The Problems Of The Poor

Please, do me a favor and add Megan Mcardle, deputy countries editor of Economist.com, to your blogroll. We know her in the blog community as Jane Galt of Asymmetrical Information. She is a University Of Chicago economist that writes well and has many great posts like this one.

The post is worth quoting in full:

The poor really are different

The post below is complicated, for some conservatives, by the fact that if the poor acted like the middle class, they wouldn’t have problems like no credit or savings.

If poor people did just four things, the poverty rate would be a fraction of what it currently is. Those four things are:

1) Finish high school
2) Get married before having children
3) Have no more than two children
4) Work full time

These are things that 99% of middle class people take as due course. In addition, there’s some pretty good evidence that many people who are poor have personality problems that substantially contribute to their poverty.

For example, people with a GED do not experience significant earnings improvement over people who have not graduated from high school. In this credential-mad world, this simply should not be. And it is true even though people with a GED are apparently substantially more intelligent than people without a GED.

How can this be? Even if the GED were totally worthless, available evidence seems to indicate that intelligence carries a premium in the labour market.

The best explanation seems to be that people with a GED (as a group) are smart people with poor impulse control. What intelligence giveth, a tendency to make bad decisions taketh away. Anyone who has spent any time mentoring or working with poor families is familar with the maddening sensation of watching someone you care about make a devastating decision that no middle class person in their right mind would ever assent to.

So I think that conservatives are right that many of the poor dig themselves in deeper. But conservatives tend to take a moralistic stance towards poverty that radically underestimates how much cultural context determines our ability to make good decisions.

Sure, I go to work every day, pay my bills on time, don’t run a credit card balance and don’t have kids out of wedlock because I am planning for my future. But I also do these things because my parents spent twenty or so years drumming a fear of debt, unemployment, and illegitimacy into my head. And if I announce to my friends that I’ve just decided not to go to work because it’s a drag, they will look at me funny–and if I do it repeatedly, they may well shun me as a loser. If I can’t get a house because I’ve screwed up my credit, middle class society will look upon me with pity, which is painful to endure. If I have a baby with no father in sight, my grandmother will cry, my mother will yell, and my colleagues will act a little odd at the sight of my swelling belly.

In other words, middle class culture is such that bad long-term decision making also has painful short-term consequences. This does not, obviously, stop many middle class people from becoming addicted to drugs, flagrantly screwing up at work, having children they can’t take care of, and so forth. But on the margin, it prevents a lot of people from taking steps that might lead to bankruptcy and deprivation. We like to think that it’s just us being the intrinsically worthy humans that we are, but honestly, how many of my nice middle class readers had the courage to drop out of high school and steal cars for a living?

I’m not really kidding. I mean, I don’t know about the rest of you, but when I was eighteen, if my peer group had taken up swallowing razor blades I would have been happily killed myself trying to set a world record. And if they had thought school was for losers and the cool thing to do was to hang out all day listening to music and running dime bags for the local narcotics emporium, I would have been right there with them. Lucky for me, my peer group thought that the most important thing in the entire world was to get an ivy league diploma, so I went to Penn and ended up shilling for drug companies on my blog.

Maybe you were different. But think back to the times–and you know there were times–when trying to win the approval of your peers convinced you to do things that were stupid, wrong, or both. Remember what it felt like to be sixteen and skinny and maybe not as charming and self confident as others around you, and ask yourself if you’d really be able to withstand their derision in order to go to college–especially if you didn’t even know anyone who’d ever been to college, or have any but the haziest idea of what one might do when one got out. Try to imagine deciding to get a BA when doing so means cutting yourself off from the only world you know and launching yourself into a scary new place where everyone’s wealthier, better educated, and more assured than you are.

Or take a minute right now and try to imagine how your friends would react if you announced that you’d decided to quit work, have a baby, and go on welfare. They’d make you feel like an outsider, wouldn’t they? And isn’t that at least part of the reason that you don’t step outside of any of the behavioural boundaries that the middle class has set for itself?

Bad peer groups, like good ones, create their own equilibrium. Doing things that prevent you from attaining material success outside the group can become an important sign off loyalty to the group, which of course just makes it harder to break out of a group, even if it is destined for prison and/or poverty. I think it is fine, even necessary, to recognize that these groups have value systems which make it very difficult for individual members to get a foothold on the economic ladder. But I think conservatives need to be a lot more humble about how easily they would break out of such groups if that is where they had happened to be born.

That leaves us in a rather awkward place, because while I don’t agree with conservatives that the poor are somehow worse people than we are, I also don’t agree with liberals that money is the answer. Money buys material goods, which are not really the biggest problem that most poor people in America have. And I don’t know how you go about providing the things they’re missing: the robust social networks, the educational and occupational opportunity, the ability to construct a long-term life instead of one that is lived day-to-day. I think that we should remove the barriers, like poor schools, that block achievement from without, but I don’t know what to do about the equally powerful barriers that block it from within.

But I also don’t think that the answer is to use those barriers as an excuse to wash our hands of the matter.

As someone who grew up in Compton, California, I have a hard time accepting the extremes on both sides of the political aisle. On one hand, I cannot accept the lefts philosophy that the primary problems affecting the poor are racism and materialistic needs, however, on the other hand, I can’t accept the rights philosophy that the poor ‘have only themselves to blame’, as if anybody else would have been drastically different had they grown up in the same neighborhood under the same circumstances.

In other words, yes the problem is not primarily racial, it is not primarily financially related, but at the same time nobody intentionally wants to be poor, cultural surroundings, parental upbringing, peer groups, and yes, economic circumstances all mixed in together create environments where even the best of people can get sucked into the circle of poverty.

Jane Galt is a rarity; she understands both, the economic tools necessary to create change, and the proper outlook that addresses the problem at its core (You can’t fix the problem if you don’t know what the problem is). A combination I rarely see in others, economists Thomas Sowell (here and here), Roland G. Fryer Jr. (here and here) and Walter Williams (here and here), are other examples of those who also exhibit this rare combination.

Now, if only I could get her to write more on poverty, and how to address it…

Update: Jane Galt has more, she recommends mentoring over money.

17 Responses to “The Problems Of The Poor”


  • Great post… I was just discussing the very same topic with a friend yesterday. Needless to say I’ll be passing this on.

  • This was a really interesting article. I noticed that there is very little mention of the entrepreneurship amongst poor minorities in your posts. I’m not talking drug dealers here… a great example I can give is this… There’s this old homless white guy that stands on the side of the road every day holding a sign, asking for money. One day, I asked him how he got himself in this situation. He laughed at me and said… ‘I’m working, every day I stand out here with my sign and people give me money and its ALL tax free.’ I asked him where he grew up and if he ever went to school, and he replied, ‘I live with a roommate in PB,’ and mentioned that he was in the military. So… he isn’t really homeless like the sign said. When I worked at a check cashing center/payday loan company, I came across a lot of middle class people getting payday loans and twice as many hispanics (in this case) were just cashing their checks. The place where I worked didn’t require ID’s or a SSN to cash your checks, unlike our local banks. There were several individuals that ‘owned’ their own business. This one Mexican lady, in particular, started her own business cleaning houses and she was cashing checks from her clients regularly that added up to $2000+ a week. Now this lady, came from a poor town outside of Tijuana and got smuggled accross the border when she was young, started cleaning houses, has 3 kids, has her own home AND her own business, without having obtained a GED. Now, compare them and think about that for a minute.

    I can’t speak for all minorities, but many hispanics are hard workers, if they ask you for money, they will give you something in return… even if its just chicklets. A strong work ethic is also prevalant in our culture as well as having bigger families and starting them at a much younger age.

  • Agreed Frances. Thanks Julissa.

  • I think you cut through the falsehood of “either/or” when it comes to poverty. And I agree that most often – on both “sides” – most of the attention gets focused on the symptoms and not the solutions.

  • The success of capitalism depends on the existence of a huge uneducated poor underclass. If you enjoy being a beneficiary of such a system, thank the next homeless person you see. Yes–just thank them for being poor. If, on the other hand, you are offended by such a vast economic divide, then forget capitalism (and capitalism’s apologist friend, charity) and try working on something else.

  • No it does not, capitalism thrives – in addition democracy itself – thrives more on an educated underclass.

    With higher education you get higher productivity, and with higher productivity comes higher wages.

  • An educated working class begets increased productivity? I would have to disagree. The more downtrodden, uneducated and desperate the lower classes are, the more exploitable they are. Thus . . . cheap and plentiful labor, and consequently, greater productivity, benefitting the those of us higher up the ladder looking down.

  • But it is not ‘cheap and plentiful’ labor that dictates prices, it is productivity. If you have a more educated poor, you have a higher floor on wages.

  • Ok so I’m no economist, but how does paying the poor workers MORE money and making them smart benefit the rich white folks runnng the show?

  • The thing that makes us all richer is not the poor being uneducated, but getting more productivity out of each worker.

    The reason people get paid more is because they produce more, nothing really more fundamental than that. That is why degrees in certain fields increases ones pay, because it signals that you will produce more.

    So therefore educating the poor should make them more productive, more productive means higher pay.

    In fact, if you look across the board at strongly capitalist countries, you will see that the more capitalist the country, the higher is the wage floor for the poor, not the lower.

    Which is why the poor from other countries immigrate to this country, yet the poor from our country don’t immigrate to other countries.

  • 1) Finish high school
    2) Get married before having children
    3) Have no more than two children
    4) Work full time

    Like its so easy to do all that. I have two B.A. and a few credits from an M.A. and I can only do three of those things.

    I dunno HP, brianmarket’s arguement sorta makes sense. Then again even if we were all educated it would probably be at different levels thus still keeping a pyramid system as far as wages are concerned.

  • Americans are generally fairly educated. We do not have a good work ethic in our underclass, which is why there is such a strong need for people from Mexico here in California to the jobs that Americans won’t do. Many of them are on welfare as well. Strangely overweight, too. How many educated people want to do manual labor? None that I know. People become educated to make more money and do more intellectually challenging jobs…people come to the states to make more money, and Americans pay them as little as possible, an American would scoff at the pay that someone from a poorer country thinks is worth the pilgramage. Poor people do jobs that are overwise degrading out of the fear of being rendered destitute, making them productive.
    I don’t see making someone more educated is correlative to him/her picking more berries.

  • Let’s face it. The less THEY have, the more WE have. That’s a fundamental principle of capitalism. Especially the libertarian variety which you so proudly promote. Stop pretending you like the idea of educating the millions of unskilled illiterate workers we need to keep in the fields and factories working for minimum wage.

    By the way, I have a doctorate degree, work over 50 hours a week, and produce NOTHING. Unlike my father, who worked for 40 years in a factory producing goods which were sold by his educated “hard-working” employers for hundreds of times what he was paid to make them.

    Educating the masses so that they might hope to be the exploiting minority and not exploited majority is logically impossible and therefore pointless. But still we dangle the bait and they take it—look at the percentage of how many small businesses fail each year because we conned poor people into thinking they could be part of entrepeneurial America. Is this our little joke at their expense?

  • Gustavo, nimiwey, brainmarket,

    I think we are confusing different things here. I was responding to brainmarket’s statement that, atleast seemed to me, to imply that capitalism needs the poor to be uneducated to be successful. This is clearly not so. The more educated the poor become, the more productive they become, and more productivity gives us more economic growth. With economic growth, we raise wages (atleast indirectly). For example, compare a highly capitalist country like the United States and a less capitalist country like Mexico. Yes, we both have poor people, but poor in the United States have significantly better living standards. In other words, while poor in the United States may have crime and family problems, problems created more by cultural issues than by economic issues, Mexico’s poor have economic issues. It is not unusual, for example, for Mexico’s poor to work ~12+ hours in the field, in the heat of day. Yes, some of our poor still do that, but it is much more limited compared to non-capitalistic countries.

    So my point there was that with a higher educated underclass, we have higher productivity, and with higher productivity we have higher economic growth, and economic growth raises the standard of living for all, meaning that the poor are better off than they would have been with less economic growth. To see how economic growth raises wages, atleast indirectly if not directly, read this.

    However, what some of you seem to be implying is that capitalism, to some degree, depends – not on an uneducated underclass – but on income inequality. This is (somewhat) true, but remember, income inequality does not correlate with absolute poverty, but with relative poverty, also, income inequality is becoming less and less relevant as a measure of real differences in quality of life, for example, see here.

    Now to go back to what brainmarket says,

    Let’s face it. The less THEY have, the more WE have. That’s a fundamental principle of capitalism.

    This assumes that capitalism, and economics as a whole, is a zero sum game, that the pie is fixed, and can’t be expanded. This is not true at all. In fact, the opposite is truer than this. It is capitalism, along with its widespread innovation, that creates more of the pie, than in other economies. I don’t have the time to explain this now, but this post is a good place to start.

  • It seems that brainmarket looks at things in such a micro view. It’s easy to point out things such as those that have this and those that don’t have that. But really, who cares. Ultimately, in this country if you want to move up the economic scale, you get educated and you have to get educated in the skills needed in the marketplace that pays the most (i.e. don’t get a degree to be a teacher when you can get a degree in engineering which pays more). For some people, they settle for less because money is not the most important thing and that’s ok. That’s what makes us a free country. But this insistence on making or giving everyone the same on the economic scale makes no sense. Afterall, communism was suppose to make everyone the same, but it really wasn’t. The same with socialism.

    Our country provides many mechanism to improve your own situation. Ultimately, it’s up to the individuals to make it happen. Not a government program or a new law.

  • very insightful post (and comments). its scary to read your stuff sometimes and find myself agreeing. i’m starting to feel like a closet conservative. eek….

  • The dark side awaits you with open arms, Irasali.

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