finance imports. Domestic stimulus that flows into imports is just wasted.

says...

" I don't need to distinguish between the foreign and domestic sector savings.

reason wrote: "It affects policy."

Not with this administration.

reason wrtoe: "The aim should be stop importing capital to finance imports. Domestic stimulus that flows into imports is just wasted."

Two things,

1) The idea the U.S. choses to import capital rather than export goods and services to finance imports is 'fantastic' given a world full of currency manipulators.

2) Domestic stimulus that flows into imports has had many beneficial effects including raising hundreds of millions of foreigners out of poverty. Hardly wasted.

I think we agree domestic stimulus could be better spent. My point was directed at the need to keep Americans employed....do you disagree Americans should have jobs?

[Winslow R.]

Last post was mine.

[reason]

I think we agree domestic stimulus could be better spent. My point was directed at the need to keep Americans employed....do you disagree Americans should have jobs?
No. But if a society is spending 6-7% more than it is earning, it must eventually pay a real price. That suggests to me a lack of domestic stimulus is not the problem. The problem is the external balance.
1) The idea the U.S. choses to import capital rather than export goods and services to finance imports is 'fantastic' given a world full of currency manipulators.
True enough, but are you becoming part of the problem or part of solution. The US should be looking to fight the manipulators, not run the risk of hyperinflation if the USD tanks.

2) Domestic stimulus that flows into imports has had many beneficial effects including raising hundreds of millions of foreigners out of poverty. Hardly wasted.
No, where did the real goods end up? Are the resources used still there? We need bootstrapping balanced growth strategies, not unsustainable mercantilism. I don't accept it is the only solution.

[Wireframe]

Karelis isn't blaming the victim at all. To say that being very poor causes soul-crushing depression and apathy isn't a statement of blame, it's a statement of fact.

Losing your job, or your house, or what have you, is something that happens. The result, poverty, has symptoms that are common to poor people. We don't say that the lethargy of a cancer patient is the patient's fault, we say it's the cancer's fault, and we deal with the cancer without blaming the patient.

That's my read, anyway.

[Winslow R.]

Reason wrote: "The US should be looking to fight the manipulators, "

We should start another war? :)

Reason wrote: "No, where did the real goods end up? Are the resources used still there? We need bootstrapping balanced growth strategies, not unsustainable mercantilism. I don't accept it is the only solution. "

My original point was based purely an economic one, without any moral judgement. We will have rising unemployment as the financial sector fails to lend and government fails to increase spending if savers fail to spend.

I don't think we disagree.

Our 'disagreement' is whether an increase in U.S. unemployment is required for a new, more moral government policy. Might Republicans be elected in 2008 if U.S. unemployment stays below 5%?

Republicans are probably working harder than Democrats, right now, to keep the 'jobbled masses' employed. I'm surprised a fiscal stimulus package was approved by Democrats, even as small as it was.

Foreign savers, with their ability to spend, have significant sway over the outcome of this election.

[Lafayette]

Gruesome fact

reason: the US must start earning more externally - it must substantially increase exports.

The above is necessary, but insufficient.

Total US exports represent less than 10% of GDP. There is little hope that any great expansion will change that figure significantly. Adding five percent would be nice, but it will not contribute all that much except inflationary wage increases. In fact, exports are expanding hugely given the dollar's recent devaluation. And, these exports are typically hi-tech, meaning they create a demand for higher-skilled labor.

Most American labor is not all that well-skilled and its time we faced that Gruesome Fact. As we transit from the Industrial (meaning product oriented) to the Information Age (meaning services oriented), unskilled labor will find far less opportunities in the job market. Meaning, they end up on welfare.

What remains is Keynesian methods of stimulating demand by either fiscal measures (reducing taxes) or expanding state expenditures. Reducing taxes will only make the rich richer. Which is why an attractive proposition would be state-funded Social Capital Investments that do the most good for the most people.

These latter are of two kinds. Either embarking upon a program to get unskilled people to learn new skills or investments in areas that improve the quality of life. For instance: Energy (Wind Farms, Tidal, Water flow), Transportation (hi-speed trains that are far less polluting than commercial aircraft), Construction (urban and sub-urban renewal/creation -- rather than just urban sprawl) ... amongst others.

There are plenty of programs that will create jobs, without those jobs being governmental, by private enterprises. Where there's a will, there's a way.

What is lacking is the will, in this election year, to exact a New Deal 2 for creating decent, durable employment. America is careening from crisis to crisis like a bumper car -- because it refuse to address fundamental deficiencies in its economic infrastructure .

The Quick-Fix is a palliative. It solves nothing and simply procrastinates the inevitable.

[cm]

Lafayette: Myself and others in my greater age cohort are consistently failing to keep our "youth" and "fresh blood" skills up to date. I'm still gainfully employed, but I'm not confident that many employers for which I would be a good match on technical merits would consider me, while paying an appropriate premium for my decade-long experience over a lesser experienced person. (I'm talking about an individual contributor scenario, by which I mean somebody who actually designs and writes software and not just presides over or administers the work of others.)

We can debate this over and over until blue in the face. When it's a matter of education and experience, how come older workers are selected out of the "educated" work force?

[Patricia Shannon]

An trade deficit obviously worsens our economy, and needs to be rebalanced. But I don't see that trade is a cure-all, on a global scale. If one or more countries consistently have a trade surplus, in the long term others must have a trade deficit, so turning our trade deficit into a trade surplus will eventually result in some other countries having the problem.

[Patricia Shannon]

http://www.sciencedaily.com/releases/2008/03/080311182434.htm

ScienceDaily (Mar. 13, 2008) — Short-term stress lasting as little as a few hours can impair brain-cell communication in areas associated with learning and memory, University of California, Irvine researchers have found.

It has been known that severe stress lasting weeks or months can impair cell communication in the brain's learning and memory region, but this study provides the first evidence that short-term stress has the same effect.

http://www.sciencedaily.com/releases/2008/03/080318094525.htm

ScienceDaily (Mar. 19, 2008) — Individuals who experience military combat obviously endure extreme stress, and this exposure leaves many diagnosed with the psychiatric condition of post-traumatic stress disorder, or PTSD. PTSD is associated with several abnormalities in brain structure and function.
...
The authors measured the gray matter density of the brains of combat-exposed Vietnam veterans, some with and some without PTSD, and their combat-unexposed identical twins using a technology called magnetic resonance imaging (MRI). The detailed images provided by the MRI scans then allowed the investigators to compare specific brain regions of the siblings. They found that the gray matter density of the pregenual anterior cingulate cortex, an area of the brain involved in emotional functioning, was reduced in veterans with PTSD, but not in their twins who had not experienced combat.

According to Dr. Pitman, "this finding supports the conclusion that the psychological stress resulting from the traumatic stressor may damage this brain region, with deleterious emotional consequences."

http://www.sciencedaily.com/releases/2008/03/080314085041.htm

Correct Levels Of Stress Hormones Boost Learning, Squirrel Study Suggests
ScienceDaily (Mar. 16, 2008) — Tests on the influence that a stress-related hormone has on learning in ground squirrels could have an impact on understanding how it influences human learning, according to a University of Chicago researcher.
ill Mateo, Assistant Professor in Comparative Human Development, has found that when they perform normal survival tasks, ground squirrels learn more quickly if they have a modest amount of cortisol, a hormone produced in response to stress, than those with either high or low levels of cortisol.

[kharris]

The "I know some people who..." line of thinking sort of misses any attempt at science. Any one person may behave in extraordinarily good or bad ways. Satchmo grew up in a brothel, was arrested for smoking weed, and ended up one of the great men of his age. What ever does that have to do with the norm? Given a large enough group of people, we can generalize about likely characteristics and behavior. Knowing someone personally who doesn't fit does not mean the generalization is untrue. Exceptions that prove the rule, and all that. We can certainly learn from the exceptions. We might even want to doubt claims of science if our experience tells us that the claims are wrong. But please, please don't use individual cases as an argument against findings about general characteristics of a population.

Take the case of rusty's father, for instance. Rusty says he was unlike other people. I accept that he was. He is thus unlikely to be a good example when we think about poverty, or about managers working in other people's companies, of about income mobility, or about human nature in general. If he is a special case, then he is a special case. Period. There is a good chance that anybody you pick will deviate from the population norm in some respect.

The "dent" model, if it seems to make sense after a good long look, will put a serious dent in the argument that the poor of today are well off by comparison to kings of the past. "Look, a refrigerator and a radio! Louis the XXIV never had such things!" The thing that makes the lives of the poor different, in the "dent" theory, is that the poor face so many problems that they see conventionally "good" economic behavior as unlikely to overcome those problems. That, rather than having an MP3 player or a fridge or whatever material good is offered as proof of wellbeing, is the standard that Karelis presents. Rather than recycle old arguments, we ought to address Karelis on his own terms. It will remain true that Louis XXIV never had a mango smoothie, but why is that the point? Karelis says it isn't. Maybe he's right.

TStockman offers a good example, I think, of not taken Karelis on his own terms. You changed the bee-sting story to make it not true. In Karelis' analogy, there is no hospital. There is one bee-sting, or one more bee-sting. There is enough bee-sting medicine to treat all the stings, or there isn't. The problem with argument by analogy is that you have to be careful with the analogy, making sure that you leave the story in a form that is actually analogous. Using drug addiction as your example of a dent also seems to carry a good bit of prejudice with it. Karelis is arguing that we should examine the prospects facing the poor rather than judging them by our own lights. Jumping right in with drug addition seems somewhat outside the spirit of unbiased inquiry.

Frank, too, seems determined to argue from his priors. Among the poor I've known, it is the exception, rather than the rule, to be idle. The poor work, and often work hard. They just can't make ends meet with the pay they receive. Full-time work is often a step onto the path of "normal" economic behavior, but not always.

[Patricia Shannon]

kharris, very true.

[Patricia Shannon]

http://www.newscientist.com/article/dn3956-genestress-combination-doubles-depression-risk.html

Gene-stress combination doubles depression risk
* 19:00 17 July 2003
* NewScientist.com news service
* Emily Singer
A variation in a single gene combined with major life stress more than doubles a person's chance of becoming clinically depressed, researchers have discovered.
...
Stressful events, such as a losing a job or the death of a loved one, can lead to clinical depression. But not all people who suffer serious stress become seriously depressed.
...
Previous research on the genetic basis of depression pointed to the serotonin transporter - a molecule involved in chemical signalling in the brain - but had failed to show a direct link. However, Moffit and her colleagues took into account the extra factor of stress.

The gene for the serotonin transporter comes in two varieties, a short form and a long form. Each person carries two copies of the gene, one from each parent. The researchers determined the pair of gene variants carried by each of the 847 New Zealanders studied, along with the number of major stresses they had experienced and their rates of depression.

Nearly 130 people in the study were found to have suffered four or more major stressful events. Of the people in this group who also had two copies of the short form of the gene, 43 per cent had developed depression. In contrast, only 17 per cent of those with two long copies became ill.
Furthermore, those with two long copies actually seemed protected from stress - they had the same rates of depression regardless of how many traumatic events they had experienced.

The gene will probably not be a good diagnostic tool for depression, says Moffit, because it is very common in the population - more than two-thirds of people have at least one copy of the short form. But the stress-and-gene combination could give an indication of risk.
Since more than two-thirds of people have at least one copy of the short form, that appears to make people more susceptible to depression in response to major life stress, this suggests that it performs a useful function. Eg., during times of famine, inactivity uses less calories. In groups where rivals fight to the death for dominance, non-dominant individuals who are submissive are more likely to survive. Perhaps having two long genes results in anti-social personalities, or conversely, laid-back people who make life more pleasant for us, but are not highly productive. I'll look into it when I have time. Having a mixture of genes (1)helps ensure survival of the species under different circumstances and (2) provides individuals who are good at different tasks that are helpful/necessary to the group.

[BJ Feng]

Behavior and opportunity are the two factors that seem to be mentioned the most here. What can we do about each?

Behavior can be modified and encouraged in a way that will make the subject more likely to engage in it even after the stimulus is removed. For a lot of activities, just the act of doing it will make the subject more willing to do it in the future, even if he didn't like that activity in the first place. I feel the best way to help "correct" irrational behavior is to use incentives that will guide the poor into doing the things that are necessary to get out of poverty. The EITC is a great example because it requires work to receive it, and regardless of the form, it is a prerequisite for moving up the wealth ladder. Work itself opens up opportunities. I believe the current CEO of McDonalds started as a lowly employee, taking orders and cooking fries. He was quickly promoted to supervisor, assistant-manager, then manager, regional manager, and so on. Of course not everyone has the talent he does, but talentless workers with low intelligence are not going to be able to climb out of the abyss.

Opportunities are created by businesses. The person I mentioned above had an opportunity to climb because of the existence of a business like McDonalds. Governments are not good at creating and operating businesses, most of their projects fail or fall short of what they're intended to do. Silicon Valley wasn't created because of government. One can argue that the subsidies received by Stanford and Berkley helped create the talent pool necessary for Silicon Valley, but those subsidies were not intended for that purpose. It was an unexpected consequence, not one planned by the government. In most cases, the key to encouraging businesses is to keep taxes and fees low, and make it easy for businesses to start and follow laws. Governments should focus on working with businesses to make it easy to follow the regulations and not burden them with piles of forms and licenses.

Back on the subject of talentless individuals with low intelligence, I see very little that can be done to help them rise out of poverty. Only a direct payout will do anything, and that means they will be dependent on that handout forever. If we believe in a bell curve for intelligence, then there always will be a subset of these low intelligence individuals, and if they produce children with each other as is likely, then there always will be an underclass that does not seem to be rising or mobile in our society. One aspect of low intelligence is that people with it cannot make certain associations or come up with the correct correlations that higher intelligence people can. They may not comprehend as well that education leads to higher income, or that having a child out of wedlock will decrease their chances of moving out of poverty. They may not see that saving their money to start their own business or to invest in an income producing stock is better than blowing it off on a big screen TV that will be obsolete in 5-7 years. The big screen TV produces immediate rewards while the savings promise future rewards that are not as tangible, and require additional foresight and conditions.

Perhaps others can share better suggestions, but the only method I see to help is to train them to engage in behaviors that we know will raise the likelihood of moving ahead, even if they can't see it themselves. We have to train them to save and seek employment that requires an unique skill set not dependent upon intelligence, such as garbage man, plumber, construction worker, etc., yet allow a middle class income with the wages they pay. Maybe the savings aren't as important because it takes someone with intelligence and talent to MAKE something out of those savings. Using those savings to produce enough income to raise their status is difficult, not everyone can open and operate their own business successfully.

If we accept that there are people with low intelligence, which can explain much of their "irrational" behavior and perpetual poverty, then we should craft programs to specifically address that issue. Such programs will be difficult and I bet will face huge opposition from "progressives" who are inherently disgusted by such talk. But those progressives with high intelligence should be able to separate their own emotions from logical thinking and come up with some proposals to directly address the issue. I await better solutions.

[Patricia Shannon]

BJ Feng, how many garbage men do you know? How much do you think a waitress makes? Where do you get your silly idea about them having big-screen TVs? Unless they bought them used at a thrift store. You are totally out of touch with reality.

[ken melvin]

Big screen TVs nd CATO go together like a horse and carriage.

[BJ Feng]

Big screen TV is just the usual example everyone uses and understands. You can replace that with X. It does not take away from my point. Plus, from what I understand, garbagemen make a middle class salary and again, is only an example. You can replace the occupation with X that may require a skill, but not necessarily intelligence.

[cm]

BJ Feng: I think you have a distorted concept of what "skills" and "intelligence" are.

[Icarus]

I know plenty of waiters/waitresses/bartenders in LA making great salaries, usually without paying significant income taxes.

$20 - $25 an hour isn't rare...

And big screen tvs costs have come down so significantly, many have them, regardless of savings.

[Patricia Shannon]

BJ, I found in personal conversations with conservative, that they will "prove" their point by making up facts that fit their beliefs they then seem to believe these "facts" they've made up are true. It is interesting to see this in action in print.

[Robinia]

Agree with Patricia Shannon re: BJ Feng's complete unfamiliarity with the US poor as real individuals. Poor people are not, as a group, less intelligent (although they may often be ignorant of important behavioral expectations in the workforce). They are, as a group, less healthy (more ill). And, they often have had bad luck. For instance, nearly 1 of every 4 homeless persons in the US had the bad luck to be a veteran of the Armed Services. Some experiences seem to be very difficult for people to recover from-- they remain overwhelmed by their problems. Combat, divorce, spousal battery, sexual predation, teen pregnancy, drug addiction. These are the situations that make people unable to cope, not being on the "dumber" end of IQ tests.

[Icarus]

Robinia,

All the maladies you list are symptoms of an approach to life which is suboptimal.

I have a good friend who grew up in Compton. He was in gangs, into theft, linked to violence, etc, as a teenager. At the age of 20, he realized something profound...that he had to move away. There was no way to improve life in an environment with such bad influences.
He moved to Fresno, took a $7/hour fast food job, and slowly built a life. He's now in his mid 30s, and a phd candidate in education.

Every parent of successful children spend quite a bit of energy to shield them from the symptoms you list.

Also, having some tenure in the armed forces is not a guarantee of employment for life.

[piglet]

"Poverty and wealth, by this logic, don't just fall along a continuum... They are instead fundamentally different experiences."

Wow. The awesome power of science. I hardly know what to say... I always thought being poor is just a different degree of being rich. The poor is rich to a lesser degree than, say, Bill Gates. Conversely, Bill Gates is poor to a lesser degree than a homeless beggar. Doesn't that make sense? Who would have thought that Bill Gates and the homeless beggar actually have "fundamentally dofferent experiences"? Now that explains something.

[piglet]

Excuse me, can we now continue our Marx studies?