This is also known as "poor decision making skills". Granted, it's very understandable in many situations, but let's call a spade a spade
Poor people are making economic decisions not to come out ahead but to mitigate their losses. They aren't doing this because they want to, it is because it is the best decision they can make given their constraints. For example, they can either sell their time for minimum wage, far less than the value they create, or they can starve or go homeless. The person they are selling their time to knows that the alternative to taking the deal on the table is pain or death -- that the poor person cannot walk away from the bargaining table without making themselves worse off. So they are free to ignore the value those people create and, instead, offer the least amount possible for the poor person to avoid the fate they'd suffer if the walk away from the deal. In a word, exploitation.
So, the poor person makes a deal that looks terrible to people who have the luxury of being able to walk away from a potential trade with no loss. People that must be enticed, that must leave the table with more than they brought, people who are on an upward spiral, who do not generally have to make a deal or face loss. People who are used to all parties leaving the table with more value.
They are, as much as any human can, making the best decisions they can in their situation.
Are there people that are simply too dumb to figure out what is best for themselves? Yes, but that number isn't anywhere close to the 45 million people we have living below the poverty line in the US.
If you assume (as do most Econ 101 models) that humans are pure rational actors in the sense of the rational choice model, which there is considerable empirical evidence that they are not. And also assume that the market for purchase of the kind of labor that the subject is selling is perfectly competitive on the buyer-of-labor side, rather than distorted by monopsony or oligopsony (which may be more frequently true than the former assumption -- though subtle collusion make it false even when it seems to be true superficially -- but certainly is not universally true.) [The second condition is necessary because if it fails, minimum price regulation will change the best price, since in the absence of competition, the purchaser of labor can do so at artificially depressed prices.]
Is it not worth asking why they would choose less for themselves? And, if so, doesn't the act of asking why suggest that we assume there must be an explanation that makes sense? Or do we assume that one out of eight human beings are simply not as rational as the rest of us?
I don't know. I wouldn't let the requirement for perfection completely override the reasonable. The alternative is that there is an underclass of irrational human beings. I think we'd be living in a much different world if that were the case.
Rationality is also subjective. What you'd do, with your safety net and well-off family and house with no mortgage, is entirely different from what someone one check from homelessness may choose to do. And it may look irrational.
Not necessarily. It can also mean that there are fates worse than dealing with usury. Car break down that you need for your job and you need $1200 bucks and you have $27 that's supposed to pay for your groceries for the next week? A payday loan starts to look like a very good option considering the consequences of not taking that deal.
>Rationality is also subjective. What you'd do, with your safety net and well-off family and house with no mortgage, is entirely different from what someone one check from homelessness may choose to do. And it may look irrational.
Which is my point. Even though what that person that is one short paycheck from homeless does may look irrational, it likely is not considering the information they have and the choices available to them. When someone is making decisions with what amounts to a gun to their head, those decisions are going to look irrational to those that don't consider the gun.
Many people see the decisions the poor make and say "Oh, well I would have just negotiated based on my value to the business rather than settling for minimum wage." Which is a good response and perfectly valid if you can walk away from a deal with no negative repercussions. But the poor are negotiating with a gun to their head. They either have to take the deal or go hungry or homeless or not pay for their medication or what have you. Their decision is rational when all of the information is taken into account. It just looks irrational to people who generally don't have to deal with negative utility when they walk away from a given deal.
As a society I think we should strive to minimize how many of these life and death or pain on the line financial decisions people have to make. I'd like to see us strive for a nation where no one is negotiating for their life. I'd like everyone to have the freedom to walk away from a deal that doesn't create value for them. Simple as that. It will be better for everyone because it removes value destroying distortions.
I hold a gun to the head of someone you love. I tell you you will deliver something or I will kill them. You start to negotiate for how much you will be paid for your labor...do you think you will get the best value for your labor, overall? Or will you simply prevent the loss of life of your loved one?
You'd likely just be happy to prevent that grievous loss.
The poor are under the same terms except instead of a gun it is starvation or homelessness that is the threat to themselves or their loved ones.
This is just the simplest and most apropo example of misbehaved transactions. Not all voluntary transactions result in the best value for each party. You are correct that they would get more for their labor if they could but the deviant nature of the transaction keeps it from being a value trade and creates, instead, a struggle to lose the least amount they can -- a destruction of value for that party but, if mitigated, the best possible destruction of value from their point of view. It is not a healthy part of the system.
Think of a protection racket -- are those people getting the best value? Or simply getting the least amount of destruction of value given the circumstances? Those two things are not the same.
It's not just those below the poverty line, all of humanity does this... even the rich.
But where did I say they are dumb? I know some incredibly smart people that are horribly off financially. I also didn't say they were the only ones with poor decision making skills. Sometimes the situation is a product of their upbringing or environment, sometimes it is because of willful ignorance or willing risk.
Please don't think I'm denying that for the most part lower socio-economic classes are more liable to be exploited. I understand how class mobility has become increasingly difficult in recent times. I believe in a minimum wage.
But ignoring an important facet of the issue because it's uncomfortable isn't going to get you any closer to solving the causes of the problem. Besides, the good news is you can teach financial literacy and decision making.
No they don't. If that were true no net value would ever be created.
I mean, there are instances where it is true even for the rich (insurance, for example) but most decisions, especially the larger ones, are based on getting something of more value to them than what they are trading. And they are hardly ever bargaining for their life, the ultimate loss, as poor people do routinely.
It’s a chronic crisis, a chronic stressor, and it affects the way people think. Short-term infusion of money will probably be blown on what you might consider to be frivolities because of this reason.
There are exceptions, to be sure, and plenty of ignorance about good decisions… but “poor decision making skills” is at best a crass, misleading oversimplification.
(Most dangerously it’s intentionally used to mislead.)
If you don't have money to spare, and then one month you get a windfall and do, it's absolutely rational to assume (and consequently base your decisions on) that you'll go back to the former state.
You seem to be caught in a circular argument... the poor can't help that they're poor because, well, they're poor!
exactly :-)
That is exactly what it is. Poor people are poor because we are poor.
We see rich people making money on the stock market, and wish we could, but we have no excess money to do that with.
We see rich people upgrading their homes and their cars and their whatevers to be more energy efficient, but when our car breaks down and can't be repaired, we buy whatever car we can afford, not whatever car would have the lowest TCO per mile.
Or hell, anything that has a calculable TCO, usually the most efficient TCO-wise has a very large initial investment... poor people can't afford that, thus we are punished, literally, because we are poor.
Like, a few days ago, I finally ran out of my strategic supply of incandescent bulbs. I can't have CFLs in my house because they tend to give me headaches, and they make everything look like shit anyways; but for the past decade, LED lighting has been absolutely too expensive.
I basically fought with myself for 3 days over finally spending $75 to upgrade sixteen 40 watt bulbs and seven 60 watt bulbs. Power efficiency wise, trying to estimate my average usage as best as possible, it is going to take 2.7 years for for those bulbs to pay for themselves (I use the lights very little, but our power prices are very high)... sometimes I wonder if I'm going to survive the month, let alone 2.7 years.
Hell, I'm trying to grow food in my backyard just to try to get better vegetables cheaper: the farmers market around here is pretty bad, and what little local vegetables we grow are sold out of state, while most of what is on store shelves is either from California or out of the country, and often half-rotten.
The people who eat pre-packaged frozen garbage all the time, or eat at McDs and KFC all the time, and become massively overweight and generally suffer from health problems (which also punishes us because we're poor, thus making us even poorer) eat that way because at least it isn't half rotten garbage being sold as fresh vegetables.
My fellow poor people around here think I'm insane for going Paleo, such as getting rid of cheap sources of carbs (such as breads and pastas and refined sugars), and eating more fresh vegetables (organic brands tend to actually not be rotten garbage; yet another punishment for being poor), and eating more healthy fat and protein sources (such as better cuts of real meat instead of eating chicken or really bad cuts of pork, or processed shit like hot dogs or whatever)...
... and that choice of mine? Sure, I'm not going to die of being overweight now. I had pre-Diabetus, it's gone. I used to weigh 340 pounds (I'm 6'0"), now I weigh 190ish. I went from that 340 to 214 in exactly a year. I did this with diet modification alone.
I lost all that weight? Punished by being forced to buy new clothes. Punished by being shunned by fatter people who basically hate me because I chose to become skinny and make better choices about my diet because somehow I'm better than them (as if that thought process even begins to make sense). Punished by having an even larger chunk of my budget eaten up my better diet.
Now, back to the garden? Sure, if I can put a little bit of work in, and get a fresh source of vegetables, that'd be great: the soil is apparently so bad that it may take years of adding nutrients and fertilizer and other organic material back to the soil to get it to grow a good crop.
What I've already put into the soil? Cost money. What I will put into the soil in the future? Costs money. When will I see a return on that investment? Never is still a possibility, I have not ruled it out yet.
So yes, being poor is a punishment for being poor, and the punishment for being guilty of the crime of being poor is being poor. Its a never ending loop of bullshit that is very hard to climb out of.
Want to fix society? Give everyone their basic needs so they can go focus on actually being productive members of society, and THEY BECOME PRODUCTIVE MEMBERS OF SOCIETY. Treat people like how you want them to behave, AND THEY BECOME THAT PERSON.
I have no clue why the hell so many people have problems with what is basically Psychology 101. None of this is new, but we keep rediscovering it every few years as if it is some magical new tablet handed down from Mount Sinai with brand new information on it.
Exactly!
Food, shelter, access to medical care, these are the basics of human life, and no one should go without them.
Segregation and all the other ills of the day had nothing to do with the challenges faced by "colored" people. They just needed to be smarter and work harder.
Putting aside that there are various degrees of poverty, I will just congratulate you and your friends. But, studies show that economic mobility is far more difficult than in the past and more difficult in the U.S. than in many western European nations.
The severe and worsening income and wealth stratification of the past few decades is no accident. There are structural problems with our economy. That a relative few can overcome this to some degree neither disproves nor mitigates that fact.
It isn't a "lack of economic freedom" that makes the poor get screwed by shitty jobs and all the fees tacked onto poor-people services, it's the cottage industry that's sprung up around screwing the poor. The poor have little to no political power (and they wouldn't have time to exercise it, juggling their three part-time minimum wage jobs), so there's very few people actually looking out for them.
It's funny, when we do peel back regulations, and the poor get screwed further, these myth-of-overregulation people never reflect on that. They never stop to think that maybe, just maybe, the poor are getting screwed even further because it isn't regulations that are hurting them in the first place.
Whatever it is, you seem to suggest that the success of India and China has nothing to do with trade agrements. Nothing to do with currency manipulation. Nothing to do with technology. Nothing to do with the outsourcing of manufacturing and other jobs to these low wage countries. Just increase "economic freedom" (what does that even mean exactly) and voila!
And, why is it that even with regulation and suppressed "economic freedom", U.S. corporations realized record profits, while unemployment remained high, and wages low? Exactly whose "economic freedom" is being decreased here? How is it that we can pay CEOs so many times the average worker's salary even while that CEO is driving the company over a cliff? Meanwhile, full-time workers find themselves below the poverty line? No problems there, right? It's the workers' fault. Or perhaps it's the regulations, but which regulation(s)?
I'm just not following your argument. Are you saying there are no structural problems with our economy that cause the poor to be disenfranchised? And, what redistribution have I advocated, to which you are taking exception?
It means "doesn't have much/enough money". Poor people usually make decisions that are perfectly rational given the day-to-day grind of being poor.
If you live your life a certain way and it ends up with you being homeless or poor, sure, living life that same way will end up with you being homeless or poor again.
Now if you learn (that blob of grey matter in your head is great at this by the way) from your past mistakes, there's a chance you can avoid that.
Let's say I'm a homeless guy who ended up being homeless because I lived far far above my means and gambled away my savings.
I suddenly get a $10000 from a lottery ticket I found in the street.
I could immediately buy a suit, rent a car and go stay in a hotel and live the high life for all of 2 weeks. I could go to a casino and get that glorious rush I remembered so fondly for a few hours.
And then I'm back on the street.
Or I could learn from my mistakes and go buy a nice cheap business casual outfit ($100), pay upfront for a room with housemates/students for a few months (6 months - $300/month in a cheap area = $1800), buy a cheap prepaid phone ($80), car ($2000) and couple of weeks gas ($100) then put together a resume and start looking at jobs. If I'm not an appealing worker, I can potentially go to community college for a few months and get qualified doing something useful while also getting federal aid. I'll have around $5920 left over so I'll allocate $920 for a few sets of clothes and general things that a human being needs and put the other $5000 either in the bank or into education.
I'm saying, if you're living on $800 a month, and you get that sweet, sweet EITC money, you're going to use it to buy a new sofa, since your brother puked all over your sofa one night and you could never really get the smell out, and get all your bills current.
You might say that the stink of puke is worth putting up with, and the hypothetical poor person should pay for two credits of an associate's degree at the community college instead, which, ok, education is great, but the real reality is that for a lot of people, it's just not possible to work harder or earn your way out of poverty.
Not because of bad choices (e.g. living high on the hog from their magic $10,000 lottery ticket), but because low-end jobs in this country are unlivable and there's a whole cottage industry built up around screwing the poor with extra fees on every transaction they face throughout the day.
The solution isn't to tell poor people to put up with the puke smell and work their way through a 20-year associate's degree two credits at a time, so they can make 30c more. The solution is to make the economy work for them, as well as it works for those of us posting here.