Framing poverty

Mark Thoma had a recent post that got me thinking about how people see the issue of poverty.  But first a quick story.

When I was young my dad had a very tiny general store.  (I worked there when I was 2 years old, and have a picture to prove it.)  Once he tried to give away some toys and games to charity.  Toys that were slightly defective, like Monopoly games missing a few pieces.  The charity wouldn’t take those gifts.  They said it could cause psychological damage to the children if they had to play with inferior toys.  My dad would roll his eyes when he told this story.  So he ended up giving these toys to us kids for Christmas.  (Please, no jokes about “that explains why Sumner . . . “)

He had lots of stories that probably sound a bit reactionary today.  He once said he could never be unemployed.  He’d said he’d take a pencil and go door to door selling it.  When he sold it he’d buy two pencils and go door-to-door selling those.  Don’t think he could pull it off?  He was much more charming and outgoing than me.  When the banks were closed in 1933 his father (a college prof at Wisconsin) couldn’t get at his money.  My dad went upstairs and came down with several hundred dollars he had saved up.  He had earned the money wheeling and dealing things like bicycles and scrap metal.  He was 11 years old, and that was a lot of money for a kid to have saved up in March, 1933.

Now that I’ve convinced you that he was a reactionary with no sympathy for the poor, you might also be interested in knowing that he was actually a liberal and a strong supporter of civil rights his whole life.  He was an FDR Democrat who hated prohibition and favored welfare and easy money.  He knew his unemployment anecdote didn’t apply to most workers.  He didn’t change, the world changed around him between the 1930s and the 60s.  That picky charity’s attitude would have been viewed as absurd in the Depression years.

I’m starting to feel like that as well.  Imagine my reaction when I read this from a Mark Thoma post:

It’s true people don’t literally starve on the streets anymore, but is that our goal as a society? I think a relative standard that says that people who, because of their incomes, cannot participate fully in society are poor. A child getting enough to eat, and with clothes to wear, who cannot afford the toys needed to be part of the group of kids in the neighborhood is socially isolated and socially disadvantaged (we don’t want to play at your house because you don’t have a TV, you can’t come with us because you don’t have a bike, you didn’t get my text message about baseball practice being moved?, etc., etc., etc.). Giving people, children in particular, what they need to participate in the society around them is an important element of how successful they will be in the future. It helps to determine their ability to give back to society as fully participating adults.

I don’t even have a cell phone.  Or how about this (Thoma quoting Jamelle Bouie):

With microwaves, air conditioning and cell phones, it’s clear that poor people aren’t nearly as poor as we think they are! I mean, it’s not as if poverty is concentrated in the nation’s two warmest regions “” the South and the West “” where air conditioning is a necessity, and it’s not as if cell phones are a cheaper alternative to landlines, and critical to navigating the world of low-wage service jobs.

Air conditioning is a necessity!?!  Nobody in the South had air conditioning during the first 150 years of the country.  Should we feel sorry for upper middle class Southerners who in 1925 lacked AC?  So that’s my gut reaction.  I am getting to be a reactionary.

By now you are thinking you have me pegged.  You always knew I was a right-winger, so these views are no surprise.

But just as with my dad, you may have jumped to the wrong conclusion.  My reactionary gut instincts have zero impact on my policy views.  When I sit around the table with a bunch of liberal college professors, I am often the most liberal in my attitudes toward today’s students.  They mock all the luxuries of today’s college students, like spa services in dorms.  And my gut instinct is the same.  But my response is; why shouldn’t today’s students have it easier than we did?  We are a much more affluent country today than in the 1970s.  We grew up in smaller homes with one or one and a half baths; they grow up in McMansions with 5 bedrooms and 4 baths.  They have their own cars in college.  They don’t want to live in a little dorm cubicle, they want a nice apartment.  So in a way I agree with Mark Thoma and Jamelle Bouie.  I may even have pretty similar values (assuming they favor income redistribution for utilitarian reasons.)

It seems to me that there are lots of binaries in the framing of poverty:

Past vs. present:  What’s the appropriate benchmark; how thing used to be, or how the middle class lives today?

American vs. South Asian poor:  Vastly different living standards, but what does that mean?

Relative vs. absolute poverty:  This is closely related to the previous distinctions.  In absolute terms, the living standard of America’s poor has improved.  In relative terms it may not have.   Income has become less equal.  Consumption inequality seems more stable, but it’s hard to get figures everyone agrees on.

Migrants vs. the native-born:  Do we have less obligation toward those who came here from even poorer countries, as compared to the native-born poor?

Deserving vs. undeserving poor:  This is one of the most emotional issues, where there is a clear split between liberals and conservatives.  Here are a couple examples of how people think about poor people:

From the Daily Mail:

He became the self-proclaimed king of the chavs after turning up to collect his £9.7 million lottery win wearing an electronic offender’s tag.

But eight years on, having blown all that money, Michael Carroll is practising for a return to his old job as a binman.

The 26-year-old, who squandered his multi-million fortune on drugs, gambling and thousands of prostitutes, has since February claimed £42 a week in jobseeker’s allowance.

And this is from the NYT:

MEMPHIS “” For two decades, Tyrone Banks was one of many African-Americans who saw his economic prospects brightening in this Mississippi River city.

A single father, he worked for FedEx and also as a custodian, built a handsome brick home, had a retirement account and put his eldest daughter through college.

Then the Great Recession rolled in like a fog bank. He refinanced his mortgage at a rate that adjusted sharply upward, and afterward he lost one of his jobs. Now Mr. Banks faces bankruptcy and foreclosure.

“I’m going to tell you the deal, plain-spoken: I’m a black man from the projects and I clean toilets and mop up for a living,” said Mr. Banks, a trim man who looks at least a decade younger than his 50 years. “I’m proud of what I’ve accomplished. But my whole life is backfiring.”

So which view is right?  I think they are both right, and both wrong.  The NYT is clearly the much more respectable paper.  And the example of a lottery winner that ends up poor is obviously extremely rare.  So that favors the NYT.  On the other hand the NYT tends to be politically correct, and most of their readers are too affluent to know many poor people.  During my life I’ve found that the periods where my income was fairly low, I tended to know many more low income people.  And I met lots of people in that category who had “issues.”  So in one sense I agree with the Robert Samuelson column that Thoma finds so distasteful:

Who is poor in America? This is not an easy question to answer, and the Obama administration would make it harder. It’s hard because there’s no conclusive definition of poverty. Low income matters, though how low is unclear. Poverty is also a mind-set that fosters self-defeating behavior — bad work habits, family breakdown, out-of-wedlock births and addictions. Finally, poverty results from lousy luck: accidents, job losses, disability.

Surely there are lots of people with what is viewed as “bad luck” and lots of others who seem to have made “bad decisions.”  On the other hand from a philosophical perspective (whatever that means) I don’t see how this distinction is defensible.  Consider that lottery winner.  How did he end up like that?  At age 2 did he stand up in his crib, use his “free will” to decide “I’m going to head down the road to being a pathetic loser?”  I rather doubt it.

If categories like “deserving” and “undeserving” are to be defended, in my view they must be defended on utilitarian grounds.  I.e., conservatives might argue that they are “useful fictions” that encourage people to shape up.  I guess society is free to think about these issues as they wish.    But in terms of public policy, I’d rather just focus on utility maximization.  How do we do that?  I have already made some suggestions such as a welfare state that combines low taxes, forced saving, and meaningful subsidies for the poor.  I won’t argue that it solves all the dilemmas associated with the deserving/undeserving distinction.  For instance, there is the issue of what sort of distinction is too be made between able-bodied people who aren’t working, and the disabled.  I don’t have any good answers.  But I think it’s a start, and it reduces the amount of framing that we need to do.

Conservatives tend to look down on the poor.  Liberals are more inclined to romanticize the poor.  Neither attitude helps in coming up with sensible public policy solutions.  Liberals are right that we need some empathy in order to become motivated to address the issue.  But once we get to the stage of drawing up legislation, we are better off thinking about the issue with as little emotion as possible.  I saw Samuelson taking a clear-headed and reasonable look at a technical issue—how to measure poverty.  Thoma thought he was exhibiting a lack of compassion for the poor.  The more blogging I do, the more I realize that people see very different things when they read a post.

PS.  The NYT story is why I feel so passionate about the unemployment problem.  The cost of this recession in terms of human suffering is immense.  Just consider the effect of using monetary policy to raise the inflation rate from 1% to 2%.  That would make inflation more stable, which is one of the Fed’s goals.  And if the SRAS is fairly flat right now, it would put millions of people back to work.  That’s a win-win.  That’s a massive free lunch just waiting to be exploited.  Think of all the people in situations like that black guy in Memphis.   And we aren’t even lifting a finger to make it happen.

(That’s me being emotional in trying to get others to see that we need to address the problem.)

HT:  Tyler Cowen

Update:  I am getting a lot of conservative/libertarian commenters who misunderstood my point.  Just to be clear:

1.  I don’t view losing one’s house as a tragedy.  I lived much of my adult life in an apartment.

2.  I don’t think the government should help low income people get houses (or any other good except health care and education.)

3.  I thought the tragedy in the Memphis story was the loss of the job.

4.  I don’t support our current welfare state, although it is marginally better than 20 years ago.  I support wage subsidies for low wage adult workers.

5.  Yeah, I can tell stories too.  I worked and borrowed my way through college and grad school, with virtually no financial aid.  For eight years I ate hot dogs and generic macaroni and cheese.  And absolutely nobody cares, nor should they.

6.  It’s only a matter of time before liberals write in and say how insensitive I am to the poor.  People get very emotional about these issues.



35 Responses to “Framing poverty”

  1. Gravatar of wcw wcw
    7. June 2010 at 05:55

    > That’s a massive free lunch just waiting to be exploited.

    Yep, and good for you for saying so. A real capitalist cares.

  2. Gravatar of Morgan Warstler Morgan Warstler
    7. June 2010 at 05:55

    “He refinanced his mortgage at a rate that adjusted sharply upward, and afterward he lost one of his jobs. Now Mr. Banks faces bankruptcy and foreclosure.”

    This is the story of why you feel we must wipe out the savings of the ones who saved?

    Poverty is not relative: once people have a certain amount of living space, cell phones, AC, food, etc. the moral argument to provide for them outside the boundaries of the free market ends.

    The reasoning is clear: we aren’t sure that unadulterated capitalism, the kind done without a strong government for rent seekers to leverage wouldn’t be better for the poor right now.

    Certainly we know that ONLY TECHNOLOGY solves for these people’s lives. There is no benefit you’ll name that doesn’t get cheaper in a unfettered technology based free market.

    And so we derive the rule: only interfere with the fountain of good things that free market invention provides, enough to ensure that the least amongst us are not suffering…. then make cool stuff cheaper for them to buy.

    A man can work for 4 hours today and buy a box that cooks his food for 10 years.

    That’s all you need to know.

  3. Gravatar of scott sumner scott sumner
    7. June 2010 at 06:24

    Thanks wcw.

    Morgan. The point wasn’t to bail this guy out from his mortgage, but to help him get a new job.

    I am a utilitarian, so I think relative poverty does matter. On the other hand I agree with those on the right who say that poverty is a much less severe problem than in years past (or than in other countries.)

  4. Gravatar of Morgan Warstler Morgan Warstler
    7. June 2010 at 07:21

    He lost one of his jobs. He’ll find another job.

    The issue in the article is he’s losing his house.

    Why does relative poverty matter? And certainly not to a utilitarian.

    Again, ALL gains happen through free market technology invention / innovation, so a utilitarian does as I suggested.

    You aren’t very specific.

  5. Gravatar of Christopher Hylarides Christopher Hylarides
    7. June 2010 at 07:26

    “And the example of a lottery winner that ends up poor is obviously extremely rare.”

    Google “lottery horror stories”. Blowing winnings is very common especially as most lottery winners tend to be from the lower classes that don’t know how to properly manage money.

    Anyways, I do believe that the analogy “a rising tide lifts all boats”. Even in Dickensonian times the working classes were much better off in the factories than they were in the fields in serfdom just a couple of decades before. Child labour was common because it was needed for families to survive right up until before the Industrial Revolution. It was only the rising affluence that made people question the need for children to work. After all the surplus labour from the migration from farming was mostly complete, living standards starting shooting up. This benefited the poor as well.

    The same thing is happening in China right now (minus the child labour in factories). In fact, recently the factories are having to deal with the previously alien concept of paying their workers a lot more as there’s no longer an infinite labour supply to draw from anymore. I might add, this is despite Unions being almost nonexistent in China.

    As for relative poverty, I’m skeptical of anything being done that doesn’t destroy that very rising tide that benefits everybody.

  6. Gravatar of david david
    7. June 2010 at 07:26

    Random trivia: Lee Kuan Yew described the air conditioner as mankind’s greatest invention, due to the great productivity boosts it made possible in warmer climates. In its absence, people take afternoon naps. I presume he was joking somewhat, but he does have a point.

    I suppose it’s a kind of downward nominal stickiness going on here; we don’t sympathize with the poor who have gotten used to the heat (unless the level of heat is beyond reasonable toleration). We do sympathize with the poor who aren’t used to working in the heat but suddenly cannot afford air conditioning. Adjustment presumably imposes large costs of its own.

    My suspicion is that modern market liberalism can be driven by libertarian economic principles wedded to a desire to reduce risk and adjustment costs – things which high-liquidity rich can generally diversify away. Which might additionally explain a curious amount of current sympathy for people who are rich but illiquid, e.g., upper-middle class with assets locked in real estate.

  7. Gravatar of silvermine silvermine
    7. June 2010 at 08:15

    I don’t own a house. WHy should you destroy my savings and tax me so I can’t do what I need to do in my life so he can have a house? How do you justify this? I’m a SAHM mom, who homeschools. I know that makes me weird. I have also done this *while* working a part time job (between 15 and 25 hours a week) at times to make ends meet. But, since I live in a bubble area (silicon valley) I can’t afford to buy a cardboard box, much less a real house.

    My tax money is paying other peoples’ mortgages just to price me further out of the market.

    Look, I’m fine with realizing that I’ve made choices — staying home with the kids, homeschooling, etc. and I may not be buying a house right now. It’s MY choice. So I’m paying other people’s school and child care. Now I have to pay other people health coverage and their mortgages?? At what point do I get to choose how to spend MY money??

  8. Gravatar of silvermine silvermine
    7. June 2010 at 08:17

    I wear shabby clothes, cook most of my meals… And yes, I grew up poor in a more affluent area. I lived. So will other people. It’s probably why I’m able to go through life not being crippled by jealousy over “unfairness”. If kids didn’t want to be my friend because I was poor, of course it hurt. But they wouldn’t have been real friends anyway.

  9. Gravatar of dWj dWj
    7. June 2010 at 08:43

    About the time my wife-to-be and I were moving into a home with a dishwasher (from apartments without dishwashers), I read that about 2/3 of the poor have dishwashers. “We’ve finally worked our way up to ‘poor’,” I told her.

  10. Gravatar of Brett Brett
    7. June 2010 at 09:07

    Having been one of the poorest kids in a middle-class to upper-middle class area, I can see where Mark Thoma is coming from on that. Being at the bottom of the economic totem pole really has a negative effect on how you see yourself, particularly if your nose gets rubbed in it.

  11. Gravatar of ssumner ssumner
    7. June 2010 at 09:08

    Check my update, I’ll respond more later.

  12. Gravatar of Lord Lord
    7. June 2010 at 09:56

    Remarkably well considered. They are difficult issues. The problem these days is too many are trying to sell pencils and finding out the costs are higher than the revenue.

  13. Gravatar of Jason Jason
    7. June 2010 at 11:04

    “Air conditioning is a necessity!?!”

    1. I pulled out my manual for my computer I am using now: operating temperature = 50 to 95 F, humidity = 20 to 80%. That puts about 1/3 of the day for about 1/2 the year out in Houston where I grew up if there wasn’t AC. That’s a 17% hit in productivity.

    2. Preventing heat stroke requires you to drink about a cup of water every 15 minutes (and not too fast). So unless you devise a system for administering water, let’s say 1 of those minutes on average getting and consuming water. That’s a 7% hit in productivity.

    3. My Dad told me a stories about when he worked as a geologist in the 70s. Even though they had AC, they had to wear special sleeves to prevent sweat from messing up the maps in the summer.

    4. My dorm in Austin didn’t have AC. Although anecdotal, it sure was hard to study come finals in May. I would move to one of the air conditioned libraries.

    5. This is a review of the effects of high ambient temperature on test performance (from 1965, it is the first one I found):

    6. There is a reason for the siesta …

    Altogether, I would venture to make the bold claim that the improvement in the economy of the Southern US after the 1960s may almost entirely be due to AC (as well as the entrance of African Americans into the job market proper).

    Growing up in Houston, I can assure you there was little there before AC started to arrive in the 1960s.

    Actually, a direct quote from wikipedia:

    “In 1950, the availability of air conditioning provided impetus for many companies to relocate to Houston resulting in an economic boom and producing a key shift in the city’s economy toward the energy sector.”

  14. Gravatar of Tyler Cowen Tyler Cowen
    7. June 2010 at 11:40

    For many years I didn’t turn on my air conditioner (now my wife makes me) and that was living in Virginia.

  15. Gravatar of Morgan Warstler Morgan Warstler
    7. June 2010 at 11:54

    Actually, I assume the refrigerator did more than A/C – at least for women. It coincided nicely with them getting organized to vote.


    I’d really like to see you get into Government Productivity. Start playing around with 5% gains annually, see where it gets ya.

  16. Gravatar of rob rob
    7. June 2010 at 14:15

    Off topic but not entirely: why has the econ blogosphere been so quiet on our drug policy and the escalating violence in Mexico? Sometimes you hear a libertarian say in passing that they favor drug legalization, but why is nobody pounding their fists on this issue, considering a lot of human suffering is at stake? Sure, legalizing drugs is a political non-starter here (now), but as long as nobody says much it will remain a non-starter for that much longer. Perhaps if economists say more now it will be received wisdom by the time they are defunct. Seems it would be timely to talk about since Mexico is in near civil war.

  17. Gravatar of rob rob
    7. June 2010 at 14:22

    Moreover, the issue of drug violence on the Mexican border has been brought into the immigration debate (despite the violence remaining on the other side of the border), yet our drug policy rarely gets mentioned as part of the story.

  18. Gravatar of OGT OGT
    7. June 2010 at 14:28

    Good post. I agree with it almost completely. Even if I probably reach somewhat different conclusions about the relevant policy implications dealing with poverty.

  19. Gravatar of Philo Philo
    7. June 2010 at 20:18

    You write: “I have already made some suggestions such as a welfare state that combines low taxes, forced saving, and meaningful subsidies for the poor.” While you’re making suggestions, why not suggest to people, at least to the improvident ones, that they save without being forced to? Why not suggest to poor people that they behave differently so as to acquire wealth, and thus not need subsidies? (I’m not even asking for detailed programs tailored to the circumstances of each individual, though providing those would obviously be better than just giving poor people the broad, general advice. By the way, almost all middle-class and wealthy people could be doing *even better*; why not suggest to them that they do so?)

    Instead you confine your suggestions to . . . whom, exactly? To the voters in general? To all opinion leaders? To thoughtful right-wingers? Whatever the answer, I do not understand why you are addressing just this particular group, nor do I understand why you confine your topics to broad matters of public policy, to “political” programs (alas, somewhat lacking in detail). Of course, it isn’t just you; I don’t understand what policy wonks in general think they are doing.

    I suspect there is some sort of collectivist thinking lurking here, which frames the policy question as: If “society” were really an *agent*, what should it do? You, and policy advocates in general, are addressing “society” as if it were a super-person. But this seems quite misguided and futile. Admittedly, addressing particular individuals would be laborious and tiresome; but *they* are the real agents.

    If you have any suggestions for *me*, please let me have them.

  20. Gravatar of Morgan Warstler Morgan Warstler
    7. June 2010 at 20:34

    I’d prefer we create a math formula that figures out how low taxes, forced saving, and meaningful subsidies are calculated year by year – and then give everyone a check.

    I’d be much less concerned with the “help people” policies, if they focused like a laser on small operating budgets.

    Somehow, I trust policies that limit the friction of agents. A good idea needs less operational overhead than a bad idea, by definition.

  21. Gravatar of Greg Ransom Greg Ransom
    7. June 2010 at 21:23

    More evidence that you aren’t a conservative — and don’t know any conservatives:

    “Conservatives tend to look down on the poor.”

    Leftists have a lot of very negative fantasies about conservatives — and it seems there isn’t one you don’t share.

    I know, I know, this is just the sort of conservatives you hang with in you part of the country.

    Be assured, there are other parts unlike the one you evidently live in.

  22. Gravatar of Jim Glass Jim Glass
    7. June 2010 at 21:45

    “the example of a lottery winner that ends up poor is obviously extremely rare.”

    Or not so obviously so rare.
    8 lottery winners who lost their millions.

    “Winning the lottery isn’t always what it’s cracked up to be,” says Evelyn Adams, who won the New Jersey lottery not just once, but twice (1985, 1986), to the tune of $5.4 million. Today the money is all gone and Adams lives in a trailer…

    William “Bud” Post won $16.2 million in the Pennsylvania lottery in 1988 but now lives on his Social Security. “I wish it never happened. It was totally a nightmare,” says Post.

    A former girlfriend successfully sued him for a share of his winnings … A brother was arrested for hiring a hit man to kill him, hoping to inherit a share of the winnings.

    Other siblings pestered him until he agreed to invest in a car business and a restaurant in Sarasota, Fla. — two ventures that brought no money back and further strained his relationship with his siblings.

    Post spent time in jail for firing a gun over the head of a bill collector. Within a year, he was $1 million in debt … He eventually declared bankruptcy. Now he lives quietly on $450 a month and food stamps…

    Suzanne Mullins won $4.2 million in the Virginia lottery in 1993. Now she’s deeply in debt to a company that lent her money using the winnings as collateral.

    She borrowed $197,746.15, which she agreed to pay back with her yearly checks from the Virginia lottery through 2006. When the rules changed allowing her to collect her winnings in a lump sum, she cashed in the remaining amount. But she stopped making payments on the loan…

    Missourian Janite Lee won $18 million in 1993. Lee was generous to a variety of causes, giving to politics, education and the community. According to published reports, eight years after winning, Lee had filed for bankruptcy with only $700 left in two bank accounts and no cash on hand…

    Ken Proxmire was a machinist when he won $1 million in the Michigan lottery. He moved to California and went into the car business with his brothers. Within five years, he had filed for bankruptcy.

    “He was just a poor boy who got lucky and wanted to take care of everybody,” explains Ken’s son Rick.

    “It was a hell of a good ride for three or four years, but now he lives more simply. There’s no more talk of owning a helicopter or riding in limos. We’re just everyday folk. Dad’s now back to work as a machinist,” says his son.

    Willie Hurt of Lansing, Mich., won $3.1 million in 1989. Two years later he was broke and charged with murder. His lawyer says Hurt spent his fortune on a divorce and crack cocaine…

  23. Gravatar of mbk mbk
    7. June 2010 at 23:37

    There is a lot of material out there on relative vs. absolute poverty. It is also the stuff the sometimes paradoxical poverty indexes are made of. I am not a specialist in that field either but I changed my mind on my views of what poverty is.

    My starting point was leaning towards the absolute definition too. But if you think about it, this is a very materialistic (engineering-type) view of what human “needs” are. In a way it is related to the Maslow hierarchy, where survival and food would come first, and comforts much later, in terms of “needs”. It ignores that people don’t exist in a vacuum, they exist in society. And society creates needs of two kinds, material and societal.

    On the material side even as an individual you have to keep up owning at least some factors of production and on the social side you need to keep your integration in the social fabric, position, or what you may call it. Both are essential needs in the sense that even the most ardent individualist libertarian can’t properly exist without a society around him that provides him with trading partners. For this to work he needs at least some transportation for instance, say a car, that he pays with money, that he needs to earn … by exchanging goods and services with society. He also needs to establish trust with society, say that he will pay his bills and the like. For this he needs to again make some expenses – bank account, decent clothing, participation to a minimal extent in the neighborhood etc.

    So as a result even if you are poor, the society you are embedded in requires you to engage a variety of acts of consumption. Some are literally material factors of production and should be counted as investments – this applies to the poor person in the US that owns time savers such as a car, fridge, A/C (in a hot climate) and maybe also a dishwasher. All of these are required to be minimally competitive in your productivity when you live in a society where your competitors, other poor folks, have these as well.

    And some consumption is related to position in society. I don’t mean here “keeping up with the Joneses” in a crude way, or in terms of status symbols that would put you at the top of the crop. Rather, I mean that people need to profess allegiance to their functional position in society and this comes with displaying a belonging to their societal strata, as “poor” as it may be. People consume those products that either keep them in the social strata that they belong to, or that hopefully elevate them into the strata that they aspire to. I highly recommend Mary Douglas & Baron Isherwoods’ classic “The world of goods” on this:
    It really opened my eyes on the complex reasons why people really consume. Of course later I found out much has been done in the social sciences since then. Much of what say Robin Hanson is talking about (signaling) goes in that direction too. I am now convinced that it is not trivial, and that it is not a luxury.

    Small example of this category of consumption related to maintaining position in society. My wife’s dissertation work was on microeconomics of Ethiopian farmers. It turns out that the farmers she studied consumed less food than the standard recommended minimum daily caloric value and there is no doubt they were poor in the absolute. Yet some 1/3 of their budget went into the consumption of coffee, not to mention up to a third of a woman’s day went into the coffee ceremony of roasting, brewing, and consuming – in society.

    So why would people choose “luxury consumption” over food? This does not sound like Maslow at all. But again – the single most important thing for your long term survival is your position in society, the trust, prestige, connectedness (and information sharing), that it affords. And this can only come from active participation in society’s rituals. So the coffee ceremony, at face value materially unnecessary, is a perfectly rational long term investment in the farmer’s survival. And this kind of reasoning of course explains why “poor” teenagers must have iPods, why “poor” rural US Southerners must have pick up trucks and gun racks on them (just fabulating here) etc. These things reflect deep emotional needs of being integrated in society, and are also present or future intangible factors of production.

    Belonging to at least some identifiable strata of society is a vital need, and not some kind of luxury that comes once you have made it. You can’t “make it” if you don’t have it to begin with. And when people don’t feel like they belong to mainstream society, they find another society of their own, be it gangs, radical beliefs, or the like.

    As a result mainstream society is well advised to make sure not too many people are alienated from it. It is the major rationale for the welfare state. Now I am deeply suspicious about some aspects of morality, utility, and efficiency of existing welfare states. Say the European lingo for giving the poor some luxuries is to “fight exclusion”, the word exclusion standing for, exclusion from society. It has been abused as an argument and is often exaggerated, yes. But the case for keeping everybody included in society, can not be discarded with hand waving. There are sound and selfish reasons for “society” to be “altruistic”. Incidentally the insistence in Asian societies to keep everyone a “useful” member of society are rooted in the same kind of idea.

    I earlier thought this was paradoxical but it isn’t. Everyone needs to live in the society they are embedded in, and this literally requires some consumption. It may require just coffee in Ethiopia, it may require a pick up truck in the US.

  24. Gravatar of Master of None Master of None
    8. June 2010 at 05:01

    When I meet new people in New York, they usually think I’m a true-believing conservative investment banker.

    Growing up in Memphis, though, I was the leftist liberal Jew.

    Mostly, if people ask, I say I’m a radical moderate.

    I agree with all of this, by the way.

  25. Gravatar of scott sumner scott sumner
    8. June 2010 at 10:13

    Morgan, Relative poverty matters to a utilitarian because the poor guy may get more utility from an extra dollar than a rich guy.

    Christopher, I meant rare compared to the total population of poor people, not compared to lottery winners. But that is a good point, and is consistent with my argument that many poor people make bad decisions.

    I agree with your rising tide examples and think capitalism is the best way to reduce poverty. But some additional assistance in targeted areas might also be helpful.

    david, Yes, I think people’s sympathies are based on how you are doing relative to those nearby, as you describe.

    silvermine, You said;

    “My tax money is paying other peoples’ mortgages just to price me further out of the market.”

    I also oppose those programs. See my update because I think you and some others may have misunderstood me

    dWj, Yes, I have similar stories.

    Brett, I agree, although welfare programs can’t really address that problem. If you are on welfare, you will also be looked down on.

    BTW, When I was young a boy’s popularity had nothing to do with his parents’ wealth. It was all about being tough, or handsome, or good at football–that sort of thing. I guess having gadgets is more important today.

    Lord, Good point.

    Jason, You said:

    1. I pulled out my manual for my computer I am using now: operating temperature = 50 to 95 F, humidity = 20 to 80%. That puts about 1/3 of the day for about 1/2 the year out in Houston where I grew up if there wasn’t AC. That’s a 17% hit in productivity.

    2. Preventing heat stroke requires you to drink about a cup of water every 15 minutes (and not too fast). So unless you devise a system for administering water, let’s say 1 of those minutes on average getting and consuming water. That’s a 7% hit in productivity.

    I think you exaggerate a bit. I don’t have AC in my home office, and it occasionally gets over 95 here. I once biked for 3 hours in 98 degree weather with no water (but I wouldn’t recommend it.) I accept your point that AC is very helpful in the South. But it’s no necessity.

    BTW, the post said South and West. Is AC a necessity in California? I don’t think so. I wouldn’t want it if I lived there.

    Tyler, I actually hate AC because I like hot weather. If I wear shorts to a movie in the summer, I freeze to death. I wish stores, restaurant and movies in Boston lacked AC.

    Morgan, You said;

    “I’d really like to see you get into Government Productivity.”

    What does that mean? Get into? If you mean discuss it, here’s my discussion: It’s bad.

    rob, Good point. I frequently have complained about the War on Drug-using Americans, but my blog focuses on money.

    Thanks OGT.

    Philo, We live in a world of second best. I believe forced saving is better than forced taxes. If we can do without both, so much the better. But we can’t just abolish social security tomorrow without a transition step in place. Forced saving is a transition step.

    Morgan, you said;

    “I’d prefer we create a math formula that figures out how low taxes, forced saving, and meaningful subsidies are calculated year by year – and then give everyone a check.
    I’d be much less concerned with the “help people” policies, if they focused like a laser on small operating budgets.
    Somehow, I trust policies that limit the friction of agents. A good idea needs less operational overhead than a bad idea, by definition.”

    I also want to simplify things greatly. Have government stop doing 98% of the things they do, and focus on a few priorities. It may not satisfy you, but it would be better. How about no personal and corp. income taxes, just a simple payroll tax? How about free trade? Abolish the FTC, OSHA, the FDA, the SEC, etc. I’m not as socialist as you seem to think.

    Greg, By “look down on” I didn’t mean in the sense that they are humans of less worth. But I do think conservatives believe the poor tend to have all sorts of behavioral problems, to a much greater extent that the non-poor. And I think it is true to some extent that people who for whatever reason “have trouble getting their act together” are more likely to end up in the category of poor people. On the other hand that doesn’t describe all poor people. So I actually wasn’t trying to criticize conservatives, although I suppose I worded it poorly.

    Jim Glass, Yes, see my earlier response Christopher. I agree.

    mbk, Those are very good points. Here’s something for liberals to think about. Government policy has created a health care system where it is literally illegal to produce health care that the poor (and increasingly the middle class) can afford. This is done through all sorts of regulations on insurance coverage, doctor and hospital coverage etc.

    I an unlicensed person went into a poor neighborhood and started a clinic fixing broken bones, he’d probably be arrested for practicing medicine w/o a license. The New Yorker had an article about the hospitals in the poor dusty town of McAllen Texas. They are incredibly luxurious, like what you’d expect at Harvard or Johns Hopkins. The market for health care is so distorted that we now believe only the government can help the poor, as they couldn’t possibly afford the only kind of health care that we allow to be sold.

    So sometimes market forces create the problems you mentioned, but sometimes it is perverse government regulations.

    In general I think you’re comment is very good. I think the psychological aspect of poverty is more important than the physical aspect, especially in the modern world (but even sometimes in Ethiopia, as you suggest.)

    Thanks Master of None.

  26. Gravatar of rmark rmark
    8. June 2010 at 18:09

    “the example of a lottery winner that ends up poor is obviously extremely rare.”

    “8 lottery winners who lost their millions.”

    Well, at least 8 of them lost their millions – Out of how many who have won a lottery?

    Maybe 1 every other week in powerball since 1997 ? thats 26 x 12 years = 312

    Add individual state lotteries? Overseas lotteries? Likely several thousand winners. Most of whom do fine with their money from what I’ve read. These just don’t make the news.

  27. Gravatar of Morgan Warstler Morgan Warstler
    8. June 2010 at 19:16

    Scott I view Government Productivity as one of the best cards we have to play right now.

    With a target productivity gain of 5%, we’re virtually guaranteed a winning battle to destroy Public Employee unions.

    With them unwound, we can drowned the fucker.

    But until we make the policy of elected officials not “smaller government” – but “more efficient” government, we can’t define policy as outsource, privatize, and automate.

    And frankly I don’t understand at all how a targeted NGDP of 5% aids us in laser focusing on ENDING PUBLIC UNIONS.

  28. Gravatar of Morgan Warstler Morgan Warstler
    8. June 2010 at 19:19

    There ya go dude, CO-OPT it and run down the field.

  29. Gravatar of scott sumner scott sumner
    9. June 2010 at 04:31

    mark, Good point.

    Morgan, Not sure why you’d want to improve productivity at places like the Post Office. Isn’t the point to replace it with Fedex, UPS, etc. As we shift from letters to email and e-cards, and do electronic billing, the only mail left is Victoria Secret catalogs and credit card ads. Is that reason enough to have a gigantic Post Office?

    Ditto for Amtrak, public schools, fire departments, highways, prisons, etc.

  30. Gravatar of Morgan Warstler Morgan Warstler
    9. June 2010 at 08:06

    Scott, when you outsource / privatize PO, that’s a productivity gain.

    Again, we need a rally cry, that 99% of all private workers agree with… a rally cry that once adopted allows all these discussions to happen.

    My issue with your efforts is that you start trying to make things “better” right now with better Fed policy, which functions largely to paper over government incompetence.

    The main issue is deficit spending and we have no reason to even grant it is necessary.

    We don’t have to cut any programs. No less money for grandma, no less food stamps, better education, etc. And we still can run break even.

    We just have to automate and outsource government. If you stop and think about things correctly the answer is technology.

    We can readily cut back on 40% of all public employee overhead, that cost savings brings us back into balance. It’s just under $600B a year in savings.

    And that’s the kind of approach to government, that JUSTIFIES your “use strong government when we need it” philosophy.

    But right now, it is better to have none than this based solely on its outdatedness. So if you even want “some,” then your first focus should be ending Public Employee unions.

  31. Gravatar of Philo Philo
    9. June 2010 at 08:47

    “We live in a world of second best.” We wish! Maybe 37th best.

    Apparently your thinking is along these lines. The unrealistic utopian idealist merely describes the world of first best; *I* won’t do anything so pointless and foolish. I, the solid, realistic *pragmatist*, will describe, and advocate, the world of *second* best.

    My question: why is this supposed to be so much superior?

  32. Gravatar of scott sumner scott sumner
    10. June 2010 at 12:12

    Morgan, You make some good points, but here is where we may differ. You think my focus on monetary policy may paper over problems and delay reforms. I understand that argument. But I look back to the Great Depression (the period I studied most) and saw how an economic crisis created by government was blamed on the free market, and led to more statism. I hope that better economic performance will make people believe more in the free market, I think this happened a bit under Clinton, which is why his policies were more market friendly than you’d expect from a Democrat.

    There is another argument, that in the neoliberal era economic problems sometimes lead to free market reforms (see Reagan and Thatcher.) So you might be right. But I’d still rather work toward making the macro economy work better, and let the chips fall where they may.

    Philo, We are now in 37th best—I want to move up to second best. That would be a vast improvement. I’d love to be forced to save 30% of my income instead of being forced to pay 30% in taxes. And I’d love to be able to use those forced savings to write a check to a doctor, instead of endless arguments with insurance companies.

    It’s not perfect, I’d rather not be forced to save at all, but it’s much better.

  33. Gravatar of Morgan Warstler Morgan Warstler
    11. June 2010 at 14:41

    Scott, if the Fed does your plan, and it somehow works, it will be an argument for government.

    If instead, we do my plan, it will be an argument for the free market.

    I get that you are an economist who REALLY want monetary policy to be the MOST IMPORTANT lever, but its not.

    We need all hands on deck man! Use that brain of your to justify the privatization of government.

  34. Gravatar of ssumner ssumner
    12. June 2010 at 06:48

    Morgan, I don’t want to “use” monetary policy, I want to stop using it. Right now we have a monetary policy that creates business cycles. I want a neutral monetary policy so that the economy operates as it would if money didn’t even exit.

  35. Gravatar of dg dg
    28. January 2014 at 03:05

    “Yeah, I can tell stories too. I worked and borrowed my way through college and grad school, with virtually no financial aid. For eight years I ate hot dogs and generic macaroni and cheese. And absolutely nobody cares, nor should they.”

    Way to ignore your privelege as white, male and straight. You were able to get out of that situation due to your hard work, IQ (which I naturally assume is above average) and your privelege. IF we take away your privelege, you’d rethink this.

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