6 ms·

Is poverty self-perpetuating?

61 points by kradic 19y ago

noodle 19y ago
this article is much more accurate than the ones i've seen on HN about poverty in the past. still doesn't hit the nail on the head, but its a lot closer.
jamiequint 19y ago
Does anyone here know about the economics of gambling? It seems like the argument Karelis is making would have strong similarities there. I'd be interested to see if this suggestion is at all valid. To explain, in gambling (think lottery tickets, not poker) you trade $1 for something that actually has less than $1 worth of economic value. There is obviously another component at work (behavioral, not economic), call it hope. If economists have found a way to quantify hope in this context it seems that they could try the same thing with poverty, the results would certainly be interesting.
- yummyfajitas 19y ago
  I know a little bit. The relationship isn't very close. Gamblers tend to derive utility from gambling, i.e. the act of gambling gives them a rush. The extreme case of this is video games. I'll never win any money by purchasing a Wii (like the lottery, I lose with probability close/equal to 1). But I will derive more happiness from playing Wii sports than I will from the money I spent on it. Similarly, gamblers enjoy playing the game, and this gives gambling positive utility (for them). However, the argument Karelis seems to be making is that the marginal utility of increased income is zero (for some income range which constitutes poverty). People don't tend to do actions with zero marginal utility, so they don't try to increase their income. Basically, earning $15k/year doesn't make you any happier than $10k/year, so why bother to increase your income? (Note: he actually claims that "economics doesn't apply to the poor", which is either stupidity or hyperbole. ) One interesting policy implication of his model (if it is true, which I doubt): taxing the poor is good policy. If a poor person is no happier at 15k/year than at 10k/year, then we should tax all poor people making $15k/year at 33%. It won't make them any more unhappy, whereas taxing a richer person will. It also suggests that any wealth transfers to the poor that dont solve all their problems are wasted (welfare is "all or nothing").
  - DmitriLebedev 19y ago
    I'm wondering what kind of utility function is needed to make such a strange MU function... As far as dents on the car are concerned, let me write what conventional microeconomy says. Here is the function to estimate the choices. U = sum(F(x(t))/(1+r)^t) by t from 1 to infinity (or life expectation), where F(x) is a momentary utility function, r is "perceptual" discounting rate (sorry, don't know the English term), which means that F(x) next year is 1+r times less nice than having it now. If you don't repair the car, x(t) will be constant, let's say X. If you do, first period it is x(0) = Y < X, but since t=1 x(t) = Z > X. The problem is that F(Y) has more weight than F(Z)'s. The more r is, the greater the difference and more probable the first choice will win. The problem of poor people is that (1) their r is much more than that of middle class, and they don't value the future, (2) their F(x) (perception of what is good) is different.
    - yummyfajitas 19y ago
      I think the authors ideas are less about time discounting, and more about non-linear relations in quantity of problems. The authors example is a man who's car has many dents. Utility might behave like U(0 dents) = 1, U(1 dent) = 1/2, U(n >= 2 dents)=0. If a car has 5 dents, the marginal utility of repairing one dent is 0 (U(5)=U(4)), so the owner does nothing. Of course, in real life, most utility functions behave in the opposite way. Going from homeless to a studio apt? Major gains in utility. Going from a studio to 1 bdrm? Nice, but not as fantastic.
  - mattmaroon 19y ago
    The diminishing marginal utility of money would imply that the difference between $10k and $15k is quite large. Much larger than the difference, say, between $100k and $150k.
    - yummyfajitas 19y ago
      You are quite right, utility is usually steep near 0, and flattens out toward the top. I was simply pointing out that if the author is right, the difference between 10k and 15k would be very small (indeed, quite possibly smaller than that between 100k and 150k). In fact, I'd suggest that diminishing returns explains American "poverty" much better than flat utility curves. 45% of the poor own their own home, 95% are not overcrowded, 75% own a car (30% own 2 cars), nearly all have a TV (25% a big screen). Virtually no one is starving, over 70% of those the USDA classifies as "hungry" are obese. The typical poor family is also supported by 16 hours/week of work. It's quite possible that poverty is explained simply by a low marginal gain from increased work (the poor already hit the point of diminishing returns). All numbers are taken from here (http://www.heritage.org/Research/Welfare/bg1713.cfm http://www.heritage.org/Research/Welfare/bg1713.cfm), who in turn stole them from the census. See also this chart http://www.heritage.org/Research/Family/images/Chart1.gif http://www.heritage.org/Research/Family/images/Chart1.gif of working hours for poor families.
- danteembermage 19y ago
  One way to explain lottery tickets is to hypothesize that people don't typically process small probabilities well. So Radon looks like terrorist attacks looks like lightening. What people seem to do in practice is to lump all small probabilities into either one quantity that means "small but worth paying paying attention to" and zero. This decision making process works pretty well for day-to-day life, but it can get frustrated when the outcomes are very large, usually dying and big money. So some lottery players approximate the chances of winning to be zero and don't buy; others approximate small probability and get a large expected value of a ticket and buy many.
  - mattmaroon 19y ago
    This is actually proven to be true. On the topic of terrorism and small probabilities, over 40,000 people die in car crashes per year in this country. It's essentially as if 9/11 has been happening every month for decades on our roads. But which do people care more about?
  - Tichy 19y ago
    I am sure that most people don't get the probabilities right, but maybe there is also something else: if you factor the utility into the equation, the probabilities might not be so bad? E(money) < 0, but E(utility) > 0? As the other reply sad, people get a rush out of gambling, among other things.
mynameishere 19y ago
The whole article could have been shortened to this one paragraph: In the early 1970s, a large-scale study gave poor people in four cities a so-called "negative income tax," a no-strings-attached payment based on how little money they made. The conclusion: the aid tended to discourage work. Yeah, that's right. The obvious occurred, as usual. All such theories, and all such fawning articles, rely upon one unalterable precondition: Nobody involved has actually lived among the destitute, while destitute.
- fortes 19y ago
  Actually, that's the opposite of what the article is arguing (or to be more accurate, what the guy who the article is about is arguing). Direct quote: 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. Simply giving the poor money with no strings attached, rather than using it, as federal and state governments do now, to try to encourage specific behaviors - food stamps to make sure money doesn't get spent on drugs or non-necessities, education grants to encourage schooling, time limits on benefits to encourage recipients to look for work - would be just as effective, and with far less bureaucracy. What you quoted was a common rebuttal to the argument above, which the guy in the article counters with: Karelis responds that the data from that experiment is in fact quite ambiguous, and there has been debate among economists over how to interpret the results. But ultimately, he 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. * Edit: Formatted quotes, thought I could use Markdown.
  - mynameishere 19y ago
    that's the opposite of what the article is arguing Exactly. If I wanted to summarize the argument of the article I would translate from newspeak to English: We want to pay right-thinking, liberal arts majors middle class salaries for them to administer money distributions from functional people to dysfunctional people. We have no data to suggest this will help anyone, but we are pretty sure it will help ourselves.
llimllib 19y ago
A response: http://wirkman.net/wordpress/?p=295 http://wirkman.net/wordpress/?p=295 "By the way, vice in any form is self-reinforcing, as he suggests. Ancient moralists realized it; modern “mental health” professionals do, too. The behavior of poor people is often that of simple vice. It is not new, nor are the traps involved. Example? Think of becoming fat: the fatter you get, the harder it is to exercise, the less incentive you have to exercise; the less you exercise, the fatter you get. You get caught in a feedback loop that spirals into imbalance and self-destruction. Sloth and gluttony (the old terms for two major causes of being overweight) are not new nor are they hard to understand." (Please note that I am not agreeing with or endorsing this opinion, merely providing a link)
- rml 19y ago
  Classifying poverty as vice is worthwhile to a point, but works well only in very general ways (I know it wasn't your opinion, it's just worth discussing). The main problem that I see with that view, however, is this: Take a 12-year-old kid in middle school. Let's assume he is bright enough to do well, if he did the homework, etc. He goes home every day to a dirty house, where he spends hours by himself playing video games. His mother is at work earning an hourly wage, and when she gets home, she is bitter and sarcastic. His father is gone. There isn't enough money to pay the bills, so the phone, tv, etc. are constantly being turned on and off (i.e., general chaos). At his suburban middle school, he has to endure the humiliation of being pushed toward lower-status "vocational" programs despite his (at least average) ability, because of his poor attitude, laziness and the fact that his family is known in his hometown as being somewhat "troubled." It is only natural that a young person in such a situation might become disinclined to work hard, because he doesn't know what the point of "working hard" is. In his world, and the world of his family, "working hard" just means putting in more hours that enrich someone else. He hasn't been exposed to any other ways of life, and the well-to-do telling him that he's "lazy" probably won't serve to motivate. Having said all that, there is nothing stopping this person from realizing the error of his ways as an adult and acting accordingly. Luckily, we have many examples of successful "late bloomers" available to us these days, but I think for many kids the damage will have been permanent.
  - 19y ago
FleursDuMal 19y ago
"In challenging decades of poverty research, Karelis draws on some economic data and some sociological research. But, more than that, he makes his case as a philosopher, arguing by analogy and induction." This, for me, is the biggest problem with the article.
- lutorm 19y ago
  I agree, it would be nice with some empirical data instead of just opinion (not that most other opinions are better supported).
  - yummyfajitas 19y ago
    The article does have a little empirical data (towards the end): >In the early 1970s, a large-scale study gave poor people in four cities a so-called "negative income tax," a no-strings-attached payment based on how little money they made. The conclusion: the aid tended to discourage work.
    - nazgulnarsil 19y ago
      when you subsidize something you get more of it. we need to stop all aid to third world countries. not only is the vast majority of the money absorbed by corruption and armed conflict, even the money that gets through doesn't help. of course, this fails to account for the fact that we want those countries in armed conflict and hanging on our every welfare check because it means we can take their resources for way below market value. can you imagine how expensive things would be if the african nations were organized enough to have business infrastructure?
      - eru 19y ago
        Cheaper?
- azanar 19y ago
  Perhaps induction and deduction? In any case, this is the basis behind economics as I understand it; taking data and then reasoning from there to more generalized models. Then those models can be used in future studies as a means to both reconcile the data, and to improve upon the models. There are several schools of thought, each with their own models, and each arguing that the other models are wrong due to particular reasons. This is not much unlike philosophy, except it deals with money instead of ethics and motivations.
kingkongrevenge 19y ago
Poverty as it exists in America today is mostly a matter of breeding and culture. A thousand words on poverty and no mention of heritability? Drake either has his head up his ass or his PC blinders on too tight.
- albertcardona 19y ago
  Inheritance is included in the statement: "poverty causes poverty".
- logjam 19y ago
  Ok, why don't you enlighten us all on how "breeding" causes poverty. You might want to check out something like "Guns, Germs, and Steel", which is one of the latest works to effectively debunk your assertion, pointing out, as the article does, how poverty leads to poverty.
  - anewaccountname 19y ago
    Guns, germs, and steel actually points out how centuries of being bred in the presence of prevalent disease due to living in close quarters with domesticated animals was a huge key in keeping Europe out of poverty and helping them ruthlessly dominate the Americas.
ebukys 19y ago
The article makes a very good point. I like the dents-in-the-car metaphor. I don't, however, agree with how he interpreted it. If I have a car with, say, ten dents in it, and I get one more, no, I am not inclined to try to fix it. And let us follow his story, and say that someone comes along and fixes all but two of those dents for me. The question is, does the fact that I have fewer dents in my car make me more likely to fix the others? If someone comes along and does almost all of my dishes for me, am I more likely to wash the last few myself? I believe the answer to that is not, as Bennett suggests, "Yes." If someone comes along and fixes most of my car for me, or cleans most of my dishes, when I had no inclination of doing it myself, why would I stop them? If someone is going to come and fix my problems for me, why do it myself? All you have to do is wait long enough, and, like magic it's done for you! So while it is an interesting theory, the problem is, people become set in their habits fairly quickly. If I do not wash my dishes one day, I am not really more inclined to wash them the next. Indeed, why should I? There is suddenly an almost empty sink in which to store the dirty ones.
- albertcardona 19y ago
  You could try it: go to a friend's home that has his sink full of dishes all the time. Wash them all but two. Go there a couple hours later and see what happened. That would only be a sample of one though. The experiment may be worth just to make you realize how powerful the mixture of gratitude, self-hate, the willingness to help oneself, greediness and generosity is.
  - ebukys 19y ago
    Haha, I already know the result. I live in a house with four other girls, and the sink is usually filled with any number of dishes. Once it becomes completely piled up (as we don't eat together, and most of us cook real meals, this usually happens about every other day), one of us will become disgusted with the others and empty the dishwasher, fill it with dirty dishes, and clean most of the dishes left in the sink. Do the remaining two pans and glass get cleaned by anyone else? Of course not; they are the base dishes that we pile everything else on top of that day. Why clean the remaining two dishes, there was originally an entire sink full of them! Comparatively, it's almost spotless!
davidw 19y ago
Offhand, it doesn't smell like hacker news to me. Here's why: it's already touched off a thread on politics. I'm not convinced that these things don't degrade with time. And I am certain that in any case, as hackers, our "comparative advantage" is not in discussing politics.
- lutorm 19y ago
  Another view would be that it is everyones responsibility in a democratic society to vigourously (but respectfully) debate how that society should be structured.
  - rml 19y ago
    Yet another view would be that to remove one's self from political discussions with one's peers based upon other, unrelated criteria, such as one's perception of one's self as a hacker, only serves to underestimate the broad capabilities of the human mind.
    - davidw 19y ago
      I like to talk politics too, actually. However, I think it's an argument that is poisonous for sites like this. I don't want to see a bunch of links from mises.org, and the equivalent from the other side - I can get that stuff elsewhere.
phaedrus 19y ago
The article is mainly about the psychological reasons why people in poverty act the way they do. I'll add my 2 cents: The fact is people's brains are wired to not keep doing something when it seems hopeless. Although from an outside perspective it seems illogical to work less when you have less money, from the perspective of the person living in poverty they know that no matter how hard they work, at minimum wage they're never going to have an easy life, and that's a very powerful psychological force. For instance, as a student, I borrow money at the beginning of the semester, and I have some big expenses. I work part time, but my fixed expenses exceed the income I make from working. So I go to work knowing that no matter how hard I work, or how much I try to save, it's physically, mathematically impossible for me to ever come out ahead. By working hard, all I can do is sink into debt more slowly. At least I have solace in the fact that I will soon be graduating. What if I didn't have that hope? What if that were all there were to life? I see people every day, in rural Oklahoma, who live like that, without hope. They go through cycles where they work for a while, realize they aren't getting ahead for all their work, and give up. Wouldn't you?
- yters 19y ago
  Procrastination is a good example of this phenomena too.
- Tichy 19y ago
  What gets me is that few people seem to consider "find a job with better pay" as an option. It just doesn't even occur to them. On the contrary, I often hear stories where people might actually pay more for their job than they earn, for example if they drive 50 miles every day to work a minimum wage job (petrol+car maintenance might cost more than what they earn). Either they really don't get the maths straight, or they see it as a temporary thing (need one job to get another), or else I don't know... What about you, what do you study? Are you sure you could not get a better job, for example by building on the things you study? I must admit I was stupid as a student - I studied maths, but instead of taking on some programming job and earning shitloads of money on the side, I just worked standard student jobs with average (low) pay. My point: maybe many people just are not aware of the options. I suppose it is infeasible to assign personal life managers to every poor person, but perhaps information technology could be some help? For example better job boards.
DmitriLebedev 19y ago
IMO, it is fair that the book was ignored. The guy completely ignores the time and risk factors, namely being short-term-payoff-oriented and long-term-payoff-oriented. This is a subject of microeconomics (not 101, of course - it's a lot of maths, integrals and derivative functions). Poor people do not save extra money exactly because of being short-term oriented. Drugs, entertainment and having early sex also deal with short-term payoff. Short-term payoff orientation also makes a person more risk-tolerant, which is a common attribute of criminals. All the given examples are easily explainable with a utility function that takes into account risk perception and time discounting (long- or short-term orientation) and current posessions. Committing a crime or not is a choice between risky and not risky opportunities. This deals with risk perception. Few posessions make the low-risk choice even less valuable. Fixing or not fixing dents on a car fit into choice between long-term and short-term payoff. Writing this I suspected that the author hasn't worked with advanced microeconomics' maths. Indeed, Karelis is a philosopher. I haven't seen the book, but by his words ("Econ 101 is to blame") suspect that he doesn't know any more complicated economics. That's the reason he finds it wrong.
- TheWama 19y ago
  Indeed. On the subject of long vs. short term thinking, or the time-value of money, the most clear example is the case of rent-to-own stores. Rent-to-own is a form of financing, equivalent to taking on debt, but unlike other forms of debt, we know that it's used specifically for buying certain classes of durable goods, such as furniture, appliances and televisions. Due to the nature of these goods, we can assume that in most cases the owning of a given piece of furniture, for example, is not a necessity, and further, that buying these goods new is not the lowest cost alternative, when speaking about the total or even initial price. For example, I might be able to get a sofa off the street or sleep on a mattress without a frame or box springs. Rent-to-own is also heavily favored by poor folks, who have another opportunity, which is to save up and replace their television or furniture at a later date for a lower total cost. Making the latter choice is the rational one, if your personal discount function for the future value of money is sufficiently low. That is, if you have a long-term perspective, you value future abundance nearly as much as present abundance, and so save up for an outright purchase. However, if you have a short-term perspective, the extra you paid for the television would seem insignificant, because it accrued far in the future, and you're more concerned with immediate abundance.
daniel-cussen 19y ago
It would be interesting to see what the path dependence of poverty is.
thaumaturgy 19y ago
I can always tell who's actually been poor for any extended period of time, versus who hasn't, by the way they talk about the poor. I've been in and out of poverty a few times. There is some truth to all of what everybody says, and yet none of what anybody says is the whole truth to it. There are individual factors: if you're uneducated, or have a lower than average intelligence, or lack self discipline, or would just tend to prefer not to work, then you're more likely to be poor. But, not all poor people fit any of those categories. If you're used to receiving hand-outs without having to work much for them, then you're more likely to keep accepting hand-outs. But, not everybody fits that, either. There are a bunch of people that made one or two bad decisions at some point. They don't have to be stupid decisions, they could just be points where the person took a risk and the risk cost them dearly. Those people can then find themselves in one of the most challenging downward spirals that we have in Western society. The poorer you are, the more effort it takes to become less poor. Think about that for a minute. For example, if you're living in an area with good public transportation -- so that you don't need your own car -- then your rents are likely higher than they would be in more rural areas, where you'd need a car. So, if you're poor enough that you can't afford to maintain a car, and you can't afford high rent, then what do you do? You have to spend even more resources just staying afloat, making it back and forth to work every day. Inevitably, people who are trying to work their way out of poverty will begin to skim from one of two precious resources: their food, or their sleep. Either they'll take on extra jobs, and work 60 hours a week (or more), or they'll try to save money on their groceries. It's possible to save money on groceries and still eat well, but that requires more time and attention. Those working their way out of poverty don't tend to have lots of time and attention to spread around. As you continue to trim down your food budget, and/or cut back on sleep, you'll develop higher and higher levels of stress and exhaustion, which make it harder to deal with new problems as they arise. One of the things the article does get right is the mindset of some of those in poverty: each new thing is a problem, not an opportunity. Each thing that comes along is something that has to be dealt with, allocated resources to, worked around. So, you end up in this vicious cycle, where you start falling behind because you're too overwhelmed and exhausted to deal with new problems as they arise. Make no mistake about it, these people are fraught with problems. They can't afford a good, reliable car, so they have to deal with cars that break down, that require maintenance, or -- in California's case -- can't make it through the hairy mess of smog legislation. There's no magic, easy solution for a person in that situation. They have to work their ass off, and it's pretty even odds that the average person in the same situation doesn't have the fortitude to do it. In a society where over half of the population lives in poverty, the problem of poverty can reach this incredible runaway condition, where there aren't enough people left that can help others out of poverty, by providing well-paid jobs, training, and education.
browngeek 19y ago
I agree with this article. The current thinking on poverty is from the rich man's POV. And consequently, the solutions provided from that POV will do nothing to eradicate poverty. One such solution is the "One Laptop Per Child" program. And this article explains why the OLPC will never work in the impoverished countries. The child is not hungry for education. The child is hungry for parental care from her indifferent parents who have given up on getting their bee stings looked at...
- maxwell 19y ago
  We inherit a great deal of wealth opportunity (or lack thereof) from our local economy. Credit is a social phenomenon, so wealth and poverty can become infectious. If you're able to easily work and pay for necessities (because of opportunities largely provided by market climate), then you have the money to get every bee sting looked at. It becomes a matter of generating sustainable wealth production, which boosts the pool of potential solutions avilable. I think the communication potential of OLPC-style laptops is a much bigger draw than the educational one. Could be the infrastructure needed to leapfrog over major industrialization in regions seemingly rich in natural resources and workforce potential, which are squandered by maligned markets. What happens if children in poor markets have laptops? It could provide a means of overcoming parental (and perhaps governmental) problems bottom-up.
- jacobolus 19y ago
  """The child is hungry for parental care from her indifferent parents who have given up on getting their bee stings looked at...""" Have you spent an time in poor rural areas, or are you just talking out your ass? (Most of the peasant farmers, etc., I know are wonderful parents, nowhere close to indifferent. Their problems are about infrastructure and economic inequality, not attitude.)
mattrepl 19y ago
It's interesting that this article is at the top of the front page -- unexpected topic to fit the category of hacker news. My theory: problem solving and unconventional solutions are of interest to hackers and this article presents poverty as a puzzle and hints at an intriguing fix.
- coffeeaddicted 19y ago
  My theory is that a lot of us are rather broke ;-)
nazgulnarsil 19y ago
I don't think that you can eradicate poverty (handouts don't count) because there simply isn't enough non-subsistence related work for 6 billion people. for our purposes poverty = subsistence or close to it once energy is cheap (distributed solar) humanity can turn to the problem of food distribution and education. Once we start getting more people educated more einstein's and other people who add disproportionate value to humanity should pop up and we'll get accelerating returns. the point of all this is to solve the population problem before the population problem solves us, so to speak.
ericwaller 19y ago
A negative income tax seems to me like a generally good, if naive, solution. Of course the problem is that a straight forward negative income tax creates a resistance level where each additional dollar earned is worth less and less. The simple negative income tax leads to the situation in the 1970's study mentioned in the article (people are discouraged from working). I think the solutions lies in creating support levels, or income targets. I.e. $15k or less is taxed at 0%, $15k - 20k at -5%. This would establish a support level at $15k. I can even imagine a system where meeting an "income goal" (support level) one year triggers a higher one for the next year. I.e. if you make $16k in 2008 and are taxed at -5%, you must make $20k in 2009 to receive the -5% rate again, otherwise you'll be taxed at 0%. Eventually, if the person keeps meeting income targets, they'll no longer be poor (by definition).
- eru 19y ago
  How about just handing out a certain amount with no strings attached at all? To everyone.
  - eru 19y ago
    And finance by a tax, obviously. So you still get a positive net outflow from better off people.
raganwald 19y ago
No. Longer answer: My great-grandfather Reginald Braithwaite was one of nine children (that we know survived) growing up in a one-room shack in Barbados. His son Leonard was the first Black Member of Provincial Parliament in Ontario. His grand-daughter Gwen was the first woman AND the first person of colour to work in Systems analysis with Empire Life. Sadly, the (possibly apocryphal) Chinese Proverb about returning to poverty in four generations may hold: her son is chiefly known for blogging.

61 points by kradic 19y ago

this article is much more accurate than the ones i've seen on HN about poverty in the past. still doesn't hit the nail on the head, but its a lot closer.

jamiequint 19y ago

Does anyone here know about the economics of gambling? It seems like the argument Karelis is making would have strong similarities there. I'd be interested to see if this suggestion is at all valid. To explain, in gambling (think lottery tickets, not poker) you trade $1 for something that actually has less than $1 worth of economic value. There is obviously another component at work (behavioral, not economic), call it hope. If economists have found a way to quantify hope in this context it seems that they could try the same thing with poverty, the results would certainly be interesting.

yummyfajitas 19y ago
I know a little bit. The relationship isn't very close. Gamblers tend to derive utility from gambling, i.e. the act of gambling gives them a rush. The extreme case of this is video games. I'll never win any money by purchasing a Wii (like the lottery, I lose with probability close/equal to 1). But I will derive more happiness from playing Wii sports than I will from the money I spent on it. Similarly, gamblers enjoy playing the game, and this gives gambling positive utility (for them). However, the argument Karelis seems to be making is that the marginal utility of increased income is zero (for some income range which constitutes poverty). People don't tend to do actions with zero marginal utility, so they don't try to increase their income. Basically, earning $15k/year doesn't make you any happier than $10k/year, so why bother to increase your income? (Note: he actually claims that "economics doesn't apply to the poor", which is either stupidity or hyperbole. ) One interesting policy implication of his model (if it is true, which I doubt): taxing the poor is good policy. If a poor person is no happier at 15k/year than at 10k/year, then we should tax all poor people making $15k/year at 33%. It won't make them any more unhappy, whereas taxing a richer person will. It also suggests that any wealth transfers to the poor that dont solve all their problems are wasted (welfare is "all or nothing").
- DmitriLebedev 19y ago
  I'm wondering what kind of utility function is needed to make such a strange MU function... As far as dents on the car are concerned, let me write what conventional microeconomy says. Here is the function to estimate the choices. U = sum(F(x(t))/(1+r)^t) by t from 1 to infinity (or life expectation), where F(x) is a momentary utility function, r is "perceptual" discounting rate (sorry, don't know the English term), which means that F(x) next year is 1+r times less nice than having it now. If you don't repair the car, x(t) will be constant, let's say X. If you do, first period it is x(0) = Y < X, but since t=1 x(t) = Z > X. The problem is that F(Y) has more weight than F(Z)'s. The more r is, the greater the difference and more probable the first choice will win. The problem of poor people is that (1) their r is much more than that of middle class, and they don't value the future, (2) their F(x) (perception of what is good) is different.
  - yummyfajitas 19y ago
    I think the authors ideas are less about time discounting, and more about non-linear relations in quantity of problems. The authors example is a man who's car has many dents. Utility might behave like U(0 dents) = 1, U(1 dent) = 1/2, U(n >= 2 dents)=0. If a car has 5 dents, the marginal utility of repairing one dent is 0 (U(5)=U(4)), so the owner does nothing. Of course, in real life, most utility functions behave in the opposite way. Going from homeless to a studio apt? Major gains in utility. Going from a studio to 1 bdrm? Nice, but not as fantastic.
- mattmaroon 19y ago
  The diminishing marginal utility of money would imply that the difference between $10k and $15k is quite large. Much larger than the difference, say, between $100k and $150k.
  - yummyfajitas 19y ago
    You are quite right, utility is usually steep near 0, and flattens out toward the top. I was simply pointing out that if the author is right, the difference between 10k and 15k would be very small (indeed, quite possibly smaller than that between 100k and 150k). In fact, I'd suggest that diminishing returns explains American "poverty" much better than flat utility curves. 45% of the poor own their own home, 95% are not overcrowded, 75% own a car (30% own 2 cars), nearly all have a TV (25% a big screen). Virtually no one is starving, over 70% of those the USDA classifies as "hungry" are obese. The typical poor family is also supported by 16 hours/week of work. It's quite possible that poverty is explained simply by a low marginal gain from increased work (the poor already hit the point of diminishing returns). All numbers are taken from here (http://www.heritage.org/Research/Welfare/bg1713.cfm http://www.heritage.org/Research/Welfare/bg1713.cfm), who in turn stole them from the census. See also this chart http://www.heritage.org/Research/Family/images/Chart1.gif http://www.heritage.org/Research/Family/images/Chart1.gif of working hours for poor families.
danteembermage 19y ago
One way to explain lottery tickets is to hypothesize that people don't typically process small probabilities well. So Radon looks like terrorist attacks looks like lightening. What people seem to do in practice is to lump all small probabilities into either one quantity that means "small but worth paying paying attention to" and zero. This decision making process works pretty well for day-to-day life, but it can get frustrated when the outcomes are very large, usually dying and big money. So some lottery players approximate the chances of winning to be zero and don't buy; others approximate small probability and get a large expected value of a ticket and buy many.
- mattmaroon 19y ago
  This is actually proven to be true. On the topic of terrorism and small probabilities, over 40,000 people die in car crashes per year in this country. It's essentially as if 9/11 has been happening every month for decades on our roads. But which do people care more about?
- Tichy 19y ago
  I am sure that most people don't get the probabilities right, but maybe there is also something else: if you factor the utility into the equation, the probabilities might not be so bad? E(money) < 0, but E(utility) > 0? As the other reply sad, people get a rush out of gambling, among other things.

mynameishere 19y ago

The whole article could have been shortened to this one paragraph: In the early 1970s, a large-scale study gave poor people in four cities a so-called "negative income tax," a no-strings-attached payment based on how little money they made. The conclusion: the aid tended to discourage work. Yeah, that's right. The obvious occurred, as usual. All such theories, and all such fawning articles, rely upon one unalterable precondition: Nobody involved has actually lived among the destitute, while destitute.

fortes 19y ago
Actually, that's the opposite of what the article is arguing (or to be more accurate, what the guy who the article is about is arguing). Direct quote: 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. Simply giving the poor money with no strings attached, rather than using it, as federal and state governments do now, to try to encourage specific behaviors - food stamps to make sure money doesn't get spent on drugs or non-necessities, education grants to encourage schooling, time limits on benefits to encourage recipients to look for work - would be just as effective, and with far less bureaucracy. What you quoted was a common rebuttal to the argument above, which the guy in the article counters with: Karelis responds that the data from that experiment is in fact quite ambiguous, and there has been debate among economists over how to interpret the results. But ultimately, he 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. * Edit: Formatted quotes, thought I could use Markdown.
- mynameishere 19y ago
  that's the opposite of what the article is arguing Exactly. If I wanted to summarize the argument of the article I would translate from newspeak to English: We want to pay right-thinking, liberal arts majors middle class salaries for them to administer money distributions from functional people to dysfunctional people. We have no data to suggest this will help anyone, but we are pretty sure it will help ourselves.

llimllib 19y ago

A response: http://wirkman.net/wordpress/?p=295 http://wirkman.net/wordpress/?p=295 "By the way, vice in any form is self-reinforcing, as he suggests. Ancient moralists realized it; modern “mental health” professionals do, too. The behavior of poor people is often that of simple vice. It is not new, nor are the traps involved. Example? Think of becoming fat: the fatter you get, the harder it is to exercise, the less incentive you have to exercise; the less you exercise, the fatter you get. You get caught in a feedback loop that spirals into imbalance and self-destruction. Sloth and gluttony (the old terms for two major causes of being overweight) are not new nor are they hard to understand." (Please note that I am not agreeing with or endorsing this opinion, merely providing a link)

rml 19y ago
Classifying poverty as vice is worthwhile to a point, but works well only in very general ways (I know it wasn't your opinion, it's just worth discussing). The main problem that I see with that view, however, is this: Take a 12-year-old kid in middle school. Let's assume he is bright enough to do well, if he did the homework, etc. He goes home every day to a dirty house, where he spends hours by himself playing video games. His mother is at work earning an hourly wage, and when she gets home, she is bitter and sarcastic. His father is gone. There isn't enough money to pay the bills, so the phone, tv, etc. are constantly being turned on and off (i.e., general chaos). At his suburban middle school, he has to endure the humiliation of being pushed toward lower-status "vocational" programs despite his (at least average) ability, because of his poor attitude, laziness and the fact that his family is known in his hometown as being somewhat "troubled." It is only natural that a young person in such a situation might become disinclined to work hard, because he doesn't know what the point of "working hard" is. In his world, and the world of his family, "working hard" just means putting in more hours that enrich someone else. He hasn't been exposed to any other ways of life, and the well-to-do telling him that he's "lazy" probably won't serve to motivate. Having said all that, there is nothing stopping this person from realizing the error of his ways as an adult and acting accordingly. Luckily, we have many examples of successful "late bloomers" available to us these days, but I think for many kids the damage will have been permanent.
- 19y ago

FleursDuMal 19y ago

"In challenging decades of poverty research, Karelis draws on some economic data and some sociological research. But, more than that, he makes his case as a philosopher, arguing by analogy and induction." This, for me, is the biggest problem with the article.

lutorm 19y ago
I agree, it would be nice with some empirical data instead of just opinion (not that most other opinions are better supported).
- yummyfajitas 19y ago
  The article does have a little empirical data (towards the end): >In the early 1970s, a large-scale study gave poor people in four cities a so-called "negative income tax," a no-strings-attached payment based on how little money they made. The conclusion: the aid tended to discourage work.
  - nazgulnarsil 19y ago
    when you subsidize something you get more of it. we need to stop all aid to third world countries. not only is the vast majority of the money absorbed by corruption and armed conflict, even the money that gets through doesn't help. of course, this fails to account for the fact that we want those countries in armed conflict and hanging on our every welfare check because it means we can take their resources for way below market value. can you imagine how expensive things would be if the african nations were organized enough to have business infrastructure?
    - eru 19y ago
      Cheaper?
azanar 19y ago
Perhaps induction and deduction? In any case, this is the basis behind economics as I understand it; taking data and then reasoning from there to more generalized models. Then those models can be used in future studies as a means to both reconcile the data, and to improve upon the models. There are several schools of thought, each with their own models, and each arguing that the other models are wrong due to particular reasons. This is not much unlike philosophy, except it deals with money instead of ethics and motivations.

kingkongrevenge 19y ago

Poverty as it exists in America today is mostly a matter of breeding and culture. A thousand words on poverty and no mention of heritability? Drake either has his head up his ass or his PC blinders on too tight.

albertcardona 19y ago
Inheritance is included in the statement: "poverty causes poverty".
logjam 19y ago
Ok, why don't you enlighten us all on how "breeding" causes poverty. You might want to check out something like "Guns, Germs, and Steel", which is one of the latest works to effectively debunk your assertion, pointing out, as the article does, how poverty leads to poverty.
- anewaccountname 19y ago
  Guns, germs, and steel actually points out how centuries of being bred in the presence of prevalent disease due to living in close quarters with domesticated animals was a huge key in keeping Europe out of poverty and helping them ruthlessly dominate the Americas.

ebukys 19y ago

The article makes a very good point. I like the dents-in-the-car metaphor. I don't, however, agree with how he interpreted it. If I have a car with, say, ten dents in it, and I get one more, no, I am not inclined to try to fix it. And let us follow his story, and say that someone comes along and fixes all but two of those dents for me. The question is, does the fact that I have fewer dents in my car make me more likely to fix the others? If someone comes along and does almost all of my dishes for me, am I more likely to wash the last few myself? I believe the answer to that is not, as Bennett suggests, "Yes." If someone comes along and fixes most of my car for me, or cleans most of my dishes, when I had no inclination of doing it myself, why would I stop them? If someone is going to come and fix my problems for me, why do it myself? All you have to do is wait long enough, and, like magic it's done for you! So while it is an interesting theory, the problem is, people become set in their habits fairly quickly. If I do not wash my dishes one day, I am not really more inclined to wash them the next. Indeed, why should I? There is suddenly an almost empty sink in which to store the dirty ones.

albertcardona 19y ago
You could try it: go to a friend's home that has his sink full of dishes all the time. Wash them all but two. Go there a couple hours later and see what happened. That would only be a sample of one though. The experiment may be worth just to make you realize how powerful the mixture of gratitude, self-hate, the willingness to help oneself, greediness and generosity is.
- ebukys 19y ago
  Haha, I already know the result. I live in a house with four other girls, and the sink is usually filled with any number of dishes. Once it becomes completely piled up (as we don't eat together, and most of us cook real meals, this usually happens about every other day), one of us will become disgusted with the others and empty the dishwasher, fill it with dirty dishes, and clean most of the dishes left in the sink. Do the remaining two pans and glass get cleaned by anyone else? Of course not; they are the base dishes that we pile everything else on top of that day. Why clean the remaining two dishes, there was originally an entire sink full of them! Comparatively, it's almost spotless!

davidw 19y ago

Offhand, it doesn't smell like hacker news to me. Here's why: it's already touched off a thread on politics. I'm not convinced that these things don't degrade with time. And I am certain that in any case, as hackers, our "comparative advantage" is not in discussing politics.

lutorm 19y ago
Another view would be that it is everyones responsibility in a democratic society to vigourously (but respectfully) debate how that society should be structured.
- rml 19y ago
  Yet another view would be that to remove one's self from political discussions with one's peers based upon other, unrelated criteria, such as one's perception of one's self as a hacker, only serves to underestimate the broad capabilities of the human mind.
  - davidw 19y ago
    I like to talk politics too, actually. However, I think it's an argument that is poisonous for sites like this. I don't want to see a bunch of links from mises.org, and the equivalent from the other side - I can get that stuff elsewhere.

phaedrus 19y ago

The article is mainly about the psychological reasons why people in poverty act the way they do. I'll add my 2 cents: The fact is people's brains are wired to not keep doing something when it seems hopeless. Although from an outside perspective it seems illogical to work less when you have less money, from the perspective of the person living in poverty they know that no matter how hard they work, at minimum wage they're never going to have an easy life, and that's a very powerful psychological force. For instance, as a student, I borrow money at the beginning of the semester, and I have some big expenses. I work part time, but my fixed expenses exceed the income I make from working. So I go to work knowing that no matter how hard I work, or how much I try to save, it's physically, mathematically impossible for me to ever come out ahead. By working hard, all I can do is sink into debt more slowly. At least I have solace in the fact that I will soon be graduating. What if I didn't have that hope? What if that were all there were to life? I see people every day, in rural Oklahoma, who live like that, without hope. They go through cycles where they work for a while, realize they aren't getting ahead for all their work, and give up. Wouldn't you?

yters 19y ago
Procrastination is a good example of this phenomena too.
Tichy 19y ago
What gets me is that few people seem to consider "find a job with better pay" as an option. It just doesn't even occur to them. On the contrary, I often hear stories where people might actually pay more for their job than they earn, for example if they drive 50 miles every day to work a minimum wage job (petrol+car maintenance might cost more than what they earn). Either they really don't get the maths straight, or they see it as a temporary thing (need one job to get another), or else I don't know... What about you, what do you study? Are you sure you could not get a better job, for example by building on the things you study? I must admit I was stupid as a student - I studied maths, but instead of taking on some programming job and earning shitloads of money on the side, I just worked standard student jobs with average (low) pay. My point: maybe many people just are not aware of the options. I suppose it is infeasible to assign personal life managers to every poor person, but perhaps information technology could be some help? For example better job boards.

DmitriLebedev 19y ago

IMO, it is fair that the book was ignored. The guy completely ignores the time and risk factors, namely being short-term-payoff-oriented and long-term-payoff-oriented. This is a subject of microeconomics (not 101, of course - it's a lot of maths, integrals and derivative functions). Poor people do not save extra money exactly because of being short-term oriented. Drugs, entertainment and having early sex also deal with short-term payoff. Short-term payoff orientation also makes a person more risk-tolerant, which is a common attribute of criminals. All the given examples are easily explainable with a utility function that takes into account risk perception and time discounting (long- or short-term orientation) and current posessions. Committing a crime or not is a choice between risky and not risky opportunities. This deals with risk perception. Few posessions make the low-risk choice even less valuable. Fixing or not fixing dents on a car fit into choice between long-term and short-term payoff. Writing this I suspected that the author hasn't worked with advanced microeconomics' maths. Indeed, Karelis is a philosopher. I haven't seen the book, but by his words ("Econ 101 is to blame") suspect that he doesn't know any more complicated economics. That's the reason he finds it wrong.

TheWama 19y ago
Indeed. On the subject of long vs. short term thinking, or the time-value of money, the most clear example is the case of rent-to-own stores. Rent-to-own is a form of financing, equivalent to taking on debt, but unlike other forms of debt, we know that it's used specifically for buying certain classes of durable goods, such as furniture, appliances and televisions. Due to the nature of these goods, we can assume that in most cases the owning of a given piece of furniture, for example, is not a necessity, and further, that buying these goods new is not the lowest cost alternative, when speaking about the total or even initial price. For example, I might be able to get a sofa off the street or sleep on a mattress without a frame or box springs. Rent-to-own is also heavily favored by poor folks, who have another opportunity, which is to save up and replace their television or furniture at a later date for a lower total cost. Making the latter choice is the rational one, if your personal discount function for the future value of money is sufficiently low. That is, if you have a long-term perspective, you value future abundance nearly as much as present abundance, and so save up for an outright purchase. However, if you have a short-term perspective, the extra you paid for the television would seem insignificant, because it accrued far in the future, and you're more concerned with immediate abundance.

daniel-cussen 19y ago

It would be interesting to see what the path dependence of poverty is.

thaumaturgy 19y ago

I can always tell who's actually been poor for any extended period of time, versus who hasn't, by the way they talk about the poor. I've been in and out of poverty a few times. There is some truth to all of what everybody says, and yet none of what anybody says is the whole truth to it. There are individual factors: if you're uneducated, or have a lower than average intelligence, or lack self discipline, or would just tend to prefer not to work, then you're more likely to be poor. But, not all poor people fit any of those categories. If you're used to receiving hand-outs without having to work much for them, then you're more likely to keep accepting hand-outs. But, not everybody fits that, either. There are a bunch of people that made one or two bad decisions at some point. They don't have to be stupid decisions, they could just be points where the person took a risk and the risk cost them dearly. Those people can then find themselves in one of the most challenging downward spirals that we have in Western society. The poorer you are, the more effort it takes to become less poor. Think about that for a minute. For example, if you're living in an area with good public transportation -- so that you don't need your own car -- then your rents are likely higher than they would be in more rural areas, where you'd need a car. So, if you're poor enough that you can't afford to maintain a car, and you can't afford high rent, then what do you do? You have to spend even more resources just staying afloat, making it back and forth to work every day. Inevitably, people who are trying to work their way out of poverty will begin to skim from one of two precious resources: their food, or their sleep. Either they'll take on extra jobs, and work 60 hours a week (or more), or they'll try to save money on their groceries. It's possible to save money on groceries and still eat well, but that requires more time and attention. Those working their way out of poverty don't tend to have lots of time and attention to spread around. As you continue to trim down your food budget, and/or cut back on sleep, you'll develop higher and higher levels of stress and exhaustion, which make it harder to deal with new problems as they arise. One of the things the article does get right is the mindset of some of those in poverty: each new thing is a problem, not an opportunity. Each thing that comes along is something that has to be dealt with, allocated resources to, worked around. So, you end up in this vicious cycle, where you start falling behind because you're too overwhelmed and exhausted to deal with new problems as they arise. Make no mistake about it, these people are fraught with problems. They can't afford a good, reliable car, so they have to deal with cars that break down, that require maintenance, or -- in California's case -- can't make it through the hairy mess of smog legislation. There's no magic, easy solution for a person in that situation. They have to work their ass off, and it's pretty even odds that the average person in the same situation doesn't have the fortitude to do it. In a society where over half of the population lives in poverty, the problem of poverty can reach this incredible runaway condition, where there aren't enough people left that can help others out of poverty, by providing well-paid jobs, training, and education.

browngeek 19y ago

I agree with this article. The current thinking on poverty is from the rich man's POV. And consequently, the solutions provided from that POV will do nothing to eradicate poverty. One such solution is the "One Laptop Per Child" program. And this article explains why the OLPC will never work in the impoverished countries. The child is not hungry for education. The child is hungry for parental care from her indifferent parents who have given up on getting their bee stings looked at...

maxwell 19y ago
We inherit a great deal of wealth opportunity (or lack thereof) from our local economy. Credit is a social phenomenon, so wealth and poverty can become infectious. If you're able to easily work and pay for necessities (because of opportunities largely provided by market climate), then you have the money to get every bee sting looked at. It becomes a matter of generating sustainable wealth production, which boosts the pool of potential solutions avilable. I think the communication potential of OLPC-style laptops is a much bigger draw than the educational one. Could be the infrastructure needed to leapfrog over major industrialization in regions seemingly rich in natural resources and workforce potential, which are squandered by maligned markets. What happens if children in poor markets have laptops? It could provide a means of overcoming parental (and perhaps governmental) problems bottom-up.
jacobolus 19y ago
"""The child is hungry for parental care from her indifferent parents who have given up on getting their bee stings looked at...""" Have you spent an time in poor rural areas, or are you just talking out your ass? (Most of the peasant farmers, etc., I know are wonderful parents, nowhere close to indifferent. Their problems are about infrastructure and economic inequality, not attitude.)

mattrepl 19y ago

It's interesting that this article is at the top of the front page -- unexpected topic to fit the category of hacker news. My theory: problem solving and unconventional solutions are of interest to hackers and this article presents poverty as a puzzle and hints at an intriguing fix.

coffeeaddicted 19y ago
My theory is that a lot of us are rather broke ;-)

nazgulnarsil 19y ago

I don't think that you can eradicate poverty (handouts don't count) because there simply isn't enough non-subsistence related work for 6 billion people. for our purposes poverty = subsistence or close to it once energy is cheap (distributed solar) humanity can turn to the problem of food distribution and education. Once we start getting more people educated more einstein's and other people who add disproportionate value to humanity should pop up and we'll get accelerating returns. the point of all this is to solve the population problem before the population problem solves us, so to speak.

ericwaller 19y ago

A negative income tax seems to me like a generally good, if naive, solution. Of course the problem is that a straight forward negative income tax creates a resistance level where each additional dollar earned is worth less and less. The simple negative income tax leads to the situation in the 1970's study mentioned in the article (people are discouraged from working). I think the solutions lies in creating support levels, or income targets. I.e. $15k or less is taxed at 0%, $15k - 20k at -5%. This would establish a support level at $15k. I can even imagine a system where meeting an "income goal" (support level) one year triggers a higher one for the next year. I.e. if you make $16k in 2008 and are taxed at -5%, you must make $20k in 2009 to receive the -5% rate again, otherwise you'll be taxed at 0%. Eventually, if the person keeps meeting income targets, they'll no longer be poor (by definition).

eru 19y ago
How about just handing out a certain amount with no strings attached at all? To everyone.
- eru 19y ago
  And finance by a tax, obviously. So you still get a positive net outflow from better off people.

raganwald 19y ago

No. Longer answer: My great-grandfather Reginald Braithwaite was one of nine children (that we know survived) growing up in a one-room shack in Barbados. His son Leonard was the first Black Member of Provincial Parliament in Ontario. His grand-daughter Gwen was the first woman AND the first person of colour to work in Systems analysis with Empire Life. Sadly, the (possibly apocryphal) Chinese Proverb about returning to poverty in four generations may hold: her son is chiefly known for blogging.