Born Poor? Santa Fe economist Samuel Bowles says you better get used to it
sfreporter.com
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To take an absurd example, say there's a 50/50 chance of going from rags to riches. That would mean half of the bottom 10%, 5% of the population would move up to the top 10% of the population. And somehow the middle 80% don't manage that feat. You would expect the probability of going from the bottom to the very top would be low. Instead, the article tries to paint a negative picture. It points out there's a 32% chance a child born in the bottom 10% will stay in the bottom 10%, when you could just as well point out that child has a 68% chance of moving out of the bottom 10%. Bringing in statistics about how many of them move from that percentile to the highest percentile obscures rather than clarifies the issue of income mobility.
Then there's his universal welfare idea, which at $250,000 per person and a quick back-of-the-envelope calculation would only cost about 56 trillion dollars. Plus another 2 trillion or so per year with population growth.
That said it's worth reading, the “individual development accounts” idea is definitely interesting.
Does anybody have some sources? (I'd guess it would be interesting to look at societies in great turmoil (e.g. England after 1066, French Revolution, Communist revolution in China) or societies with more equality of wealth than the US (e.g. Scandinavian countries). They may well have more mobility (at least in a purely technical sense).)
Sources: http://www.americanprogress.org/issues/2006/04/b1579981.html "By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.
From The Economist, http://www.brendan-nyhan.com/blog/2005/01/the_economist_o.ht... "would-be Horatio Algers are finding it no easier to climb from rags to riches, while the children of the privileged have a greater chance of staying at the top of the social heap."
Or, in other words, apparently everyone else in this thread apart from you. How is one supposed to tell that "we have insane mobility compared to any other society at any time in human history" was meant to mean everyone, worldwide?
Indeed, how can that possibly be true (what do you think is the mobility rate out of the poorest 10% of the world population?), or make sense (given that it requires that you regard, say, the US, China, Afghanistan and Burundi as parts of a single "society")?
I do agree that measured by income the world has entered a golden age. But I do not know whether mobility in income quantiles is at its peak: You can have a lot of mobility at a very low level of income, too. And in the stone age people were probably more alike in income, so that quantiles were closer together and more easily shuffled just by random changes. (Not that this is a good or bad thing per se.)
(And, FWIW, I am still having grave difficulty believing that you really meant "the world" when you said "we".)
As far as I can tell, that study measured mobility by quintile. If the United States has a wider variance in income, the quintiles will be much wider, hence more difficult to move from one quintile to another.
It seems reasonable to assume that the social welfare states of Western Europe and Canada have less variance in income distribution, and therefore it's easier to move from one quintile to another because the quintiles are smaller. Saying that there's greater mobility between quintile in Western Europe really only reflects the smaller variance in incomes in Western Europe.
To set up an accurate cross-national comparison, one would have to construct a unified set of incomes for all people across all the studies countries. Then measure mobility of individuals between quintiles of the unified data set. Only that type of design would control for the different variance found in different national-economic contexts.
The US has a population of, let's say, 300M. In any year, let's say 1/60 of that many -- 5M -- are just turning 18, which is when Bowles proposes handing out the money. (He's not proposing to give that much to everyone all at once.) So the annual cost is $250k times 5M, or about $1T. There's no $56T up-front cost.
Now, $1T/year is an awful lot: it's about 1/4 of what the US government currently spends in a typical year. It's about what the US government currently spends on "defense". It's hard to see where the money could come from. On the other hand, it would completely obliterate poverty in the US. On the other other hand, it's very convenient for a lot of people that there is poverty in the US; without poverty, no one would work for very low salaries, which means a lot of things that are currently cheap would become more expensive. (You can generally recognize countries with less income inequality because low-end goods and services cost more.) On the other other other hand, it does seem like it would make entrepreneurship much more widely accessible.
Bowles is a very smart guy. The idea may be crazy, but it's unlikely to be stupid.
it would completely obliterate poverty in the US.
Not really, it would do little to help people in poverty already past 18 (unless they had children who were both just about to turn 18 and those children were generous...). Even for those that benefitted from this, to assume they would not go back to poverty you have to assume they will use it wisely (and possibly have some luck too.) If they go to college or start a business with that money, then they probably will move up and sustain themselves at least in the middle class. Probably. On the other hand, I bet a large percentage would spend it quickly and have relatively little to show for it at the end.
Even those who start a business/go to college are not gaurunteed to stay in the middle class, they just have a good shot. Many businesses fail, and then those founders would be left with little but that experience. Many people with degrees are unemployed right now.
I am not saying it is a bad idea necessarily, and I am certainly not about to dismiss it as stupid, but I do not think it will come close to wiping out poverty.
Professional football players make a ton of money, and guess how many end up filing for bankruptcy within 2 years of retirement: 78%.
http://sportsillustrated.cnn.com/vault/article/magazine/MAG1...
No, it wouldn't.
Most lottery winners end up bankrupt.
I know that adding rules makes things more complicated and can have unintended consequences.
It's also equally possible that some heritable (not necessarily genetic) trait causes both low parental and low child income.
One plausible alternative explanation: lazy parents tend to have lazy children and lazy people tend to be poor. This causes a correlation between parent and child income, in spite of the fact that hard work is the way out of poverty.
Hard work matters -- but your baseline is probably more important.
In any case, I don't believe my alternate hypothesis is a complete explanation. All I'm doing is showing why Bowles' statistics don't prove his case at all. All they do is prove that whatever factor causes low income (which may well be hard work) is hereditary.
Incidentally, one of your hypothesis is demonstrably false. 90% of the poor do have "spare capacity to actually try and get better at things because [they are] not trying to put dinner on the table constantly...". 80% of the poor (people below the poverty line) don't work at all (and are not looking for work) and 90% don't work full time (at least 27 weeks/year). So at least 90% of the poor do have spare capacity to improve their lot.
There's also a lot of research out there about why you would prefer that line of reasoning you expressed, and would argue it in order to feel good about yourself.
Also, I never claimed it was a complete picture of what causes poverty. I claimed it was one possible cause of the correlation between parent and child poverty. This debunks Bowle's claim that a correlation between parent and child poverty implies hard work could not be a cause of poverty. It may or may not be, but his statistic proves absolutely nothing unless he can also show that laziness is not hereditary. Other things, e.g. bad luck, might also cause poverty, but would not be correlated between parent and child.
Incidentally, the same research about why I might prefer a "hard work" theory also shows why you would emotionally prefer a "it's not their fault" theory. My reasoning signals to my tribe that I'm hard working, and raises my status. Your reasoning signals you are caring, and raises your status. How clever, and probably true. (Except of course for the fact that I'm a member of your tribe and expressing my opinion lowers my status. But hey, I'm a sucker for statistics.)
Regarding what feels good to say.. my reasoning signals an appreciation for all the advantages I've had, and an acknowledgement that I'm really not that special, I only had to be moderately smart and hard-working given the opportunities I've had. Take my deviation from the mean and put me in the ghetto, I'm not "climbing the ladder through free enterprise and hard work". You might be more special than me, I don't know.
Hint: it doesn't. Most of it is inconclusive, and I've seen almost nothing proving hard work is not a significant factor. Regardless, my main point is that Bowle's statistic is consistent with laziness causing heritable poverty, which completely disproves his point.
As far as income mobility goes, I don't know of any research that can conclusively identify causative factors. We know whatever factors prevent mobility are heritable, location based and ethnicity based. We also they are not money/income based, since many low income immigrant groups have extremely high mobility. Vietnamese immigrants went from illiterate peasant to middle class Americans in one generation.
My first gf is a perfect illustration: in 10 years, she went from illiterate African refugee to Republican campaigner/fund raiser making more money than me (that might have changed in recent years). If she could do it, basically any American could do it.
Citing "laziness" is really the easy way out -- clearly your job and my job are more "lazy" in some senses than being, say, a day laborer. So why can't the day laborer move up easily? A whole bunch of reasons, very few of which have to do with laziness. You can try to cite intellectual laziness if you want, but these guys didn't exactly get a chance to take AP calc senior year.
Regarding your ex, yeah, immigrant groups do have extremely high mobility and that's one of the great things about America is our (waning) receptiveness towards immigrants. But they're an extremely self-selecting group. That's not "average".
Regarding you and me (assuming you're a reasonably successful developer in some fashion), the major financial differentiator between us and our peers is the fact that tech work pays really well right now and doesn't necessitate a bunch of grad school debt. If I wasn't born on an automatic trajectory for college? And was the same guy in every other way? I'm at best a 50% shot at becoming a developer.. probably I'm working at Safeway instead. And doing a good job at that job, because I'm not lazy and that's my nature.
You can claim to be substantially more "fit" than me if you want.. and hey, maybe you are -- but if you're going to claim "gumption" as opposed to "born lucky" as the major reason you are where you are, then statistically, you're probably just underestimating the luck.
If you and I work full time, we both work harder than 90% of the poor. 80% of the poor spent less than 27 weeks working or searching for a job in 2008. Another 10% of them worked only part time for more than 27 weeks/year. Less than 10% of the poor either worked or searched for full time work for 50 weeks/year. (See my previous citation.)
But they're an extremely self-selecting group. That's not "average".
So basically, you are saying a group of people who are self-selected to be hardworking and show initiative [1] can break out of poverty? And they do this in spite of having low income, little access to credit/finance/consumer banking, a quality education, or even the ability to speak english?
That pretty much proves that low income, little access to consumer finance and lack of a quality education do not prevent a hardworking person from breaking out of poverty. This is evidence for my hypothesis, not yours.
[1] In some cases, they are simply self-selected to be fast runners, good at hiding, or other such non-marketable skills. See, e.g., Vietnamese, Somalian or Igbo refugees, all of whom exhibit greater income mobility than poor Americans.
Let's go back to my safeway example. If I don't grow up in an environment where it's assumed I'm going to be college-track, I probably work at safeway. Working hard isn't all I need at that point -- my ceiling is "shift supervisor".
I'm a big fan of the outlier theory or the "2% theory" as I used to call it, 2% of people tend to make their own destiny, you put them anywhere and they'll become ambitious and try to do things. Most people don't, including most people who aren't in poverty. How many friends do you have who went to law school because, "I dunno, I'm not gonna work at Safeway the rest of my life?"
If you want to escape being poor, you have to think differently to other poor people.
There are many examples of where children from poor families group up to be rich, and do so because they do not want to be like their parents. In these cases the parents low wealth is a catalyst for building great wealth in the child.
If low wealth was a cause, then how does one explain the high number of immigrants that go on to create great wealth? Newly arrived immigrants are some of the poorest people around.
You don't need a lot of money to get rich. You just need the right knowledge, the right attitude and the right drive to succeed. Most people achieve the wealth level they set out to acheive. For the majority, it's that they only set out to acheive a modest level of wealth - they may think they want to be rich, but they aren't actually doing anything towards it.
The reasoning is very simple: If you are living hand-to-mouth with unreliable income - so unreliable that you can essentially expect "the end of the world" to come at any time - then you cannot make any future plans around earning and saving; consuming as much as possible immediately holds more value.
But if you have a government-guaranteed income, you can build plans around that - you can pursue the risky project, you can start the startup, you can go to school, etc. One anecdote I read(this was years ago) involved a woman who built up a flock of chickens from basic income. This lifted her out of poverty, since the chickens can pay for themselves with eggs in just a few months.
I read through it and was pretty surprised at the findings. The increases in education and health are particularly staggering.
"Poor" young Americans are much wealthier than their grandfathers. The claim that "the poor stay poor" is largely an artifact of defining "poor" as "bottom 10% income".
The second number is how many jobs the state Economic Development Department claims to have created in Santa Fe last year.
As if the state's economic development department were the main driver of job creation!
Bowles argues that inequality is holding the United States back, but it's not clear that that's the case. You can see the chart of states arranged by gini coefficient, where rich dynamic centers of business like New York and California score highly. In contrast, Utah is the most equal state in the U.S., but is anyone flocking there? Does anyone want to reproduce Utah's social model throughout the rest of the country?
Then the statistics for the top and bottom 10%--both groups have an approximately 30% chance that their offspring will stay in the same percentile of income distribution. But this means that 70% of rich kids are going to fall from grace, whereas 70% of poor kids are going to grow up to do better. And that's bad?
One of his colleagues/research partners has a good evolutionary game theory book available for free on his website for anyone interested:
http://people.umass.edu/gintis/
It's called "Game Theory Evolving"
Capitalism is the worst kind of economic structure out there, until you look at all the alternatives.
Come to think of it, ff there's one economist who would appeal to functional programming eccentrics and polymaths it'd be Bowles. His papers are pretty readable for non-economists so if you're curious check out his homepage.
Your proposed study, however, is so riddled with confounding factors that to call it a proof is nonsense. The man the article talks about does have lots of papers giving evidence for his views, and you should indeed read them if you're interested.
However, neither the study you propose nor any other study would constitute proof (of what? it's unclear what we're even discussing a proof of).
All I'm trying to say is, this is about human affairs, not physics, and we're not about to start finding proofs of human affairs.
No, of course, there's no proof for anything in any soft science, so there's the answer. The only good experiment would have to be on a grand scale: give everyone 15K a year for free and see what happens. My guess: An increase in the velocity of money, since the whole thing is basically a devaluation.