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Ed Thorp's book had an entire chapter explaining that "Joe Sixpack" is poor because he spends all his money on beer and cigarettes. A similar narrative emerged

Ed Thorp's book had an entire chapter explaining that "Joe Sixpack" is poor because he spends all his money on beer and cigarettes. A similar narrative emerged in the British press during Ireland's great hunger. It's a recurring theme. Utterly false, but recurring.

deleted 6y ago
[deleted]
smabie 6y ago
It's not false at all. When your life is unimaginably shitty, it's hard to plan for the future and most excess income is used to make yourself feel better (flavorful food, alcohol, drugs, etc). I've observed this about myself (the worse I feel, the less money I save) and others. I lived in Africa for two years, and it's quite common for men to spend money on alcohol or meat, even if that means going hungry. Clearly, more value is being derived from a nice meal or a drink than a shitty, flavorless one. I'm not sure how you came to the conclusion that this is utterly false, but I'm telling you that this isn't the case.
- crooked-v 6y ago
  I think the point is more that, for most people, cutting back on minor luxuries wouldn't actually matter much because it doesn't actually add up to enough money to materially improve life in other ways. Or, more pithily: You're not poor because you spend everything on beer, you spend what little is left over on beer because you're poor and really need the pick-me-up.
  - smabie 6y ago
    But it does! For example, in Tanzania (the place in Africa that I lived), a lot of women sell vegetables. They don't have enough money to buy them outright at the beginning of the day, so they take them on credit, and then pay for them at the end of the day. The vegetables on credit are very expensive, 25-50% more. The vegetable women is always one day behind, and losing a ton of income because she is being fronted. If she had enough money to buy the vegetables outright, it would make a huge difference in her life. And indeed, this is the whole problem microfinance loans aim to solve. There are so many people who just need a very small amount of money ($10-$20), and it would jump start their business. But instead of saving until they have it, they spend everything they have at the end of the day. And it's easy to see why: when life is very hard, you need something to just feel okay enough to start it all again tomorrow. Those that end up in a good place are the very people who have the willpower to delay their consumption. Most aren't like that, but some are, and the difference in outcome is stark. I actually started a school over there, and taught some classes about personal finance, investing, compound interest, etc to a class of mostly young women (young men are much more difficult to teach). Their minds were totally blown by how powerful even just saving 25 or 50 cents a day. One even told me a year after she attended the class that I had changed her life forever. And indeed I had, she went from having nothing and selling donuts (essentially) on the side of the road, to opening her first small convenience store, to saving money for her second. These things matter, and there's a lot of low hanging fruit in terms of affecting change in 3rd world countries.
    - rmrfstar 6y ago
      I think you accidentally made my point. If the real returns to investment in impoverished regions are so high, why are those investments not being made? The fact that your advice "changed [a] life forever" is strongly suggestive of outsize returns to capital, which should attract strong investment.
      - devdas 6y ago
        It's high risk, and institutional finance isn't available to poor people. Being poor is expensive.
      - smabie 6y ago
        Microfinance is very hard to get right. It requires a lot of supervision, a large network of loan officers, and intricate structuring of the terms in order to align incentives. Moreover, the loans are capacity constrained, the risk is high, takes tons of work, a lot of local knowledge, etc. All in all, it's almost impossible for microfinance loans to work for the lender. As a charity, it works okay, but if you want to earn yield, forget about it. There's tons of really amazing opportunities in EM, but you can't exploit them by sitting at your desk. Or rather, those that can have probably already been exploited.
      - newen 6y ago
        There should be a name for this kind of logical fallacy you're making. Like rational markets fallacy. You can't assume a market will always act rationally and freely in a simplistic manner. It's kind of like saying the taxi market is efficient, it cannot possibly be disrupted. Then Uber comes in and disrupts the market and then you say, the taxi market was inefficient and ripe for disruption. While the fact remains that all along it was inefficient. Bad example I know.
  - lb1lf 6y ago
    To quote Paul Weller's brilliant The Jam song 'A Town Called Malice' about the hardships of lower working-class life - 'To either cut down on beer/or the kids' new gear/it's a big decision in a town called Malice'
- deleted 6y ago
  [deleted]
radegast 6y ago
"Utterly false" - CiTaTiOn nEeDeD

deleted 6y ago

[deleted]

smabie 6y ago

It's not false at all. When your life is unimaginably shitty, it's hard to plan for the future and most excess income is used to make yourself feel better (flavorful food, alcohol, drugs, etc). I've observed this about myself (the worse I feel, the less money I save) and others. I lived in Africa for two years, and it's quite common for men to spend money on alcohol or meat, even if that means going hungry. Clearly, more value is being derived from a nice meal or a drink than a shitty, flavorless one. I'm not sure how you came to the conclusion that this is utterly false, but I'm telling you that this isn't the case.

crooked-v 6y ago
I think the point is more that, for most people, cutting back on minor luxuries wouldn't actually matter much because it doesn't actually add up to enough money to materially improve life in other ways. Or, more pithily: You're not poor because you spend everything on beer, you spend what little is left over on beer because you're poor and really need the pick-me-up.
- smabie 6y ago
  But it does! For example, in Tanzania (the place in Africa that I lived), a lot of women sell vegetables. They don't have enough money to buy them outright at the beginning of the day, so they take them on credit, and then pay for them at the end of the day. The vegetables on credit are very expensive, 25-50% more. The vegetable women is always one day behind, and losing a ton of income because she is being fronted. If she had enough money to buy the vegetables outright, it would make a huge difference in her life. And indeed, this is the whole problem microfinance loans aim to solve. There are so many people who just need a very small amount of money ($10-$20), and it would jump start their business. But instead of saving until they have it, they spend everything they have at the end of the day. And it's easy to see why: when life is very hard, you need something to just feel okay enough to start it all again tomorrow. Those that end up in a good place are the very people who have the willpower to delay their consumption. Most aren't like that, but some are, and the difference in outcome is stark. I actually started a school over there, and taught some classes about personal finance, investing, compound interest, etc to a class of mostly young women (young men are much more difficult to teach). Their minds were totally blown by how powerful even just saving 25 or 50 cents a day. One even told me a year after she attended the class that I had changed her life forever. And indeed I had, she went from having nothing and selling donuts (essentially) on the side of the road, to opening her first small convenience store, to saving money for her second. These things matter, and there's a lot of low hanging fruit in terms of affecting change in 3rd world countries.
  - rmrfstar 6y ago
    I think you accidentally made my point. If the real returns to investment in impoverished regions are so high, why are those investments not being made? The fact that your advice "changed [a] life forever" is strongly suggestive of outsize returns to capital, which should attract strong investment.
    - devdas 6y ago
      It's high risk, and institutional finance isn't available to poor people. Being poor is expensive.
    - smabie 6y ago
      Microfinance is very hard to get right. It requires a lot of supervision, a large network of loan officers, and intricate structuring of the terms in order to align incentives. Moreover, the loans are capacity constrained, the risk is high, takes tons of work, a lot of local knowledge, etc. All in all, it's almost impossible for microfinance loans to work for the lender. As a charity, it works okay, but if you want to earn yield, forget about it. There's tons of really amazing opportunities in EM, but you can't exploit them by sitting at your desk. Or rather, those that can have probably already been exploited.
    - newen 6y ago
      There should be a name for this kind of logical fallacy you're making. Like rational markets fallacy. You can't assume a market will always act rationally and freely in a simplistic manner. It's kind of like saying the taxi market is efficient, it cannot possibly be disrupted. Then Uber comes in and disrupts the market and then you say, the taxi market was inefficient and ripe for disruption. While the fact remains that all along it was inefficient. Bad example I know.
- lb1lf 6y ago
  To quote Paul Weller's brilliant The Jam song 'A Town Called Malice' about the hardships of lower working-class life - 'To either cut down on beer/or the kids' new gear/it's a big decision in a town called Malice'
deleted 6y ago
[deleted]

radegast 6y ago

"Utterly false" - CiTaTiOn nEeDeD