Poor

According to the article I’m about to link to:

“… the poor are disproportionately likely to drop out of school, to have children while in their teens, to abuse drugs, to commit crimes, to not save when extra money comes their way, to not work.”

In other words, they seem to be likely to behave in ways that will keep them poor.

And many people say that’s precisely why we shouldn’t increase welfare (even if they believe that it’s the government’s job to relieve people of poverty). They believe that handing out cash just reinforces bad behavior.

But there’s a new theory in town, and though data is slight, it tries to explain why poor people don’t do more to be less poor, and it points to a way to break the cycle.

For one thing, is it possible that giving people money makes them more likely to work and save and make good decisions?

Maybe. If you give them enough. At least, that’s what Charles Karelis thinks.

THE BASIC IDEA:

Poor people have so many difficulties that the promise of a bit of money isn’t enough to get them to change their lives. They’d have to work really hard just to still be in money trouble. Some people still break out, but we shouldn’t be surprised that most don’t. The incentive to be slightly less in debt isn’t much of a motivator.

Karelis believes that if they had more money to begin with, then they’d be more likely to work for the rest, because “the rest” could really get them in the clear.

He compares it to having dents in your car. If you had one dent, it would mean more to you to get it fixed than if you had 10 dents and could only fix one.

So he suggests that IF governments believe that it’s their job to relieve poverty, they should give more money to the poor and stop worrying about the strings attached.

In short, the government would fix most of the dents. Then, the poor people would work harder to fix the rest.

Boston.com has an article on this subject. (which I got from aldaily’s Nota Bene section.)

The Critique:

Ok, I haven’t read the book. I’ve only read the article. I have one simple point, then a more complicated tweak to his presentation.

Point: We need data. There’s no point saying that it sounds really true (which is basically what he says). There needs to be a fact or two showing us that it is. Maybe it’s there in his book, though I think the book is more of a presentation of the theory as a starting point. So let’s get numbers.

Complicated tweak: Karelis seems to think that rich people see the accrual of money as an increaser of joy, while poor people see it as a reliever of pain. And he says that people respond differently to “reliever” incentives than they do to “increaser” incentives.

I’d say that it’s simpler than that. I’d say that there’s only one scale. Here goes:

Let’s say that the baseline is zero. When you’re at zero, everything’s fine.

I’d say that movement toward or away from that baseline means more to us when we’re closer to it. As we move away (up or down), each new step is less and less meaningful.

Your ability to buy your first car with cash is much more exciting than your ability to add that fifteenth car to the stable (I assume). And I bet that a bill you can’t pay means more to you than one unpaid bill among a dozen.

Put a slightly different way, when zero is far away, a new step toward it (or away from it) is less interesting.

Poor people are far below the baseline. To put this into Karelis’s theory: they could work really hard without getting much closer to zero, and not working hard only drops them a bit. When you’re far from the baseline, neither a step toward or away inspires much passion.

But if they could be handed cash to the point of only being a step or two from the baseline, then it’s much more interesting to get there and much more painful to sink. Suddenly, they’re back to having only one bill they can’t pay.

6 Responses to Poor

  1. Kevin April 3, 2008 at 10:22 pm #

    So how do we explain all the poor people who win the lottery and are poor again within a few years? I don’t know that there are statistics on this, but I have read enough stories of this (MSN had a big one a while back) that it seems to be more than just anecdote.

  2. weeklyrob April 4, 2008 at 6:26 am #

    I could come up with some guesses, but my first guess would be that there haven’t been enough of those kinds of people to make up a statistically significant group.

    But I’d like to know HOW they lose it. Is it just bad money management? And is it always poor people, or do middle-class people find that the same thing happens to them?

  3. Kevin April 4, 2008 at 8:10 am #

    I don’t know, either, but I have the same questions. I also wonder about “unearned” wealth versus “earned” wealth. I put the words in quotes, because I think the difference is very subjective. It seems to me (absolutely no data here) that a lot of people have trouble with money when they feel it is “unearned”. That includes celebrities (pop singers / actors), lottery winners, scions of wealth, etc. In some cases the money really is unearned, and in some cases the individual may just feel that way (they got lucky). And it seems to mess them up.

    So, since we’re operating in a data-free argument zone (my favorite kind, but we need alcohol and pizza to make it really work) then, if we’re going to try and redistribute some wealth to eliminate poverty, we need to consider a way to make that money “earned” money.

  4. JB April 4, 2008 at 12:52 pm #

    I suspect that there’s two parts to this “solution”– one part is getting the person closer to zero, the other is giving him the knowledge to take the last couple of steps.

    It’s like on “the Wire”, where the people in the neighborhood just have no idea how to get out of the ghetto. They don’t even know where to start, and when the drug kingpin cashes out and is just plopped into “legitimate” society, he’s lost and soon finds his way back to more comfortable ground– on the corner intimidating the other drug dealers.

  5. Kevin April 4, 2008 at 1:14 pm #

    In the immortal words of Michael Corleone: “Just when I thought I was out… they pull me back in.”

  6. weeklyrob April 4, 2008 at 4:42 pm #

    I wonder whether a ton of money could just cause its own problems to certain people. I’d guess it’s the amount that makes the problem. The sudden feeling that you can’t go wrong and no one can stop you.

    Then again, I’d also think that there’d be a lot more people who were born with money (or had it thrust upon them) who didn’t screw it all up than those who did. We just don’t hear about the normal cases.

    It’s different, I’d guess, from people given enough money to get of debt, let’s say, but not enough to move to a mansion across the tracks.

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