12 ms·

Economists Discover the Poor Behave Differently From the Rich

58 points by jmacd 13y ago

krallja 13y ago
How depressingly obvious.
- anigbrowl 13y ago
  The other sad thing about macro is a lack of consideration about the cash constraints facing poor consumers. For example, suppose there's some 20% off offer available on a regular household expense. The rational thing to do is buy in bulk so you can take advantage of the offer, but if you're poor that option isn't necessarily available, because buying in the requisite quantity to receive the discount means going without some other necessity - eg there's no point in buying lots of diapers when they're on sale if it means there's no money left over for baby food.* Of course couponing allows for fairly flexible strategies and with time the savings can add up, allowing for some greater flexibility; but the underlying fact is that the more money you have, the easier it is to take advantage of discounts that save you money. Inability to access economies of scale is a brutal fact of life at the bottom of the economic pyramid that manifest almost every time one needs to buy food. * It's just an example, don't get hung up on what exact level of public assistance is available to people with babies in an attempt to negate the point.
  - unclebucknasty 13y ago
    This is absolutely true and is a part of the general cash flow problem that the poor face. Never having surplus (or even being at a defecit) after attempting to meet their basic needs month-over-month serves to keep them from moving ahead. For instance, it is very difficult to reduce debt, invest, obtain an education, or otherwise "get ahead". All income is instead spent on day-to-day subsistence, so they continue to receive a lower share of the economy, while paying down little principal and paying maximum interest. It's another overlooked element: it's not just about income and wealth. It's about cash flow. It's just somehow odd that if a person earned the same income over his lifetime, but received a sizeable advance on some portion, it could dramatically alter the quality of his life.
Aloha 13y ago
How could they not know this? "The challenges the world faced in 2010—low home values, credit hard to get, central banks unable or unlikely to lower interest rates further—“were nonexistent in representative-agent models,” says Christopher Carroll, who teaches at Johns Hopkins. At the ECB’s Frankfurt conference, Carroll presented a paper that bolstered Krusell and Smith’s model with microeconomic data. For Carroll, people differ in one crucial way. “The marginal propensity to consume,” according to the paper, “is substantially larger for low-wealth than for high-wealth households.” Rich people behave like the hyperrational agent. They plan for the future. They save during a stimulus, thinking about the taxes to come. And they can borrow during a fiscal contraction. Poor people are what economists call “borrowing constrained.” They tend to have more needs than are being met, so when money arrives, they spend it. When the government stops spending and credit is hard to come by, the mythical everyman, like the rich person, continues to spend. But most real people don’t have access to credit, and they hunker down. Carroll’s findings have been confirmed by other academics in the last two years who looked at Italian and U.S. data." I remember what poor was - I always knew where my paycheck went well before I got it.
- noisysocks 13y ago
  I can only imagine the ECB ignored this reality so as to justify their recommendation for governments to implement austerity.
- anigbrowl 13y ago
  Two possible reasons: 1) they know, but it isn't easy to demonstrate, so it doesn't get published and therefore it doesn't exist because nobody can provide a citation. Alternatively, 2) most people who have economics degrees are fortunate enough never to have struggled with serious poverty
- deleted 13y ago
  [deleted]
- PeterisP 13y ago
  "How could they not know this?" -> before 2010, these assumptions held when comparing models to reality. A major issue is that detailed economic models are verified against the limited time period where we have detailed data, so if some factor X is constant during that time, then you can't really know if its modeled appropriately.
ilaksh 13y ago
Economics is not a science. Its a series of attempts to rationalize inequality. The IMF is a criminal organization. Austerity is both international and class warfare.
- brosco45 13y ago
  Artificial scarcity creates profit.
- unclebucknasty 13y ago
  Don't forget the World Bank.
- anigbrowl 13y ago
  Economics most certainly is a science. You're addressing a failure of macroeconomics, which I agree is quite deficient in many ways. Microeconomics works fantastically well in most cases. The IMF is a criminal organization. Never ascribe to malice what can be adequately explained by stupidity.
  - jafaku 13y ago
    > Never ascribe to malice what can be adequately explained by stupidity. Do you seriously think you can just copy paste a phrase that sounded about right in certain context and reuse it everywhere?
    - solarmist 13y ago
      It's far more than just a random phrase. http://en.wikipedia.org/wiki/Hanlon's_razor http://en.wikipedia.org/wiki/Hanlon's_razor
      - jafaku 13y ago
        Oh god. You think I haven't seen this? I swear, the Internet is doomed. All what kids can do now is copy/paste stupid phrases and feel good about it because they are in Wikipedia, and also get approval from other kids who don't know better. "Many journalists have fallen for the conspiracy theory of government. I do assure you that they would produce more accurate work if they adhered to the cock-up theory." How's that holding nowadays? What a useful phrase! Besides, there's also this variation: "Never attribute to malice that which can be adequately explained by stupidity, but don't rule out malice." But it doesn't sound as smart to little kids, and it doesn't simplify your life by letting you skip all the thinking, right?
yetanotherphd 13y ago
For people who are saying "how could economists be so stupid" here is some background: First, economics as a field has somewhat fallen into a trap where people are overly focused on models that are analytically tractable. This leads them to use unrealistic models that can be solved with infinite horizons, rather than realistic models with finite horizons. Second, there is always a limit to how realistic your model can be, so unless there is a strong reason to think that heterogeneity is important in your model, you probably won't include it. In this case it may not have been completely obvious that heterogeneity was really important in analyzing the effects of stimulus. Finally, most people with economics degrees are about as privileged as people with the same degree level in other fields. So being privileged really cannot explain disagreements between economists and other educated people.
LukeWalsh 13y ago
Articles like this just go to show how little acceptance there still is for behavioral economics data in mainstream policy making. Just a few years ago data from lab experiments was not widely accepted because people were unsure if it was relevant to how people act in the real world. Countless times the effectiveness of lab experiments has been proven. I am looking forward to the day when people finally accept that traditional economic models are not perfect (duh!) and that people are not perfect, rational, decision making robots.
mritun 13y ago
This is just mind boggling. This article is another piece that shows that economists are behaving like evil... pure evil! Leave aside experiments on humans and animals, these guys are basically experimenting with families and entire nations just for fun of gathering more "data" for theories they can confirm or deny by just asking people in the streets. Kind of makes me help understand why Indian politicians were such staunchly opposed to recommendations of IMF and their group of economists all along. Those rich idiots don't know how 99% of the world functions.
- code_duck 13y ago
  They're not evil, merely really, really bad at their jobs. They seem to believe they're doing the right thing.
jonnathanson 13y ago
Apropos of nothing: that is the weirdest stock photo I've seen in months, the caption underneath it is asinine, and the guy on the left sort of looks like Matt Damon. Apropos of the article: the headline is really making hay out of a tangential point. Sure, the "poor vs. rich" angle gets more clicks and inbound links. But the real point -- which is a huge one, as far as the field of economics is concerned -- is that the "rational (and by implication, homogeneously rational) actor" presumption is under fire. It's been under fire before because people have been shown, time and again, to behave economically irrationally. But this time it's under fire because people have been shown to react heterogeneously to the same stimuli and incentives. (Not really touched upon in the article, but also worth mentioning: a third major critique in recent years has been the revelation that classical economics was highly skewed by the idiosyncrasies of the Western cultures in which it was cultivated and codified. It turns out that not everyone around the world behaves like 19th-20th Century Austrians, Britons, or Americans.) All of this is huge, I repeat, because pretty much every foundational theory in classical economics is predicated on homogeneity and rationality. Every single one. The entire field. Even a preponderance of modern economics is undergirded by flawed assumptions borrowed from classical models. I, for one, am really excited by the modernist, behaviorist, relativist, empiricist and frequentist challenges to classical economics. This is sort of like seeing a paradigm shift in a highly influential field of study play out in something resembling real time. Economics has always been based on statistics -- even highly sophisticated statistics -- but the inputs, so to speak, have been pretty unsophisticated. These challenges will help drag economics into the 21st century.
- ilaksh 13y ago
  That sounds like a good start, but I think you have to go much farther. Unless an economic model takes into account holistic human and ecological outcomes, its not relevant. You need to integrate physical science, psychology, and other real sciences and measurements. And then measure things like inequality and overall human well-being. Then make a serious effort to maximize human and ecological well-being. If I were an expert in how bubbles formed in water and spent all of my time thinking of ways to maximize bubble growth by sucking gases out of the water in a tank, I would be good at creating aquariums with large bubbles, but probably end up with a lot dead or sick fish.
dschiptsov 13y ago
Oh, god, they finally discovered that people live possessed by emotions, are ignorant, and that the model of a rational agent optimizing its payoff is just disconnected from reality nonsense?) There are huge cultural differences also. Russians are spending enormous amount of money on their mistresses using easy bank credit they barely able to pay back, while Cambodians are buying Lexus cars while living in wooden shacks, etc. While so-called poor people (read proles - ignorant working class with very restricted, repetitive behavior) are much more prone to the peer and the bandwagon effects and much more concerned about "equality" and conformity, no oversimplified economic model could capture a complex and volatile behavior even of a primitive drunk. My guess is that so-called "behavioral economics" and "behavior finance" are attempts to make more realistic and useful models, together with an important notion that the whole system is extremely dynamic, volatile and constantly changing/evolving. Equilibriums are moving.
AnthonyMouse 13y ago
> Attempts to divine—or calculate—how fiscal decisions affect the economy rest on the “marginal propensity to consume,” the likelihood that if you put a dollar in someone’s hand, he will spend rather than save it. Why are economists always so hung up on the concept of saving vs. spending, as though one is inherently better than the other? Spending is good because it stimulates the economy -- if 1000 instances of Joe buy some new clothes then the clothing retailers can hire some new sales staff. Investing is good because it stimulates the economy -- if 1000 instances of Joe buy a share of stock then the availability of capital to create new small businesses increases and new small businesses create jobs. It isn't about spending vs. saving, it's about whether the money goes to something productive or efficient or it goes to something harmful or inefficient. If a rich person gets more money and invests in small businesses, that's good. If a rich person gets more money and uses it to hoard precious metals, that's bad. If a poor person gets more money and uses it to buy books and go to college, that's good. If a poor person gets more money and uses it to buy cigarettes or to secure credit to buy an inefficient luxury SUV, that's bad. It's not about saving vs. consumption. Unless someone is just stuffing cash into a mattress (which is bad and also stupid), "saving" is just consumption of investments, which is consumption by proxy when the invested-in entity spends the money. The question is whether the thing ultimately consumed is more beneficial than the alternative -- which is a question I can certainly see why economists like to avoid, because you practically can't answer it in the aggregate. Here's a great example. The hypothesis is that rich people spend differently than poor people because they're rich, right? The fact that they have money allows them to act rationally because they can afford to make long-term investments. So, if the hypothesis is correct, lottery winners should behave like rich people, because their newfound wealth allows them to plan for the long term and stop making short term decisions just to keep food on the table. Reality? A majority of lottery winners go on to declare bankruptcy. Because it's not about rich vs. poor. It's about what types of economic activity produce beneficial results. But economists and governments are preposterously bad at predicting what those things will be. Which means I'm going to be back in here beating the drum on the basic income. It provides the poor with a baseline level of consumption which they can choose of their own free will. The problem with need-based programs is that the government is deciding what people need, and they're terrible at it -- and then they create an enormous marginal tax rate on the poor by withdrawing the benefits from anyone who dares to live the life of luxury that exists just above the poverty line. Let the people themselves decide what they need. People in the aggregate are smarter than legislators.
guelo 13y ago
> For example, Olivier Blanchard, now chief economist of the IMF, wrote in 1990 that when a government tightens its belt to reduce deficits, households might start spending, relieved that the problem is being handled and there won’t be an even bigger readjustment in the future. It is astounding to think that changing your personal spending based on what happens in DC is supposed to be the "rational" behavior. These are not economists, they are radical political ideologues dressed in pretend academic clothing.
- yetanotherphd 13y ago
  The idea is that people will anticipate that because the government is reducing deficits now, it will have less fiscal problems in the future, and therefore the individual will be less likely to be affected by higher taxes in the future or a greater fiscal crisis in the future. The individual doesn't have to deduce this themself. The information could come second or third hand through a variety of channels.
diminoten 13y ago
Well yeah, people are different, this is blatantly obvious. But gravity isn't 9.81m/s^2 either[0]. And the speed of light isn't "c" (299,792,458 m/s) or even constant at all[1]. But these "wrong" facts are useful when creating predictive models of our universe. That's all this is - a "wrong" fact used to help simplify a model. Turns out the representative agent might be an oversimplification, but so are G (9.81 m/s^2) and c (299,792,458 m/s), depending on what you're doing. In a "science" (science is a methodology and lies a spectrum, and is not a dogma, so let's try to keep some perspective) where you don't really have a "lab", all you can do is create predictive models that fit your observational data. Technology of the past 10 years brings more data, and lets economics move away from the representative agent of the past 100 years. Good. Let's do that, but let's not forget whose shoulders we sit on - no one mocks the orbital model of the atom, or Newtonian laws of physics, even though both models are outdated [2][3]. [0] - http://curious.astro.cornell.edu/question.php?number=465 [1] - http://arxiv.org/abs/astro-ph/0305457 [2] - http://spiff.rit.edu/classes/phys314/lectures/bohrprob/bohrprob.html [3] - http://en.wikipedia.org/wiki/Classical_mechanics#Limits_of_validity
known 13y ago
To alleviate http://en.wikipedia.org/wiki/Global_poverty http://en.wikipedia.org/wiki/Global_poverty every https://en.m.wikipedia.org/wiki/Third_world https://en.m.wikipedia.org/wiki/Third_world nation Currency should be pegged to https://en.m.wikipedia.org/wiki/Opec https://en.m.wikipedia.org/wiki/Opec Oil for 4 years due to https://en.m.wikipedia.org/wiki/Triffin_dilemma https://en.m.wikipedia.org/wiki/Triffin_dilemma
known 13y ago
How Poverty Taxes the Brain http://m.theatlanticcities.com/jobs-and-economy/2013/08/how-poverty-taxes-brain/6716/ http://m.theatlanticcities.com/jobs-and-economy/2013/08/how-...
antihero 13y ago
It took them this long to figure this out? Do these academics actually know any poor people?
72deluxe 13y ago
Yes! They spend less (as they have less to spend!) :-)

58 points by jmacd 13y ago

krallja 13y ago

How depressingly obvious.

anigbrowl 13y ago
The other sad thing about macro is a lack of consideration about the cash constraints facing poor consumers. For example, suppose there's some 20% off offer available on a regular household expense. The rational thing to do is buy in bulk so you can take advantage of the offer, but if you're poor that option isn't necessarily available, because buying in the requisite quantity to receive the discount means going without some other necessity - eg there's no point in buying lots of diapers when they're on sale if it means there's no money left over for baby food.* Of course couponing allows for fairly flexible strategies and with time the savings can add up, allowing for some greater flexibility; but the underlying fact is that the more money you have, the easier it is to take advantage of discounts that save you money. Inability to access economies of scale is a brutal fact of life at the bottom of the economic pyramid that manifest almost every time one needs to buy food. * It's just an example, don't get hung up on what exact level of public assistance is available to people with babies in an attempt to negate the point.
- unclebucknasty 13y ago
  This is absolutely true and is a part of the general cash flow problem that the poor face. Never having surplus (or even being at a defecit) after attempting to meet their basic needs month-over-month serves to keep them from moving ahead. For instance, it is very difficult to reduce debt, invest, obtain an education, or otherwise "get ahead". All income is instead spent on day-to-day subsistence, so they continue to receive a lower share of the economy, while paying down little principal and paying maximum interest. It's another overlooked element: it's not just about income and wealth. It's about cash flow. It's just somehow odd that if a person earned the same income over his lifetime, but received a sizeable advance on some portion, it could dramatically alter the quality of his life.

Aloha 13y ago

How could they not know this? "The challenges the world faced in 2010—low home values, credit hard to get, central banks unable or unlikely to lower interest rates further—“were nonexistent in representative-agent models,” says Christopher Carroll, who teaches at Johns Hopkins. At the ECB’s Frankfurt conference, Carroll presented a paper that bolstered Krusell and Smith’s model with microeconomic data. For Carroll, people differ in one crucial way. “The marginal propensity to consume,” according to the paper, “is substantially larger for low-wealth than for high-wealth households.” Rich people behave like the hyperrational agent. They plan for the future. They save during a stimulus, thinking about the taxes to come. And they can borrow during a fiscal contraction. Poor people are what economists call “borrowing constrained.” They tend to have more needs than are being met, so when money arrives, they spend it. When the government stops spending and credit is hard to come by, the mythical everyman, like the rich person, continues to spend. But most real people don’t have access to credit, and they hunker down. Carroll’s findings have been confirmed by other academics in the last two years who looked at Italian and U.S. data." I remember what poor was - I always knew where my paycheck went well before I got it.

noisysocks 13y ago
I can only imagine the ECB ignored this reality so as to justify their recommendation for governments to implement austerity.
anigbrowl 13y ago
Two possible reasons: 1) they know, but it isn't easy to demonstrate, so it doesn't get published and therefore it doesn't exist because nobody can provide a citation. Alternatively, 2) most people who have economics degrees are fortunate enough never to have struggled with serious poverty
deleted 13y ago
[deleted]
PeterisP 13y ago
"How could they not know this?" -> before 2010, these assumptions held when comparing models to reality. A major issue is that detailed economic models are verified against the limited time period where we have detailed data, so if some factor X is constant during that time, then you can't really know if its modeled appropriately.

ilaksh 13y ago

Economics is not a science. Its a series of attempts to rationalize inequality. The IMF is a criminal organization. Austerity is both international and class warfare.

brosco45 13y ago
Artificial scarcity creates profit.
unclebucknasty 13y ago
Don't forget the World Bank.
anigbrowl 13y ago
Economics most certainly is a science. You're addressing a failure of macroeconomics, which I agree is quite deficient in many ways. Microeconomics works fantastically well in most cases. The IMF is a criminal organization. Never ascribe to malice what can be adequately explained by stupidity.
- jafaku 13y ago
  > Never ascribe to malice what can be adequately explained by stupidity. Do you seriously think you can just copy paste a phrase that sounded about right in certain context and reuse it everywhere?
  - solarmist 13y ago
    It's far more than just a random phrase. http://en.wikipedia.org/wiki/Hanlon's_razor http://en.wikipedia.org/wiki/Hanlon's_razor
    - jafaku 13y ago
      Oh god. You think I haven't seen this? I swear, the Internet is doomed. All what kids can do now is copy/paste stupid phrases and feel good about it because they are in Wikipedia, and also get approval from other kids who don't know better. "Many journalists have fallen for the conspiracy theory of government. I do assure you that they would produce more accurate work if they adhered to the cock-up theory." How's that holding nowadays? What a useful phrase! Besides, there's also this variation: "Never attribute to malice that which can be adequately explained by stupidity, but don't rule out malice." But it doesn't sound as smart to little kids, and it doesn't simplify your life by letting you skip all the thinking, right?

yetanotherphd 13y ago

For people who are saying "how could economists be so stupid" here is some background: First, economics as a field has somewhat fallen into a trap where people are overly focused on models that are analytically tractable. This leads them to use unrealistic models that can be solved with infinite horizons, rather than realistic models with finite horizons. Second, there is always a limit to how realistic your model can be, so unless there is a strong reason to think that heterogeneity is important in your model, you probably won't include it. In this case it may not have been completely obvious that heterogeneity was really important in analyzing the effects of stimulus. Finally, most people with economics degrees are about as privileged as people with the same degree level in other fields. So being privileged really cannot explain disagreements between economists and other educated people.

LukeWalsh 13y ago

Articles like this just go to show how little acceptance there still is for behavioral economics data in mainstream policy making. Just a few years ago data from lab experiments was not widely accepted because people were unsure if it was relevant to how people act in the real world. Countless times the effectiveness of lab experiments has been proven. I am looking forward to the day when people finally accept that traditional economic models are not perfect (duh!) and that people are not perfect, rational, decision making robots.

mritun 13y ago

This is just mind boggling. This article is another piece that shows that economists are behaving like evil... pure evil! Leave aside experiments on humans and animals, these guys are basically experimenting with families and entire nations just for fun of gathering more "data" for theories they can confirm or deny by just asking people in the streets. Kind of makes me help understand why Indian politicians were such staunchly opposed to recommendations of IMF and their group of economists all along. Those rich idiots don't know how 99% of the world functions.

code_duck 13y ago
They're not evil, merely really, really bad at their jobs. They seem to believe they're doing the right thing.

jonnathanson 13y ago

Apropos of nothing: that is the weirdest stock photo I've seen in months, the caption underneath it is asinine, and the guy on the left sort of looks like Matt Damon. Apropos of the article: the headline is really making hay out of a tangential point. Sure, the "poor vs. rich" angle gets more clicks and inbound links. But the real point -- which is a huge one, as far as the field of economics is concerned -- is that the "rational (and by implication, homogeneously rational) actor" presumption is under fire. It's been under fire before because people have been shown, time and again, to behave economically irrationally. But this time it's under fire because people have been shown to react heterogeneously to the same stimuli and incentives. (Not really touched upon in the article, but also worth mentioning: a third major critique in recent years has been the revelation that classical economics was highly skewed by the idiosyncrasies of the Western cultures in which it was cultivated and codified. It turns out that not everyone around the world behaves like 19th-20th Century Austrians, Britons, or Americans.) All of this is huge, I repeat, because pretty much every foundational theory in classical economics is predicated on homogeneity and rationality. Every single one. The entire field. Even a preponderance of modern economics is undergirded by flawed assumptions borrowed from classical models. I, for one, am really excited by the modernist, behaviorist, relativist, empiricist and frequentist challenges to classical economics. This is sort of like seeing a paradigm shift in a highly influential field of study play out in something resembling real time. Economics has always been based on statistics -- even highly sophisticated statistics -- but the inputs, so to speak, have been pretty unsophisticated. These challenges will help drag economics into the 21st century.

ilaksh 13y ago
That sounds like a good start, but I think you have to go much farther. Unless an economic model takes into account holistic human and ecological outcomes, its not relevant. You need to integrate physical science, psychology, and other real sciences and measurements. And then measure things like inequality and overall human well-being. Then make a serious effort to maximize human and ecological well-being. If I were an expert in how bubbles formed in water and spent all of my time thinking of ways to maximize bubble growth by sucking gases out of the water in a tank, I would be good at creating aquariums with large bubbles, but probably end up with a lot dead or sick fish.

dschiptsov 13y ago

Oh, god, they finally discovered that people live possessed by emotions, are ignorant, and that the model of a rational agent optimizing its payoff is just disconnected from reality nonsense?) There are huge cultural differences also. Russians are spending enormous amount of money on their mistresses using easy bank credit they barely able to pay back, while Cambodians are buying Lexus cars while living in wooden shacks, etc. While so-called poor people (read proles - ignorant working class with very restricted, repetitive behavior) are much more prone to the peer and the bandwagon effects and much more concerned about "equality" and conformity, no oversimplified economic model could capture a complex and volatile behavior even of a primitive drunk. My guess is that so-called "behavioral economics" and "behavior finance" are attempts to make more realistic and useful models, together with an important notion that the whole system is extremely dynamic, volatile and constantly changing/evolving. Equilibriums are moving.

AnthonyMouse 13y ago

> Attempts to divine—or calculate—how fiscal decisions affect the economy rest on the “marginal propensity to consume,” the likelihood that if you put a dollar in someone’s hand, he will spend rather than save it. Why are economists always so hung up on the concept of saving vs. spending, as though one is inherently better than the other? Spending is good because it stimulates the economy -- if 1000 instances of Joe buy some new clothes then the clothing retailers can hire some new sales staff. Investing is good because it stimulates the economy -- if 1000 instances of Joe buy a share of stock then the availability of capital to create new small businesses increases and new small businesses create jobs. It isn't about spending vs. saving, it's about whether the money goes to something productive or efficient or it goes to something harmful or inefficient. If a rich person gets more money and invests in small businesses, that's good. If a rich person gets more money and uses it to hoard precious metals, that's bad. If a poor person gets more money and uses it to buy books and go to college, that's good. If a poor person gets more money and uses it to buy cigarettes or to secure credit to buy an inefficient luxury SUV, that's bad. It's not about saving vs. consumption. Unless someone is just stuffing cash into a mattress (which is bad and also stupid), "saving" is just consumption of investments, which is consumption by proxy when the invested-in entity spends the money. The question is whether the thing ultimately consumed is more beneficial than the alternative -- which is a question I can certainly see why economists like to avoid, because you practically can't answer it in the aggregate. Here's a great example. The hypothesis is that rich people spend differently than poor people because they're rich, right? The fact that they have money allows them to act rationally because they can afford to make long-term investments. So, if the hypothesis is correct, lottery winners should behave like rich people, because their newfound wealth allows them to plan for the long term and stop making short term decisions just to keep food on the table. Reality? A majority of lottery winners go on to declare bankruptcy. Because it's not about rich vs. poor. It's about what types of economic activity produce beneficial results. But economists and governments are preposterously bad at predicting what those things will be. Which means I'm going to be back in here beating the drum on the basic income. It provides the poor with a baseline level of consumption which they can choose of their own free will. The problem with need-based programs is that the government is deciding what people need, and they're terrible at it -- and then they create an enormous marginal tax rate on the poor by withdrawing the benefits from anyone who dares to live the life of luxury that exists just above the poverty line. Let the people themselves decide what they need. People in the aggregate are smarter than legislators.

guelo 13y ago

> For example, Olivier Blanchard, now chief economist of the IMF, wrote in 1990 that when a government tightens its belt to reduce deficits, households might start spending, relieved that the problem is being handled and there won’t be an even bigger readjustment in the future. It is astounding to think that changing your personal spending based on what happens in DC is supposed to be the "rational" behavior. These are not economists, they are radical political ideologues dressed in pretend academic clothing.

yetanotherphd 13y ago
The idea is that people will anticipate that because the government is reducing deficits now, it will have less fiscal problems in the future, and therefore the individual will be less likely to be affected by higher taxes in the future or a greater fiscal crisis in the future. The individual doesn't have to deduce this themself. The information could come second or third hand through a variety of channels.

diminoten 13y ago

Well yeah, people are different, this is blatantly obvious. But gravity isn't 9.81m/s^2 either[0]. And the speed of light isn't "c" (299,792,458 m/s) or even constant at all[1]. But these "wrong" facts are useful when creating predictive models of our universe. That's all this is - a "wrong" fact used to help simplify a model. Turns out the representative agent might be an oversimplification, but so are G (9.81 m/s^2) and c (299,792,458 m/s), depending on what you're doing. In a "science" (science is a methodology and lies a spectrum, and is not a dogma, so let's try to keep some perspective) where you don't really have a "lab", all you can do is create predictive models that fit your observational data. Technology of the past 10 years brings more data, and lets economics move away from the representative agent of the past 100 years. Good. Let's do that, but let's not forget whose shoulders we sit on - no one mocks the orbital model of the atom, or Newtonian laws of physics, even though both models are outdated [2][3]. [0] - http://curious.astro.cornell.edu/question.php?number=465 [1] - http://arxiv.org/abs/astro-ph/0305457 [2] - http://spiff.rit.edu/classes/phys314/lectures/bohrprob/bohrprob.html [3] - http://en.wikipedia.org/wiki/Classical_mechanics#Limits_of_validity

known 13y ago

To alleviate http://en.wikipedia.org/wiki/Global_poverty http://en.wikipedia.org/wiki/Global_poverty every https://en.m.wikipedia.org/wiki/Third_world https://en.m.wikipedia.org/wiki/Third_world nation Currency should be pegged to https://en.m.wikipedia.org/wiki/Opec https://en.m.wikipedia.org/wiki/Opec Oil for 4 years due to https://en.m.wikipedia.org/wiki/Triffin_dilemma https://en.m.wikipedia.org/wiki/Triffin_dilemma

known 13y ago

How Poverty Taxes the Brain http://m.theatlanticcities.com/jobs-and-economy/2013/08/how-poverty-taxes-brain/6716/ http://m.theatlanticcities.com/jobs-and-economy/2013/08/how-...

antihero 13y ago

It took them this long to figure this out? Do these academics actually know any poor people?

72deluxe 13y ago

Yes! They spend less (as they have less to spend!) :-)