Why the Poor Fail

Eli, industrious bunny that his is was following some chicken tracks today when he wandered across Tim Worstall's blog.  Tim is one of those Galt in their own mind types and his boyz are of the same ilk. The topic was income inequality and Tim is for it.  From his point of view he earned his.  Fair enough, but there is an important subtext which is captured in two of the comments

• Dennis The Peasant // Feb 3, 2013 at 5:39 pm
  What people like Reich fail to see is this:
  Much inequality results not because of the violence inhernet in the system, but because people make extremely poor life choices.
  And that ain’t our problem.
• Martin Davies // Feb 3, 2013 at 9:45 pm
  If you chucked money at people making poor life choices, they’d still make poor life choices.Lost count of the number of times I’ve been told so and so has had a hard life. So for some reason they decided not to make a change then?
  Put a free opportunity in front of a hundred people and you won’t have all of them choosing to use it.

The question, of course, is why do the poor make bad choices, and Eli's visceral point of view was set by where he grew up but intellectually it was captured by George Orwell in the Road to Wigan Pier

Now compare this list with the unemployed miner’s budget that I gave earlier. The miner’s family spend only tenpence a week on green vegetables and tenpence half-penny on milk (remember that one of them is a child less than three years old), and nothing on fruit; but they spend one and nine on sugar (about eight pounds of sugar, that is) and a shilling on tea. The half-crown spent on meat might represent a small joint and the materials for a stew; probably as often as not it would represent four or five tins of bully beef. The basis of their diet, therefore, is white bread and margarine, corned beef, sugared tea, and potatoes–an appalling diet. Would it not be better if they spent more money on wholesome things like oranges and wholemeal bread or if they even, like the writer of the letter to the New Statesman, saved on fuel and ate their carrots raw? Yes, it would, but the point is that no ordinary human being is ever going to do such a thing. The ordinary human being would sooner starve than live on brown bread and raw carrots. And the peculiar evil is this, that the less money you have, the less inclined you feel to spend it on wholesome food  A millionairemay enjoy breakfasting off orange juice and Ryvita biscuits; an unemployed man doesn’t. Here the tendency of which I spoke at the end of the last chapter comes into play. When you are unemployed, which is to say when you are underfed, harassed, bored, and miserable , you don’t want to eat dull wholesome food. You want something a little bit ‘tasty’. There is always some cheaply pleasant thing to tempt you. Let’s have three pennorthof chips! Run out and buy us a twopenny ice-cream! Put the kettle on and we’ll all have a nice cup of tea! That is how your mind works when you are at the P.A.C. level. White bread-and-marg and sugared tea don’t nourish you to any extent, but they are nicer (at least most people think so) than brown bread-and-dripping and cold water. Unemployment is an endless misery that has got to be constantly palliated, and especially with tea, the English-man’s opium. A cup of tea or even an aspirin is much better as a temporary stimulant than a crust of brown bread.

There is much truth in this but it turns out that it is a middle class simplification of something much deeper rooted.  Anuj K. Shah, Sendhil Mullainathan, and  Eldar Shafir from the Booth School of Business at the University of Chicago published the results of a series of experiments in Science last November, investigating "Some Consequences of Having Too Little."  What are they.  We know what the problem is

The poor often behave in ways that reinforce poverty. For instance, low-income individuals often play lotteries, fail to enroll in assistance programs, save too little, and borrow too much. 

There are two general frames for this behavior, the first we could call progressive and Robert Reich almost certainly signs onto that

The first focuses on the circumstances of poverty, such as education (6), health (7), living conditions (8), political representation (9), and numerous demographic and geographic variables (10, 11). Put simply, the poor live in environments (for sociological, political, economic, or other reasons) that promote these behaviors.

Basically it is all of our faults and as Orwell points out being poor sucks so let's have a sweet.  The second is that of Tim Worstall and Dennis the Phesant and Martin Davis, it is the fault of the poor for making bad choices and their poverty is their own choice.

Shah and colleagues have a different point of view

When money is abundant, basic expenses (e.g., groceries, rent) are handled easily as they arise. These expenses come and go, rarely requiring attention and hardly lingering on the mind. But when money is scarce, expenses are not easily met. Instead of appearing mundane, they feel urgent. The very lack of available resources makes each expense more insistent and more pressing. A trip to the grocery store looms larger, and this month’s rent constantly seizes our attention. Because these problems feel bigger and capture our attention, we engage more deeply in solving them. This is our theory’s core mechanism: Having less elicits greater focus.

This is actually a general principal that applies not only to the poor, but to those for whom any resource, for example time, is scarce

And this hypothesis is about scarcity more generally, not just poverty. Indeed, just as expenses capture the attention of the poor, researchers have found that people who are hungry and thirsty focus more on food- and drink-related cues Likewise, the busy (facing time scarcity) respond to deadlines with greater focus on the task at hand.  Across many contexts, we see a similar psychology. People focus on problems where scarcity is most salient.

The pressing need to get through today leads to the neglect of tomorrow and the disasters that follow.

Because scarcity elicits greater engagement in some problems, it leads to neglect of others. While focusing on the groceries from week to week,we might neglect next month’s rent.While consumed with meeting tomorrow’s manuscript deadline, we might fail to prepare next week’s lecture. Attentional neglect appears in many domains. Low-income homeowners often do not attend to regular home maintenance while they focus on more pressing expenses. Neglected, these small repairs become major projects. 

This hypothesis provides a simple explanation of why the poor fall into the toils of the pay day lenders

Attentional neglect can explain another particularly striking behavior: why low-income individuals take short-term, high-interest loans, with interest rates that can approach 800%. These loans make it easier to meet today’s needs, but the loans’ deferred costs make it difficult to meet future expenses. If scarcity creates a focus on pressing expenses today, then attention will go to a loan’s benefits but not its costs. This suggests a clear prediction: Scarcity, of any kind, will create a tendency to borrow, with insufficient  attention to whether the benefits outweigh the costs.

 But cast in that frame we see ourselves

Consistent with this prediction, the busy also borrow. Facing tight budgets (i.e., deadlines), they borrow time by taking extensions. Like the poor, the busy often take extensions because they focus on urgent tasks, but neglect important tasks that seem less pressing. We suggest that both forms of borrowing stem from how scarcity shifts attention.

So if the poor are not morally deficient, the question remains what to do to help them.  Shah, et al.,  think that pointing out to people what their future needs are will help.  They are at the business school at the University of Chicago after all.  Eli demurs, remember that colleague who recommended you start working on that paper, grant recommendation, etc a few months ago.  You know she was right, you also know that you ignored her.  A straightforward reading of Shah, et al., is that the most effective method of dealing with poverty is to give the poor money.  This will break the heads of Dennis Martin and Tim, but, at least on the first level it is the answer that science provides.  Giving people a job without removing the stresses associated with poverty will not work because they will neglect their work under the pressure of their other problems.  One needs to provide the poor the space they need to devote the necessary energy to their work and lives.

Shah et al imply that the US welfare reforms of the 1990s were doomed.

UPDATE:  The Orwellian 1996 Personal Responsibility and Work Opportunity Reconciliation Act has had little effect on poverty in the US, which continues to scale with the economy.  What has happened is that other mechanisms (e.g. food stamps and unemployment) have taken the place of cash payments.