Hacker News new | past | comments | ask | show | jobs | submit login
Why Do People Stay Poor? [pdf] (lse.ac.uk)
168 points by zackhsi 10 days ago | hide | past | favorite | 296 comments

Without making the jump from washing plates/factory work to software I don't know how I would have escaped(still haven't) considering my pay increased 4 times. Just brutal when you trade hours for money directly at a low rate, I was doing 70hrs washing plates before and it was nothing ha.

Edit: there is the thought of living within your means, personally with a roommate I could live on $10-$20K a year which you can make doing labor jobs but not a lot saving. I'm lucky being single/having no direct responsibility eg. children.

It is my opinion though that if you want to/have internet/time then you can alter your life for the better, but yeah can't just say "learn to code". But other options available. I see the point about opportunity because I had a friend to crash on his couch when I was technically homeless that is helpful/bare min opportunity.

My jump was not fast, it took at least 2 years not including the 3 years before that of self-study/personal interest. I freelanced on the side while working as a dishwasher before first in office/full time job.

This sort of perspective is very important, especially here on HN where I see plenty of ignorance on this topic. When you work these jobs, often the local cost of living is pinned to these minimum wages, where you stagnate and are unable to save. How can you possible afford to move when your rent increases? You have no savings to rent a vehicle to move your things, nothing to put down up front for a new apartment, and at no guarantee of finding a job at the end because a manager for working class work is only going to bother hiring local candidates. Throw in an unforeseen cost, and you can see how easy it is for people to end up missing payments and living in their car or a tent while still working that minimum wage job.

People vastly underestimate how hard it is to do anything without capital/savings.

If you are one missed paycheque from going hungry, you can't afford any risks. No going back to school, no going freelance, no interviewing, no investing in anything. You can't afford the means to make money, whether it's a car, a computer or nice clothes. You can't afford them breaking down, but you also can't afford maintaining them.

The missed opportunities add up over time.

Grapes of Wrath is an excellent book that drives this point home really well. It hurts to read at times.

I try not to think too hard about how my recent progress toward not being completely hopeless depended on a few inflection points that could easily have gone another way or could have been inaccessible had a few earlier events gone a different way. Luck is a force multiplier that can go wrong as easily as it goes right. Circumstances determine how much you can prepare for either type.

Yeah same here. Just got a close to dream job, and if I had waited maybe another week to contact them maybe it wouldn't be available anymore.

Yeah I was definitely fortunate to have a friend/ability to buy time to learn by becoming "homeless"/living on a couch and as mentioned no kids.

you [...] can't afford maintaining them

Not sure I can entirely agree, when I was broke I had a fair amount of free time and I spent a lot of it learning to repair motor vehicles. Parts are not free, but labor & markup is most of the cost anyway.

> when I was broke I had a fair amount of free time

How did you manage this? I was working my ass off just to keep the bills paid and doing chores to avoid costly services like dining out and maintenance.

Broke and poor are different circumstances, usually amounting to coming from a family or social circle which ain't really poor.

A college student can be broke, but a poor person can not afford to be a college student.

Not who you asked, but without extra means you end up with free time any time you're not working. You can't afford to do anything.

If you don't have a job where you can simply take on more hours, but it's also not predictable enough that you can get a second job, you just end up with a lot of useless free time on short notice.

Can't afford hobbies, trips, no significant other (being poor doesn't help your dating life), what else is there to do?

It took money for me to actually run out of free time. I honestly really enjoy tinkering and fixing stuff, but it's usually no longer worth my time (to my own dismay).

Before money learning to fix something meant the difference between keeping the car going, or having your car break down without money for the shop bills. I've fixed lots of stuff by flashlight so I could get to work the next day.

Nowadays being put in that sort of back-against-the-wall scenario isn't likely to happen, unless I sign up for some sort of game show or reality TV where it's purposely planned.

> what else is there to do?

If things are tight enough, you spend all that useless "free time" hunting for more work. You feel you can't afford to just enjoy the time.

More gigs. More waiting for an Uber request. More time polishing your resume, or your profile on Fiverr. Or improving your "Github is the new resume" look.

Then it's not really free time. It's a job, but you're not paid every hour you're working on it.

It can even resemble socialising, because in some lines of work you have to keep socialising for people to think of you when they have a gig.

> More waiting for an Uber request.

Presuming there's an Uber and you have a driver's license(they're not free you know) and a car.

>More gigs.

You are aware that gig economy is just about 5 years old, right? And you have to be in a high demand area to do it.

There were coders for hire sites for a long time, but that paid complete crap.

> Presuming there's an Uber and you have a driver's license(they're not free you know) and a car.

Uber is just to illustrate. It's just an example. If you're in the wrong area, or the wrong time for that matter, then it's something else.

Either way you're (and were) spending that "free" time looking for jobs, quick jobs, whatever jobs. They used to call it pounding the streets or getting on your bike. Even going door to door.

When I was young I did it myself, literally going from door to door asking if they had any work.

> There were coders for hire sites for a long time, but that paid complete crap

That's why I mentioned Fiverr, as an example, which is a version of the coders-for-low-pay thing generalised to other kinds of work.

> When I was young I did it myself, literally going from door to door asking if they had any work.

This depends very much on the location and the community around you.

Looking for odd jobs around you yields no results in a poverty depressed area.

I imagine a lot of it depends on your lifestyle too. I have an old friend that only works enough to bankroll his skiing and biking. No kids or other "adult responsibilities", and he lives extremely frugally (favors and freebies are his bread and butter).

Yeah I didn't have a car for a while, I didn't get a job back in 2015 or so for PHP because of that ha. First in office web developer job after restaurant, I had to bike 30 miles a day lol [1] round trip, that was brutal. On the plus side, 3 hrs of podcasts. I listened to the book Eccentric Orbits then that was good.

Uber was like $60/day so yeah... although I only made it 4 days straight, never 5 days of bike riding so I would eat the Uber cost one day. I was lucky that friend loaned me $3K to get a car(opportunity). But I bought a bad car/sunk money into it(had to fix).

I would bike home from the factory pitch black road at night(dumb) listening to Changelog haha good times.

[1] https://i.imgur.com/cOZWquX.png

OT Graeme Obree biked 60 miles round trip for work. Due to the fitness gained he was able to come out of nowhere to break the hour record in cycling on a bike he built himself out of miscellaneous parts from things like washing machines.

that's super badass, but my recollection of having a commute slightly over 30 miles roundtrip is that it was thoroughly exhausting. Or in other words, the same difficult circumstances that inspire one person to remarkable success will still grind many other people down. We can all aspire to be great, be by definition most of us will hew pretty close to average for our circumstances. I think this thread is pointing out how difficult some circumstances can be, which doesn't need to discount the possibility for someone to transcend them, but you're pointing out an outlier in a discussion about median results.

Would an electric bike close the gap? It's not as expensive as a car. It's also better for the environment and your body. A $3k car might sound like a better deal than a $3k bike but then you'd have to pay for fuel and maintenance.

If we're talking broke, we're talking $1k cars and $100-200 bicycles.

My first car was $800 and I bought a few motorcycles over the years for around $400 each.

Yeah. My first car in 1996 was a Buick Century that I got for $1,000. My brother had this shitty mid-80s 2-door Pontiac Sunbird that he got for like $600 in 91 when he graduated from high school. I kept that Buick in service until 2001 when I enlisted, I don't know what happened to it after that. I got a 94 Ford Ranger, around 2003, when I needed a car again and was making some better money for around $4,000. I sold that truck to an old colleague in 2009 (he still has it today) and got a used Scion xB for $6,000, which I till have today.

It blew me away when I got that Scion. It was a steal of a deal. I was looking at used, late 90s model Civics at the time, because I needed a commuter that could do 50 miles one way with decent MPG and with something I knew that I could keep on the road, and those cars held their value so well into the late 2000s that it blew me away. People were asking $3,000-$4,000 for them with 150k-200k miles.

Today, I make something crazy like about 15x what I made in 1996, but I still have that Scion. I plan to keep it on the road for another 11 years. After all, it's a Toyota and it's given me no trouble at 150k miles. It goes to the shop for tires, everything else I handle in my garage. It's a commuter for my wife that goes about 5 miles one way these days.

My neighbors comment on it all of the time. They think it's an unsightly beater sitting in front of our ludicrously expensive homes. I thought about selling it for a while but their shitty attitudes have convinced me to keep it around.

Those xB were really a great car and practical. I still remember those Scion meetups they would have where they encouraged an active aftermarket community. For their odd design it has aged well. I still see a lot on the road, I think you'll have no problem getting it to last that long.

Electric bikes are less safe. That might not fit the risk profile of many, justifiably.

It’s why I prepended off topic on the post. There is no way I could do that day in day out and I’m faster than average on a bike.

I did read this when it was first posted, I've been working on/off since then ha(wrecked sleep pattern). Was trying not to flood/chain responses.

There are many examples of people overcoming crazy challenges, makes for a nice story but also having a regular/"painless" life is also nice. I did not enjoy riding the Walmart bike that far/many hours. It was nice though the nature aspect.

I still think I am being lazy, not trying hard enough, about being an entrepreneur like did I really try... not drop shipping but building some service. I keep thinking is what I do worth it if it doesn't make money since that's my primary concern right now is getting out. (not be worried if I lose my job) I gotta stop responding haha, wish I could condense my previous posts.

edit: clarification, the car was a bad buy(not a car guy) it was just under $2K so I had a buffer but it was partially broken... so I had to drop money on it.

It was off topic and in no way was I suggesting you should try keep riding. I’ve done only 30km round trip on a good bike and it was exhausting having to do it even though I would happily do it in my free time.

Yeah mostly it took too long for me my crappy bike ha, 1.5hrs each way sucked. Although it could be nice/ideal with regard to being healthy.

Extremely well put. One of my favorite quotes from fiction comes from The Great Gatsby’s first page, “In my younger and more vulnerable years my father gave me some advice that I've been turning over in my mind ever since. "Whenever you feel like criticizing any one," he told me, "just remember that all the people in this world haven’t had the advantages that you’ve had."”

How dare we assume we would be who we are (good or bad / rich or poor) without the life events that exist outside of our own domain (who our parents were, education, income levels etc) of control!

FIRST LADY MICHELLE OBAMA - I mean, my values, in terms of what I think my obligation – my personal obligation – Michelle Obama – is that it is not enough that I succeed on my own. I have to care about the kid in the desk next to me at school because he’s just as smart but his mom works. And my father always kind of taught us to take in everybody’s full story. Not to judge people, the drunk uncle or the cousin out of work...

PRESIDENT BARACK OBAMA – Cause you didn’t know what was happening...

FIRST LADY MICHELLE OBAMA – You didn’t know what happened to them. You know, we weren't special. And as a result, you know if something good happens to you, if you have an advantage, you don't hoard it. You share it. You reach out. You give back. And I can say that my family, my neighborhood, my notion of community growing up shaped that view and shaped the choices that I made in life as I felt your experiences shaped yours.


While this is excellent advice for consideration of others, it changes _nothing_ for drunk uncle or out of work cousin that there are "reasons".

Maybe government can help, depending (likely the underlying motive of the quote. i.e. promotion of social programs over "pull yourself up by your bootstraps" rhetoric). Or maybe government can not help but will try anyway at great expense and possibly make things worse.

We have seen both scenarios. Thus I'm always personally suspicious of any ideology that regards government as a universal and infallible solution to all problems, and any ideology that regards government as perpetual failure at effectively and efficiently solving anything.

Government is a substitute for people whose social network cannot help them in hard times. It’s not perfect and it won’t solve everything, but it’s necessary because otherwise nobody will help these people.

The only way to be sure not to make any mistake is to do nothing, which itself makes things worse.

Whilst drunk uncle won’t be saved by the bare minimum a state can provide, he certainly will be worse off if he ends up on the streets. And sometimes all out of work cousin needs is a bit of money to pay rent and food for a couple of months until he finds some work. So yeah, a welfare program is not a panacea but it is useful, and also cheaper overall.

> You have no savings to rent a vehicle

Come on, U-Haul is like $50, including some mileage.

> cost of living is pinned to these minimum wages

That is true. That's also reason #3245 why UBI is a stupid idea.

>> cost of living is pinned to these minimum wages

>That is true. That's also reason #3245 why UBI is a stupid idea.

I actually don't think that is entirely true. For certain things, those most affected by modern supply chains, we generally aren't seeing a corresponding increase in costs to wages.

For other things driven more by scarcity such as housing, healthcare and education we are seeing a dramatic rise in costs.

Our economy is in a strange place and I don't think the obvious one-to-one rules of thumb hold currently.

I spent about 10 years of studying before I landed my first quality job. I went through literal poverty at that time - having $10 per week for myself and my schizophrenic mother to live off.

I was also lucky, because my sister left to work in Italy. That would make all of the difference...

If I didn't have: - free education secondary and higher - low cost local transport - a suit given by my sister - 4 tickets to another city to interview(paid by my sister) - low cost internet - rent paid by my sister

I would have been just another bum, because that 10y period included being kicked out onto the street... because some nice "rich people" used my schizophrenic mother in a tax avoidance scheme... and got away with it.

There's a lot of luck that is involved in getting out of poverty, that most arrogant middle class individuals completely ignore.

Wow, quite an experience. I'm curious: how did those rich people use your schizophrenic mother in tax avoidance scheme?

> having $10 per week

Wow... how is that possible, I guess depends where/maybe what year.

Glad to hear you got to a better situation

It's barely possible... but it is poverty of depressive proportions.

Think of never having new clothes, only donated clothes.

Ever read the Zine from the 90's called Dishwasher? That is my favorite Zine of all time. I absolutely loved it.

I have not read that. There is something nice about dishwasher jobs because they're high turnover rate/low barrier to entry/can get hired pretty quickly. Granted in some cases I had to go through some application process eg. take a quiz on running over 2 people or 1 on train tracks, etc... but yeah. I'm hoping at least by now, I have enough "value" as a developer to be able to worst case freelance hourly or something. At least now I'm paid well enough/working on saving. I almost welcome failure in a way because it's exciting/scrambling like needing to manifest a miracle. I have contingency plans you know sell everything I own, etc... but yeah. Worst outcome is prison/death I think. So I have no excuse but to try.

Have you heard of Dishwasher Pete? Many people, myself included, seemed to have learned about his zine after listening to one of his memorable public radio appearances:





NOTE: This American Life audio didn't seem to work in Chrome, even after disabling uBlock Origin.

Thanks for the links I will read/take a listen as I have time. Ooh this will be good/will listen to it for my cooking/cleaning podcasts heh.

What language/s did you teach yourself during that several year learning time? What did you choose to focus on?

(I noticed this: ReactJS/Node-Express/MySQL/Python in your profile, but I'm not sure if that's what you started with)

Short answer: at the time learned LAMP stack, able to build interfaces, auth, ssl, setup servers, make db schemas/make APIs, etc... I remember I had to learn how DNS worked haha.

I wasn't learning specifically to get hired. My first stuff was trying to build high traffic websites/make money through ads but my ideas were dumb. But I still learned in the process how to build websites.

Full answer https://i.imgur.com/uAGMHkQ.png

First full time in-office job 2018

I appreciate the story. Congrats on the excellent progress!

Thanks, yeah I am still not secure, always fear of incompetence. Not having a degree is a fear. But I just have to keep learning/save/make more money ha. Get that burn rate, entrepreneur, FiRe, etc... I'm fortunate to have gotten into this field though and enjoy it personally.

Really cool story. One of the best engineers I ever worked for started as a psychiatric nurse. He got to know the guys in the computer department at his hospital and got a job doing desktop support. When he hired me, he was running application support at a fin tech startup. He wrote their distributed application monitoring system from scratch in Perl (this was a while ago when that actually made sense).

> distributed application monitoring system

Dang that sounds nuts, I haven't made anything nearly that complex haha. There is something about architecting something and seeing it work "on its own". It's a cool feeling.

His stack indicates web dev, which is the typical path for self taught programmers. Plenty of work available that pays more than minimum wage.

Yeah I have not really gone down into the C/C++ that level and I haven't touched the Microsoft side eg. .NET

Closest thing for "native" is using the wrappers for JS which for my needs works. I did have to force myself to figure out how to get a basic Android widget (Java) to work that was tough.

Easy answer: because expenses are higher for poor people.

Instead of buying a home, the lower class rent their whole life. Instead of their daddy giving them a home, the middle class pay interest on a mortgage most of their life.

Instead of buying a 20-pack of $necessary_product that costs $20 and will last for months, the lower class buy a 2-pack that costs $5 and lasts a couple weeks because they need the $15 to pay rent. And then they have to spend more money on gas (or bus fare, or a taxi, or time and energy walking, or ...) to get to the store again sooner.

Instead of the employer providing any supplies that are needed, the lower class have to buy their own uniforms or tools.

Instead of a 5% interest rate on their loan, they have a 25% interest rate.

Because they don't make enough money to set some aside as savings, they have to pay late fees or NSF fees or overdraft fees.

Slight aside: Poor people aren't trying to maximize profits. They are trying to minimize risk.

It's a small quibble, but it helps explain the different behavior of the wealthy and the poor. More importantly, it explains the mindset that changes with wealth.

Bret Devereaux of the acoup blog had a good piece on this in reference to medieval farming estates of lesser nobles and the abject poor [0]:

"I led in with all of that risk and vulnerability because without it just about nothing these farmers do makes a lot of sense; once you understand that they are managing risk, everything falls into place.

Most modern folks think in terms of profit maximization; we take for granted that we will still be alive tomorrow and instead ask how we can maximize how much money we have then (this is, admittedly, a lot less true for the least fortunate among us). We thus tend to favor efficient systems, even if they are vulnerable. From this perspective, ancient farmers – as we’ll see – look very silly, but this is a trap, albeit one that even some very august ancient scholars have fallen into. These are not irrational, unthinking people; they are poor, not stupid – those are not the same things.

But because these households wobble on the edge of disaster continually, that changes the calculus. These small subsistence farmers generally seek to minimize risk, rather than maximize profits. After all, improving yields by 5% doesn’t mean much if everyone starves to death in the third year because of a tail-risk that wasn’t mitigated. Moreover, for most of these farmers, working harder and farming more generally doesn’t offer a route out of the small farming class – these societies typically lack that kind of mobility (and also generally lack the massive wealth-creation potential of industrial power which powers that kind of mobility). Consequently, there is little gain to taking risks and much to lose. So as we’ll see, these farmers generally sacrifice efficiency for greater margins of safety, every time."

[0] https://acoup.blog/2020/07/24/collections-bread-how-did-they...

All this makes sense. I’d also point out though that there’s a societal aspect of this too- rich people have a lot of ways that they use to make sure that when things go badly, it’s poor people who pay the cost. So they have good reasons to worry less about tail risks.

For instance: does your local city council respond to rising rents with the same urgency as they respond to falling real estate values? What did America put more money into during the coronavirus crisis, keeping people from being evicted or propping up the stock market?

Rich people don’t worry about tail risks because they don’t have to.

Worth noting that much of the markup on smaller quantity retail items and interest for the poor (or even middle class) works because of this mitigation if risk before profit-loss.

This is a great definition of what I consider to be the 'poor tax'..

Not to mention if they ever get un-poor they don't have the knowledge to 'build wealth' until they start slowly learning it or from a mentor.

We would better off teaching 'home finances, interest and banking' classes instead of Algebra 3 or geometry 2 (for 99% of people)


It is crazy that for a standard "Savings" account: - interest earned is less than inflation. - I pay tax on that interest earned. "Saving" money in a common savings bank account pisses away value.

Many people are not capable of more financial management capability.

The middle class is often locked into a mortgage - I am too! - and is barely one step up. But it is one step up.

Ultimately, poor people don't own things that make money. They are not "rent seekers". They don't own stocks or real estate or anything else where the simple act of ownership makes money.

>interest earned is less than inflation. - I pay tax on that interest earned.

Interestingly, the current administration proposed to index capital gains taxes to inflation to address that very paradox. Unsurprisingly, their proposal would have just been a giveaway to the wealthy.[0]

[0] https://itep.org/why-trump-administrations-plan-to-index-cap...

We used to have capital gains indexed in the UK. I've never seen an inflation allowance for interest though. I guess it would be too expensive?

It's factually easier to say - if your earned interest is less than X(absolute value), then you don't even have to report it.

US tax system is MUCH more complicated, than UK's... and UK's system is fairly complex.

I'm not a finance guy but I suspect it's axiomatic that you can't keep up with inflation without taking any risk. Like a law of economics.

Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time. Although I guess you can argue that "tying up" the money is a form a risk, and almost certainly a luxury some poor people cannot afford.

>Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time

It's not risk free, there is nothing that stops government from creating inflation so they can pay off the debt for in inflated dollars.

Today, central bank alone doesn't have power to make create money out of thin air. Government guaranteeing loans from banks to corporate players and projects is creating inflation. It's good for politicians as they can pay off their expensive mistakes in cheap money.

Treasury bills are considered "risk-free", although pedantically of course nothing is actually free of risk.


A bond has a NPV like any other instrument. The purchase cost of a TIPS can be any price, including above coupon. TIPS are especially sensitive to interest rate risk because higher interest rates drop both the underlying asset value, and the inflation index. So it’s basically just a double-leverage T-note.

I will admit I have little financial management knowledge myself. I am inclined to agree with you, but what is the bank doing with the money you keep there?

Isn't the bank meant to be using your money in a "managed fund" like manner? IE leverage it to make profits.

Here in Australia the banks make quite decent profits, and yet a savings account can't break even, before tax?!?

I haven't done the sums but I am curious if it is better to own shares in the bank than put money in the bank.

I am also inclined to ensure my son does get financial knowledge. It is hard to play a game you know only limited rules of.

Bank also makes money on transaction fees (both merchant and account holder side) which is something bank account owners don't make.

Why should the interest rate on a savings account match inflation at all? I don't see the correlation. With FED rates so low, it isn't even evident that they should produce positive return, and I wouldn't be surprised to one day see negative return savings accounts.

While I have a vague intuition from an economic point of view you are correct,(I am not a finance guy) I take issue with the name of the product.

Savings. Generally advertised as helping your money grow. It isn't advertised as a "Slow draining of value" account.

It's a sad state of affairs. There are far more resources available these days to combat the information asymmetry that drives the "financial planning" industry, but it's not nearly enough to help the people who actually NEED it.

I began my career in private wealth management (minimum $5M investable assets).

I ditched that to try to help real people...joined a brokerage where I discovered sales targets still required $250K, at the very least, in investable assets (this excludes include home and any assets that cannot be held by the brokerage, so the net worth of these people was usually $500K+).

I finally gave up and attempted to run a business on a different fee model to educate lower/lower-middle class people on their finances. The Great Recession and my youthful idealism & naivete destroyed that.

That's the only way to have billionaires. They have to take the money where it is, mostly in poor people's pockets.

Presumably they make things of value to get rich, which is why we enjoy the standard of living we all do.

Define "we". Many a rich man was made by picking a poor man's pocket.

Very true

Great point.

Don’t forget that local government also taxes the poor with predatory fees and fines for minor infractions.

- parking tickets - car insurance fines - cash bail

Sources: https://www.latimes.com/archives/la-xpm-1996-04-20-me-60640-... https://theappeal.org/fines-and-fees-explained-bf4e05d188bf/


My feeling is "the easy answer" is "All Of The Above" and the bubble choices proceeding encompass a range of reasons from "A" to "ZZZ".

>Easy answer: because expenses are higher for poor people

As a person who mentors poor people, it's not always this..

Don't get me wrong, there are some poor people who are poor by choice. They usually don't feel like victim and aren't stressed about them being poor. They are pleasant to deal with as they understand the trade off they are making. They are very small % of poor people.

Here is the difference I see:

1. Reasonable well off people (many of HN crowds are this) are usually willing to listen and discuss the ways some project or work can be done better.

2. I've gone to offer same suggestions to poor people, a lot of them listen to me absent minded. They complain "I am too tired", "I am losing hope" while a few of them go back to doing drugs and drinking.

3. Poor people don't want to lose their "immediate" freedom. While well off people understand it's a temporary scarifice they are making, later situation will change.

4. Optimism, all the guys who came up with ideas and plans are now doing well.

6. Ability to form relationships and acquire new friends. I consistently saw the poor people who I was mentoring would abuse their friends (without realising), they'd call them "dumb, stupid" while having all evidence like "success, wealth, education qualification" which clearly showed the person giving them advise they are asking for is just trying to help them.

7. Coming from poor household, I used to think rich people are evil and all but I really figured out that a high proportion of rich people were just more attentive and good are forging connections which often continued life long and the benefits compound when you are connected to so many good people for so long this is what most poor people do not realize.

You just listed off all the psychological symptoms of long term poverty. Congratulations at being very shallow.

It's not the reason why people are poor, it's the result of being poor and being treated as such.

If so, turn it into a perpetually profitable self-funding charity that fronts the poor the money to get the cheaper option in return for a cut of the savings.

It's probably not possible because there are factors other than what you described.

Just because you created a way for someone to pay bulk rate in smaller amounts doesn't make the savings magically appear in a bank account.

At best, you just invented credit cards. But poor people often either can't get credit cards, or the interest rates are astronomical, or they require a cash deposit (that they can't afford) to secure them.

I didn’t invent credit cards. I pointed out that being able to borrow isn’t the limiting factor. It’s well over 100% rate of return for the bulk savings you can get for some of the examples often cited. That’s a tad more than the interest a credit card charges (or what the charity I suggested could charge).

The point of my comment was to suggest that you be the lender and get these easy returns, if you’re so confident in the theory. Why did you think it would be relevant whether current credit cards would lend to them?

Are there specific issues that you have with the comment and deeper insights than those described? If so, what are they, and what data do you have to support them?

Buying a car.

If you don’t own a car in the US and don’t live in a place like NyC you will be destitute. You will have no way to get food and no way to get to work (and therefore pay rent.) Most people in the US could afford to actually save money if they didn’t have to pay (including interest!) on the loans they have to take out to buy a (crappy and used often!) car.

Yes, the insight that the comment implies there's an easy source of free money that also lifts everyone out of poverty with little effort. Do you not count that as an insight? Were you aware of that implication before seeing my comment? Is there a reason you need copious data to back up my comment but not the original one?

The OP implies no such thing.

Are we reading the same comment?

>Instead of buying a 20-pack of $necessary_product that costs $20 and will last for months, the lower class buy a 2-pack that costs $5 and lasts a couple weeks because they need the $15 to pay rent.

That directly implies that if they could be lent the $15, they could get the long term cheaper option and save money, even if they had to pay it back plus a high APR.

Apparently we're not reading the same comment. In this example, the rich person pays cash for the 20-pack and probably earns interest on the savings. They have no need to pay interest on a loan. The poor person pays cash for the 2-pack and then pays again next month, and maybe takes out a payday loan to afford the rent after they have to call in sick, and there's your high APR. This is not a benefit. What am I misunderstanding?

The entire premise, where I suggested this was an easy mutually beneficial profit opportunity, for the rich person to lend to the poor person to make the bulk purchases? I'm not sure you're keeping up with the exchange here.

That was OP being sarcastic and stating no further point other than they don't have one.

In Israel in the 60-80's the state created "rent to own" housing projects for poor people.

It worked pretty well.

Meanwhile, in the USA, the only "rent to own" that we have are places like Rent-A-Center where you pay $20/week for a year for something that has a retail value of $300.

Paying a mortgage isn't much different than a rent to own scheme.

Qualifying for a mortgage is much different than qualifying for a lease, however.

Israel at that time was a poor country, and home for many Jews who came from around the world with nothing .

Under those conditions, getting a down payment on a mortage was huge problem.

That's really not true.

Have you tried applying for a mortgage and renting?

Sounds like the same thing as a mortgage.

Once a business or service is built around it, yes. But This likely can be solved via something that doesn't have to be profitable, just successful. Universal basic income could cover the gap. Stronger unions and enforcement of stronger regulations like curbing interest rates, providing personal finance resources for free like a financial adviser or community college course, or shoring up meals programs for poor kids are all options. It doesn't have to be a business to work.

> Universal basic income could cover the gap.

UBI does not solve the problem outlined by jfrunyon that

> expenses are higher for poor people.

No, but that isn't the only tool or lever to pull. It's an idea around a rising tide lifts all boats where an extra $1k a month or baseline income could bridge gaps so instead of choosing between food, car, and insurance this month the household can cover all 3 and maybe get out for some ice cream and have a human experience.

There are fair criticisms of UBI but it would not be acting in a vacuum. There could be policy and actions to support the goals of UBI. Everything is more complicated than it seems.

> It's an idea around a rising tide lifts all boats where an extra $1k a month or baseline income could bridge gaps

Prices increase in this case - that is how markets work.

Isn't this essentially the whole premise behind microfinance (microloans), which are a form of charity?

Not always...

Its been found that what most have called charity is actually predatory lending by another name. I’m sure there are some legit players but like most things in life you may need to read the fine print and get a lawyer.

Source: https://mathbabe.org/2015/10/13/microfinance-is-mostly-a-sca...

Micro finance works in the third world, for existing successful entrepreneurs; I’m addressing its application to blue collar first world poor.

Microfinance is called microfinance, because $1000 can get you a herd of goats in poor countries.

Try doing that in US....

Why have the poor gotten richer over time then? We don't have the same percentage of rich and poor as we always have had.

I think what you've identified is that the poor have gotten better off due to technical innovations reducing the price of basic goods and enhancing their functionality -- while on average wages have tracked inflation. This is a systemic improvement.

Meanwhile, the rich have gotten exponentially richer, as public policies have shifted ever more in their favor. For much the 1900s the top income tax bracket in the US was over 80%, peaking at 95%. Now its 37%. The estate tax for much of the 1900s was 80%. Now it's practically 0% for all intents and purposes.

The poor have gotten slightly better off, the wealthy have gotten dramatically better off, and the gap between the two has widened. Systems designed to keep the two groups together have been chipped away at, and are buckling. This is a result of social policy.

>For much the 1900s the top income tax bracket in the US was over 80%,

Top tax is not the same as effective tax rate. For example, when Reagan lowered the top brack from 50% to 37% while also closing taxable shelters,the amount the rich paid actually went up.

The CBO has all this type of data.

>This is a result of social policy.

It's more the result of changes in the world economy. Computers have made skilled jobs vastly more productive, while unskilled like making burgers or painting exteriors have not seen anywhere near the gains.

And as the rest of the world is catching up quickly to first world quality of life, the advantage the poor in the US had on the world labor supply is much less.

>while on average wages have tracked inflation

Only for white men in the US (and most first world countries). Poor women and minorities have seen vast gains in income over the past 40 years in the first world. The rest of the world has seen a massive gain for the poor.

Remember, the poverty line in the US is about the top 15% of incomes worldwide. Our poor are quite rich by world or historical standards. You used to be able to check this at globalrichlist.com, but it's now down. I suspect you can find this info elsewhere.

As some easy evidence to check, poverty line for a household of three in the US is $21k (and that pre-tax transfer. Post transfer is about 40k). Here's per country median incomes.


>Top tax is not the same as effective tax rate. For example, when Reagan lowered the top brack from 50% to 37% while also closing taxable shelters,the amount the rich paid actually went up.

This is something a lot of folks miss. The US has the most progressive tax system in the western world. The top brackets pay a much larger percentage than anywhere else.

Yeah, no, they don't, and it isn't.

Estate tax being practically zero means huge quantities of un-earned wealth are transmitted from generation to generation. This isn't true in most first-world countries.

The top tax rate in the US isn't nearly as high as many European countries.

The specific quantity of money that is collected as tax revenue has much more to do with just how successful the higher classes are in the US as compared to other countries. This is a function of (wealth inequality multiplied by the top tax rate) not of how progressive the system is -- certainly not at the federal level.

If you have citations, they are much welcome.

The post you're replying to missed many critical factors, such as the fact that the average salary in constant-dollar terms has remained the exact same since 1964 in the US. [1]

[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

>The top tax rate in the US isn't nearly as high as many European countries.

And the bottom tax rate is much much lower than in other countries. The top 3% of earners pay 50% of income taxes in the US. Nowhere in Europe will you find this.

Remember, in addition to their flatter income tax rates, Europe also has 20% VATs which is extremely regressive.

The bottom tax rate is highly negative in the US.

Think of an abstract poor family from New York State (outside New York City): two adults working for minimum wage (roughly $11), two kids.

Assuming 48 weeks in a year (allowing four weeks for vacations, seek days and such) total family salary will be about $41 000.

From that they will pay:

- $1700 of federal tax

- $1000 of state tax

- $4000 of sales and excise tax (assuming the rate for both is about 10%)

... while receiving back (all numbers are approximate)

- $5000 of federal earned income tax credit

- $4000 of federal child credit

- $1600 of state earned income credit

- $1300 of state child credit

Which gives a net credit of $5300.

That's not counting food stamps, free school meals and medical insurance subsidies.

If this is not a progressive tax system, then I don't know what is.

Payroll taxes are both regressive, substantial and non-refundable: 7.65% on each of the employer and employee totaling 15.3%, which stops when you make too much money. This accounts for a further $6273 if you haven’t taken the employee amount into consideration (I didn’t see it in your breakdown) and $3136 if you did but neglected that this is paid on your behalf by your employer and you never see it. This alone zeros out the net credit you mentioned.

Then of course since we’re comparing the rest of the world to the US, you need to add a couple hundred dollars per person per month - easily $10K for a family per year - for health insurance that gives them a $5K out of pocket maximum per year they can’t afford so they don’t die of cancer (but can’t afford an early diagnosis) and can’t afford their insulin. All of which is included in the tax burden and covered in Europe and Canada and Australia and New Zealand and Taiwan, to name a few. This amounts to a regressive 25% tax if you’re comparing directly (as good health insurance costs rich and poor the same, but represents a disproportionately higher amount of take-home pay for the poor).

I never understood the “freeloader” narrative, payroll taxes easily cancel it all out.

I guess what I would say is that "best in class" clearly isn't good enough given the results and the environment in which these decisions are made. Looking at the results, I'd say it's not working. Either we need to turn up the dials, regardless of what everyone else is doing, or find some new dials, but the status quo won't do.

> The poor have gotten slightly better off, the wealthy have gotten dramatically better off, and the gap between the two has widened.

That's a fairly common perception. Most often summarized in "the rich get richer, the poor poorer" (at least on a relative basis).

I was born in a Communist country, and I have another perception. Poverty has different levels. The most abject poverty is when you go hungry. My family didn't experience that, but we experienced the next step: severe food rationing. War-style rationing in peace times. 90% of the population in my city being subjected to that (the elite party members were not, obviously). My parents driving to a neighboring city to be able to buy potatoes and onions. My kids nowadays spend too much time on iPads and Xbox, I was spending too much time waiting in line to buy bread.

And I can only guess that there were hundreds of millions like me in all the Communist world (China included). For the most part this type of poverty has been eradicated.

I for one celebrate that.

That's a very subjective opinion and pointing out a completely different issue.

I remember going to another country to get pasta and rice by the bag - so that we had something to eat... just 25 years ago. That has little to do with poor growth distribution in US.

Having lived in a post-communist country and gaining wealth, I can see now in US that it's drastically harder to be better off here. It's a case of "everyone starts as poor" comparing to "poor have a lot of obstacles in holding onto wealth". You need at least $1mil in generational benefits to be well off in US.(either cash, quality education or other means)

The worst part for US - even moving to a rich place like NYC will not give you the necessary boost anymore(median NYC income is below national median)

Food insecurity is not specific to communist countries, it's a massive problem in capitalist countries today. The US is the richest country in the world and 37 million people experienced food insecurity in 2018 - https://en.wikipedia.org/wiki/Hunger_in_the_United_States

"Food insecurity" is nowhere near the same thing as going to another city to stand in line for potatoes and onions.

On the whole, decentralized distribution is always better than when centrally controlled

>"Food insecurity" is nowhere near the same thing as going to another city to stand in line for potatoes and onions.

What's the difference? Millions of people in the US have to line up at soup kitchens and food banks in order to avoid starvation.

>On the whole, decentralized distribution is always better than when centrally controlled

That's a strong claim; I'd be interested to look at evidence for it if you have any.

One major counterpoint would be the enormous reductions in poverty that China has achieved over the last decades. Quoting from Wikipedia here:

>The dramatic progress in reducing poverty over the past three decades in China is well known. According to the World Bank, more than 850 million Chinese people have been lifted out of extreme poverty; China's poverty rate fell from 88 percent in 1981 to 0.7 percent in 2015, as measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms.


What? China is not a command economy. It used to be, pre-1970s, but no longer is. Companies adjust production in accordance to price signals, not instructions from Beijing. This is not an appropriate counter-example in any sense.

Compared to most countries in the world today, would you say the Chinese government exercises relatively more or less control over their economy?

I mean America isn't in a place to talk these days, or as the Fed would say "brrrrrrrrrrr"

It's near the median. Plenty of corruption, but they are not a command economy in any sense.

You think that half of governments have more control over their economy than China? You keep bringing up China not being a command economy today. I never said they were, just that they exercise relatively more control over their economy than other states.

In case you don't know, in addition to the portions of the Chinese economy directly owned by state-owned enterprises, the Chinese government exercises a large amount of control over the private enterprises in the country. You might find this article helpful: https://www.theguardian.com/world/2019/jul/25/china-business...

All of this is distracting from my point earlier which is what exactly do you see as the difference between hunger experienced by people in communist countries in the past and the 37 million people in the US who experience food insecurity each year today? You mentioned that people don't have to "line up" for food in the US, but thousands of people do, every day.

I said food distribution is better in decentralized systems than in command economies. You brought in china as a counterexample, probably because you are unaware that they haven't had a command economy in almost half a century

What I disagreed with was when you said centralized control is always worse, not a command economy. I asked for any evidence you have for that claim and you don't seem to have any.

I'm aware of the market reforms in China over the last half century. They've moved the country closer to something like capitalism, but it's still incredibly far from anything in the West.

You seem to be unaware that ~30% of the Chinese economy is owned by state owned enterprises, and China in general, or you wouldn't say something as incorrect as "Compared to other countries, China is around the median in terms of how much control the government has over their economy."

But again, you're dodging the question of why you believe, in the US, widespread hunger is an unfortunate necessity, but in communist countries, it was the result of the economic structure. I'd encourage you to consider why you believe that, and whether it's reasonable.

Poor people aren't really poor because they almost all have a refrigerator and an iPhone is not as compelling an argument as you may think. There are very real and very extreme examples* of poverty in this country that are inexcusable.

* https://www.theguardian.com/us-news/2017/sep/05/hookworm-low...

What do you personally think is a better metric for poverty? Something like access to quality healthcare?


I think we need to define terms. What is poor, what is rich. Are we measuring the delta between rich and poor? Over what time frame?



Consider the inverse: Why has life gotten cheaper?

> Instead of buying a 20-pack of $necessary_product that costs $20 and will last for months, the lower class buy a 2-pack that costs $5 and lasts a couple weeks

Get together with your neighbors and buy a 20-pack?

> the lower class have to buy their own uniforms or tools.

Workers owning their own tools. Isn't it what Karl Marx dreamt of?

> Instead of a 5% interest rate on their loan, they have a 25% interest rate.

Don't use loans. Seriously. You either can afford something, or you can't. Buying a house is probably the only exception. I know in US culture it sounds almost as crazy as "don't own a car" or "don't watch TV", but that's entirely possible.

The reason that the rich were so rich, Vimes thought, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and _would still have wet feet_."

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.

I'm not trying to generalize, because I know poor people who are poor through no fault of their own (and we should provide public support for them), but I also know a larger number of people who contributed to their own dire financial situation and it wasn't because they couldn't afford quality boots, it was because they over-extended themselves with new cars, a way too big house, the big screen TVs and expensive trips and meals.

Poor people don’t go on airplane vacations or own houses. Poor people don’t have bank accounts. You don’t know poor people. You know people who live beyond their means.

Poor people are in Section 8 housing or various other housing vouchers.

You know people who live beyond their means.

Right. People who lived beyond their means and ended up poor.

Or are you saying if you once had money for these things, it's impossible to ever be poor again?

> ended up poor

I think we have to establish what it means to "end up poor" in this context.

I'm barely living within my means. I have a decent house, a very nice car, a respectable gaming PC with VR, and recently got into hobby RC cars. I take at least one 1-2 week vacation a year out of state.

But...I have $0 in my savings account, and less than $50K in my 401(k). I'm 38 and only started contributing to a 401(k) 6 years ago after I finished my CS degree and started working jobs that pay decently.

But I also have $0 in credit card debt. I tend to spend all my extra money, but no further. I'm not taking on extra debt (Beyond my mortgage and car loan) to fund my activities.

Would you consider me poor? I am after all, barely living within my means. Because of my spending habits, I'm almost living paycheck-to-paycheck.

No, I wouldn’t consider you poor. But it probably wouldn’t take much for you to end up poor.

I know people who make more than $100,000 per year and have a net negative net worth and take on more debt every month. I would define them as “cash poor”.

Point being, these people end up poor when something unexpected happens, despite having made very good money for many years prior. They could have managed their finances better and weathered the storm.

> Or are you saying if you once had money for these things, it's impossible to ever be poor again?

I’m saying actual poor people never had that stuff to begin with. What you consider ‘poor’ is nowhere near actual poverty.

Let me guess, credit card debt. I would take into consideration also the trap that creditcard companies set for unsuspecting folk, who make the mistakes themselves, is true ,but who were set up into a trap way before spending any penny.

And bankruptcy fixes things for the latter folks because they have a good, stable income.

I always took that theory as more about how rich people stay rich & grow richer, as opposed to why poor people are poor.

Perhaps proper education and examples of personal finance and budgeting, even in the face of celebrity promos and sales sales sales, could prevent some of the next generation from doing the same. I'd argue that you're oversimplifying those that got themselves stuck. They possibly lacked caring or supportive parents, stable childhood, stable role models that aren't rich, quality education on issues like personal finance, etc.

When things are simplified it's often easier to draw conclusions, but the method of simplification and how far you go will induce bias. Maybe someone's car was hit and totalled. They couldn't afford to insure it while working 2 jobs with no healthcare/benefits and trying to support a kid they can't afford (or legally abort). They now have a medical bill for $2000 due to injuries sustained, no car to commute to work, no job if they can't commute, and no way to afford an incoming baby regardless. They jump to a dealership the next morning and have a car loan signed by 10am, then back to work having missed hours (that they won't get paid for). Then they had to decide between food and the car loan before even considering the medical debt. Maybe they had medical debt from a prior issue that tanked their credit score and left them with a 20%+ loan they just signed. Maybe they have a concussion or the pregnant woman needs time off work to heal (Paid? Unpaid? will there be a job to return to?) Regardless, they didn't have the resources, time, money or energy to respond to the crash and it sunk them into thousands of debt before they got their test results back from the medical appointment.

Sucks, but is a very real issue for many Americans. With proper regulations (with teeth) for:

benefits/sick leave or PTO/wiggle room to deal with emergencies outside of work,

laws to cut down interest rates or free people from bad/old debt that has them spiralling including higher education or Community College coursework in personal finance or budgeting (and better career/job prospects),

proper funding for universal healthcare to stop medical debts and increase use of basci services to prevent major cases and long term costly health issues,

support for families (including family planning) and greater access to (and no loss of pride from using) SNAP/food stamps,

a plan for childcare

education from a young age on personal finance and other useful practices

We could see improvements in many Americans daily lives. Often, edge case or minority groups feel the system has left them behind, forgotten them, or even betrayed them. In America, that's true. The system will help those who help themselves but life does not discriminate when dealing out misfortunes and it can be very expensive to be poor for reasons mentioned in other comments like the boots story. Citizens will continue fighting even if they are fighting for the right to die from lack of support, can't reason with it.

If you make "laws to cut down interest rates", two things happen.

1. The normal lenders discontinue lending, either by choice or by bankruptcy.

2. The blackmarket lenders fill the gap. Mafia loans are not good for society. The nature of the blackmarket, without access to legal remedy, is that there will be violence.

This might have been true back when boots routinely had cardboard in them but when it comes to necessities and near-necessities the poor people versions do 90% as well at a fraction of the cost. It's all the other stuff you spend your money on when you're poor that screws you.

Then use your imagination and apply the hypothetical argument to other things. Another good modern example is the car. Imagine that you have $1800 in your bank account, you earn 8$/hr and your credit history is shot. Your options are either getting a predatory loan or dropping that $1800 on an old beater that breaks down every other week, bleeds oil and burns gas like crazy.

Yup, being poor is expensive.

I'm not going to comment about the article without reading it carefully; but just in case there are any aspiring data analysts online there is a chart that is interesting even without knowing anything about the data...

On page 64 (65 as the PDF numbers it), chart (b) "Distribution of savings rate" has an awkward little peak on the left hand side of the chart. It is very difficult to tell from inspection whether that is a real feature of the underlying data or if it is an artefact naive kernel density estimation.

If you ever see that pattern in your graphs, do consider trying logKDE [0] rather than ordinary Kernel Density Estimation a la geom_density() in ggplot. It also isn't perfect but the result is usually a bit better for things that approximate an exponential distribution.

[0] https://cran.r-project.org/web/packages/logKDE/vignettes/log...

I think that's a real effect.

Intuitively I would imagine a lot more people save 0% (or close to 0%) of their income than save 50% of their income, I would also expect a lot more people to save or overspend 3% of their income than overspend or save 25% of their income.

This is something I enjoy about our jobs up in Scandinavia - the salaries are very compressed around the mean.

Engineers, Lawyers, and other similar professions tend to earn 2x-3x of what the absolute minimum wage jobs earn. That's quite the difference compared to other countries, where Engineers can earn 5x-20x.

People here are still motivated to seek higher education and better paid jobs, even though they could live normal lives off those lowest paid jobs that don't require any education.

As fortunate as I am, being a software engineer in the US. I rather live in place with a good safety net. I feel we all are one sickness away from being broke. In any case, you can't really enjoy life when everybody else living day by day.

Have you applied for jobs in those countries? Looked into immigrating?

I immigrated to the US. But when I came here I didn't considered other aspects like having a good social net and a society that cares more about the community. Now it may be too late for me. But I worry about my kids.

I wonder what's the effect on emigration/immigration. It sounds like the gap between Scandinavia and other part of the world would make it tempting for high performers to leave.

There's relatively little emigration from Northern Europe. Some, but not that much.

You obviously can be a high performer with good life prospects there. You won't accumulate as much wealth as somewhere else, but the culture where you grew up also gives much less value to financial status. Good life, quite enough money, and good standing in the society means little reason to emigrate.

Other than the obvious equality benefits, even wages also have the advantage that people are much more likely to pick careers out of intrinsic interest rather than socio-economic status.

How many unhappy people do you know do end up stuck doing work they hate because of money? There are many, and uneven compensation is a prime cause of their misery.

I loved doing background investigations and PI work. It could be exciting, ever changing, and often utterly fascinating. I loved the travel and, honestly, the drama.

But the hours sucked and the pay was weak. IT/Network Engineering pays me literally 4x what BI/PI did. There may be a happy medium there in cyber forensics or incident mgmt (or other security roles).

But if the pay was closer... I'd consider going back, for sure.

I agree but considering the minimum wage is 0 I don't understand how you came up with the 2x-3x number.

Yes, we - at least in Norway - don't have any official minimum wage, but a good rule of thumb is that the majority of unskilles non-industrial jobs start around 150 NOK / hr. +/- 15 NOK. Or annually around 275k-345k NOK

In USD, that around $16.5 +/- $1.5. $30k - $39k year.

The vast majority of professional jobs which require a BS or MS start between 450k-600k / $50k-$67k, and will by end of career be around 600k - 1MM / $50k - $110k.

But keep in mind, there are several factors at play:

- private pays more that public jobs - industry salaries differs wildly - location plays a big role - lots of outlier jobs pay much more than the above - The numbers above are based on current USD/NOK rates, which is very weak for us Norwegians. It's right now around 9, but has been down around 5 during the good years. So one needs to look at salaries as a relative thing.

Edit: But we DO have union wages, which effectively work as minimum wages for many professions. But alas, there are lots of jobs with no unions.

Nordic countries have minimum wages defined by collective bargaining agreements rather than the law - because unionization is so strong and the agreed minimums are relatively good, they don't really need national legal ones.

Yes, but it's still optional. Only 39% of small companies have signed a collective agreement in Sweden. Companies refusing unionization and paying way below the union rates is a real problem: https://www.breakit.se/artikel/7599/i-spent-two-weeks-delive...

Even most people in Sweden think there is a legal minimum wage and are surprised to hear it's 0 and that you can legally pay someone 0.01 an hour.

To anyone interested in the topic, I recommend reading Duflo & Banerjee's 2011 book "Poor Economics". They pioneered the approach of using RCTs to test interventions in fighting poverty (for which they received the Nobel Memorial Prize together with Michael Kremer). They go into a lot of factors as to why poor people get certain economic outcomes, including but not limited to the poverty trap theory, and take a refreshingly "humane" / respectful view towards the people they are dealing with.

I second that. The RCTs get discussed most often. But what was eye-opening for me were their observations on how poor people manage the few resources they have matching the infrastructure they can access – like investing in bricks (Ch8)

I’m not qualified to judge the technical merits of the paper, but their conclusion seems plausible. They concluded that in an illiterate rural population, there did seem to be a threshold effect in asset levels above which it seemed much easier to progress economically. But it’s unclear to me how applicable this is to the poor in the US or other developed economies, particularly when we’re talking about a population where almost everyone can read and write, and many of them have cellphones and internet access. Part of the reason that many people (including my family) try to emigrate from developing countries to more developed economies is that the same person, with the same skills, can be vastly more productive in those economies, which is what allows that person to have a much better lifestyle. And much of the reason that high-productivity jobs are not available in those poor countries is because of a lack of capital. So it makes sense that giving the poor some minimal amount of capital is required, so that those same people can be more productive. But it seems unlikely to me that adding capital (increasing the assets of poor people) would have the same beneficial effect in developed economies, given the large pre-existing ‘capital stock’

This [article](https://www.forbes.com/sites/timworstall/2014/08/27/by-globa...) describes what american poverty levels would be if we used the same measure as we do in developing countries and makes the point that by those measures there are no poor people in the US, just “lower middle class”. That doesn’t mean we shouldn’t try and improve the lives of people at the lower end of the income distribution, but we should at least understand that when we use the term poverty in developing and developed economies, we’re talking about something qualitatively and quantitatively different - so the optimal solutions are likely different too.

> by those measures there are no poor people in the US

That doesn't feel like a meaningful metric when there are as many as 17% of mothers with young children experiencing food insecurity [1]. Perhaps that's due to COVID, but 11% of households were food insecure as recently as 2018 [2]. Around half a million Americans are homeless, and 35% of them are shelterless [3].

Are all of these people "not poor" and are they "middle class"? This all to say that how we think about poverty should focus more on the outcomes that people actually experience (access to food, shelter, healthcare, etc) than key economic indicators. Claims like "the War on Poverty is over" and "there are no poor people in the US" don't seem to match up with the lived experiences of many Americans.

[1] https://www.brookings.edu/blog/up-front/2020/05/06/the-covid...

[2] https://www.ers.usda.gov/topics/food-nutrition-assistance/fo...

[3] https://endhomelessness.org/homelessness-in-america/homeless...

You're agreeing with their point with good evidence. Whatever set of metrics or filters are used to identify 'poor' needs to vary based on the context of the conversation. I think most metrics have been left as is for decades to have consistent reporting like how we can say 'Poverty has fallen X% in [COUNTRY] since [20 years ago]'

But that doesn't give a fair view for all nations. Food insecurity is a metric that would quickly show poor improvement over decades, at least compared to current metrics. Maybe access to affordable housing, water, power, and other items on the first 2 level of Maslow's Hierarchy would work better.

In the end, we may learn a lot about 'first world' economies like the US and the areas failed by capitalism. I think many of the metrics pulled out could be used to argue either way Numbers on food insecurity could be spun as "We need to fund and support our citizens and make this better" or "Look how far ahead we are so do nothing or cut programs to save money!"

Maybe it's just me but this seems like a fairly pedantic point. I guess if you're not familiar at all with issues of domestic and international poverty you might make the mistake of comparing these numbers but I've never had a real conversation with someone who confused the two.

I grew up well below the poverty line in the USA and it was pretty self evident that I was not leading the same kind of lifestyle as someone in poverty in a developing country.

I think your point is mostly true but I'm also just not sure how useful it is.

I think a question many of us in this thread are asking ourselves is, would this work in the U.S. and the OP made a comment relevant to this point.

I don't think they did. The OP merely conjectured that there were none in poverty in the U.S.A. according to a study from the Brookings Institute, promoted by Forbes.

They didn't connect it at all to what this might then imply for America. It's a strange injection to the subject. America would likely need its own study and that's probably the most that can be said.

almost everyone can read and write

Maybe most can read and write at the most basic level, but there are enough who cannot do so at a high enough level to function as a productive adult.

Studies like this boil down a hugely complex issue into variables they can control for. There are a lot more theories as to why people stay poor than the two they offer at the beginning.

Why don't we study all of the people who have definitely risen from the ranks of the poor to a higher class and see what they have in common?

Sure, it's not the norm. But it happens all the time. There is enough data to form an opinion.

I'm guessing the way people rise from the poverty is much the same as people who are average becoming wealthy. They are willing to take risks (i.e., leave your neighborhood, buck the trends in your family tree) and they work on being prepared and available for opportunities that may present themselves.

We also know there are certain behaviors that absolutely correlate to and probably perpetuate generational poverty (children out of wedlock, crime, quitting school). The people I know who have risen out of inner city poverty in the U.S. (not the same as Bangladesh I know) distanced themselves from these behaviors and from the people who considered them okay.

When you’re stressed you don’t make good decisions. You choose the fatty food, TV, booze because you want to cheer yourself up. Making ‘good decisions’ is so much easier when you have an income and you’re not avoiding creditors calls. I’ve lived through it. It was exhausting.

off the top of my head I think it depends on the type of poor you are.

Some people are poor because of their situation and some situations are more difficult to escape than others.

Some people are poor because of their habits and inclinations and they just don't change those habits (for one reason or another), so they stay poor.

Reminds me of my buddy. We were in our early 20s. He was single, lived alone, had a job and was generally doing alright. We were chatting and he told me he'd been living off ramen noodles for the past two weeks to make ends meet.

The very next day he called me up. It was payday and with excitement told me he'd just bought another TV tuner card for his PC.


He already had one he barely used. But now he could watch two channels at the same time without turning the TV on! The TV that was incidentally in the same room...

And so he ate ramen noodles for another month...

At least he didn't get a payday loan to get that tuner!

Although the two are often conflated. If you grow up in a poor area, it‘s easy to become fatalistic and drop into a victim mentality, even though you might actually have a fighting chance to get out. Likewise, you can maneuver yourself into situations (through bad habits or whatever) that you will no longer be able to get out of on your own.

>Some people are poor because of their habits and inclinations and they just don't change those habits (for one reason or another), so they stay poor.

That's true. But often the reason they have those bad habits is they were taught them by the environment that, through no choice of their own, they were born in.

Absolutely. It’s not only bad habits they were taught, but the huge amount of things they weren’t taught.

I was taught how to budget, how compound interest works, and so on by family members.

I used to do rental property maintenance in places where people didn’t know to use a dish strainer to prevent sink clogs, nobody ever taught them. Now, spread that out over hundreds or thousands of other things they’re not aware of. There’s tons of useful knowledge that middle/upper class people pass down t their kids that poor people have no clue about.

Agreed. And knowing is not enough, you have to have enough discipline or environmental training to act at the appropriate junctures.

Sure, but you can learn bad habits regardless of the environment you were born into and you can fix those habits too, if you're so inclined to reflect and practice.

This is very different than having your father die while you're young and promising to be the woman of the house and take care of your sick mom and baby sister.

People stay poor because all the past unfairness never goes away. It clings to them. Real survivorship bias exists to muddy the reality of how bad it truly is to have bad things happen in early life. A lot of people can simply never recover when they were kicked so unfairly in early life contrary to their peers. I believe it’s why there used to be experiments with lsd to see if memories could be erased.

For the individual, the answer is Debt. And servicing repayments of debt. Eg, that on the typical mortgage you repay ~3 times what you borrowed.

I think that most people in the lower 50% wage bracket do not have a mortgage. People in the lowest 20% don't even have a credit card, probably.

The answer is still likely: Debt. When we take out sovereign debt it increases cost of living, and usually the way that sovereigns typically use that debt is via payouts to contractors, which does not go to the bottom 50%, except perversely via trickle-down effects. If you look at the "socialist" countries that have low poverty rates, typically they also have low rates of sovereign borrowing (think Norway, Sweden, and Denmark).

3 times? How so?

Sorry - my mistake. I was going off memory.

2 times, including the principle.

Looking here: https://finance.icalculator.info/mortgage-calculator.html

I enter, Mortgage Amount: 100000 Annual Interest Rate: 5% Term of Mortgage: 30years

The interest paid is 93255.20

That's also a 30-year mortgage, paid off at the lowest rate possible, with no refinancing.

And also leaves out that the rate of inflation over 30 years means your monthly cost decreases; hopefully you're getting inflation adjustments to your salary...

But that is still cheaper than paying rent for 30 years

In our area average rent has now overtaken our mortgage payment. So glad we got off that treadmill.

It's cyclic.

Where I live, when I was too young to buy, mortgage was cheaper.

When I was old enough to buy, rent was cheaper and prices had already risen enormously, so I stuck with rent, and hoped prices would stabilise or fall. In retrospect this was a mistake, as prices continued to rise.

Now mortgages are cheaper than rent again.

That is interesting. I have only owned a house for ~7 years, so I likely haven't experienced this cycle. Thanks for the insight.

I semi-regularly plug numbers into this Buy v Rent calculator by NYT [1]. They're pretty equivalent in the 10-30 year range and match housing prices I've seen.

It's hard to beat the SP500's >8% average return [2].

[1] (paywalled) https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

[2] https://www.investopedia.com/ask/answers/042415/what-average...

That can change depending on the area

Then, I live in Germany.

There is a 28% tax on stock market returns, but selling your home is tax free

Not in Berlin. It's tax free after a few years only, to prevent people from flipping houses.

Also capital gains tax is around 26% (incl. solidarity surcharge), if it hasn't changed.

However there are other scary things about house ownership in Germany. For example being liable for street work in front of your house for the first few decades. The city can decide to repave the street and stick residents with the bill.

Absolutely. I think one of the fun things about that calculator is that you can mess around with the numbers to try different situations. Perhaps there's a way to account for that tax (e.g. by using ~5.8% returns as the after-tax rate).

Why does every econ paper these days read like a high-energy physics paper? I feel like I am reading about field theory, not econ.

Hum... What exactly did you expect?

It has a simple stochastic model and some statistics for verifying if the real world agrees with it. You are deluding yourself if you think one can study economics without advanced statistics.

Are these study's preregistered? It seems like there is so many degrees of freedom the researcher could easily take a stroll through the garden of forking paths.

> Are these study's preregistered?

No idea. I like this study, it doesn't have as many degrees of freedom as is usual, the theory is kept to a minimum, and the data is kept to the maximum available. But you are right, there is still a lot to go wrong.

Anyway, I haven't seen many empiric studies of poverty traps. The real test is, given many of those if they will agree with the theory, not what any single one says.

so how does one account for early economics writing being light on math. Were economists Adam Smith, Hayek, and Ricardo deluded because they did not know advanced stats?

Up to a point, yes. They did get many conclusions that are easily disproved today.

Because the math is fake.

Here's a better question: how do people become rich?

Being poor is table stakes for being a human animal. The miracle of modern society is that billions of people aren't poor (as high as 90% according to Hans Rosling[1]). How did we make that happen? How do we make it happen for everyone?


correct, 90% of people make more than $1.90 ppp according to the data. but only 35% make more than $10 a day.

the poverty line is defined generously at ~$2 / day by most oecd countries, but making above the poverty line does not make you not poor.

all of that said, the field of development economics has been very rich in research these days, particular from the likes of duflo and banerjee

The chart measurement is in constant PPP dollars and clearly shows a downtrend in all poverty worldwide over time. Obviously the line of what constitutes "poor" is debatable, but what's far more interesting is the continuing growth in people who are rich.

Off topic, but I would recognize \documentclass{article} anywhere.

This reminds me of the study of how long people tend to hold onto a FRN.


>> The threshold above which people no longer regress into poverty is 9,309 BDT (504 USD PPP)

Am I understanding PPP correctly--this is a value equivalent to what $500 buys in the US?

That's surprising because the paper states this is above the amount available for conventional microfinance; I didn't realize it was indeed that "micro".

Yes. You'll be surprised by how much $100 can get you in a developing country and how few people actually have access to even that amount of money.

But that doesn't matter here, read the previous comment again

>this is a value equivalent to what $500 buys in the US?

> Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated at baseline and that the gains arising from eliminating misallocation would far exceed the costs. Our findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.

Balboni, C, Bandiera, O, Burgess, R, Ghatak, M and Heil, A. 2020. 'Why do people stay poor?'. London, Centre for Economic Policy Research.


Wealth, in it’s most fundamental form, is a mindset.


"We have shown that poverty traps exist. People are poor because of a lack of opportunity. It is not their intrinsic characteristics that trap people in poverty but rather their circumstances. Poverty is not an innate condition. This has implications for how we think of development policy and for the value of eliminating global poverty."

Based on data from the Third World and destined to be used to argue for policy changes (towards wealth redistribution) in the First World.

This is anecdotal, but having grown up poor, I can tell you that the research is perfectly applicable in the first world.

And I grew up poor and can tell you it's not. In the First World, you have other opportunities to earn wealth than having more than enough livestock. Go to school, study something worthwhile, start a company and prosper.

That sort of epistemological tone is quite painful to see.

does anyone read Piketty?

The paper says:

> The question is whether the bimodality is symptomatic of a poverty trap, namely whether poor people do casual jobs and hold nearly no productive assets because they do not have the talent to do anything else or whether the fact that they are poor prevents them from acquiring the assets needed to climb the occupational ladder.

The cause/effect inversion, of talent/ability => asset acquisition, is always worrying. We might benefit, as a society, if we confront the IQ problem honestly and head-on, in order to have a more complete/accurate policy picture especially because it seems reasonable that wealth transfers should be optimised to enable higher productivity.

Consider: "The Bell Curve Review:IQ Best Indicates Poverty"(Benjamin, 2018), in which:

> I find that IQ is more correlated with poverty than socio-economic-status in every regression, regardless of what is included in the regression, by a factor of 3.

Also: Hsu(2015) https://infoproc.blogspot.com/2015/04/income-weath-and-iq.ht...

> Income mobility is strongly affected by IQ. In fact, IQ is a much stronger predictor variable than race for escaping the bottom quintile of income.

Being intelligent certainly sounds helpful. I think that falls under my first point if intelligence is primarily situation (as the life you're born into is a situation and thus so is your genetics).

It certainly does make sense that intelligence has an effect on social-economic status, since intelligence is valuable.

How do you suppose we confront "the IQ problem"?

> How do you suppose we confront "the IQ problem"?

- A "Manhattan project" to discover protocols, tools, medications, cybernetics, new modes of education, anything really, that can enhance general human intelligence.[0]

- A rethinking of social welfare policies to take into account what we're learning about evolutionary biology and genetics. If certain heritable/genetic factors have a disproportionate impact on outcomes, we need to consider the hypothesis that certain well-meaning policies might not have a significant impact on permanently liberating people from poverty, given game theoretic constraints. We would need to find a way to make our economies positive sum, rather than zero sum games.

[0]: https://www.gwern.net/Embryo-selection

[1]: Converting Moloch from Sith to Jedi https://youtu.be/hKvVdGNzCQk

You really should read some criticisms of The Bell Curve style arguments. I'd start here:


The article you linked to is helpful but makes several important claims/conclusions that have been convincingly disproved/challenged in the time since 1996. For instance, it claims:

> In fact IQ is a great example of a trait that is highly heritable but not genetically determined [...]

However, "On the genetic architecture of intelligence and other quantitative traits" (Hsu, 2014, https://arxiv.org/abs/1408.3421) which cites a substantial amount of supporting research, notes:

"The largest component of genetic variance for both height and intelligence is additive(linear), leading to important simplifications in predictive modeling and statistical estimation. Due mainly to the rapidly decreasing cost of genotyping, it is possible that within the coming decade researchers will identify loci which account for a significant fraction of total g variation."

Block(1996) also incorrectly asserts that:

> IQ is enormously affected by normal environmental variation, and in ways that are not well understood. [...] IQ is very reactive to changes in environments in the normal range.

From Hsu(2014): "[W]ithin a range of favourable environments (i.e., providing good nutrition, hygiene, and access to education) evidence strongly supports the claim that individual differences in cognitive ability are largely associated with genetic differences.

Hsu's research doesn't hold up under review. You're just doubling down on the exact same flawed reasoning.

It's pretty clear where you're at and what argument you actually wanna make so I'm out.

> Hsu's research doesn't hold up under review.

I don't know what that statement means, but in good faith, I'll assume you can substantiate it. Instead, consider "Upward Intergenerational Mobility in the United States"(Mazumder, Pew Trust, 2012) https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_a...

" Individuals, both black and white, with higher academic test scores are more likely to move up and out of the bottom quintile. Both black and white children born in the bottom quintile with median academic test scores are twice as likely to move up and out of the bottom quintile than if they had scores in the lowest percentile of the test score distribution. "

> It's pretty clear where you're at and what argument you actually wanna make [...]

I'm glad I was clear that we need a complete picture of the source of differential outcomes (that is, one that takes into account the tremendous amount that we know about human genetic evolution). A social welfare or wealth transfer system might have poor results depending on the correspondence between expectations and reality. It would be terrible, for instance, if wealth was transferred, yet recipients ended up eventually impoverished anyway.

fwiw My preference would be if more human effort was expended in developing therapies, protocols, medications that enhance general human intelligence. But as long as we can't discuss it openly, perhaps no progress will be made and wealth gaps will be exacerbated.

This is just one hop away from resolving into racism, but somehow this kind of bullshit is consistently allowed on HN.


Please don't post unsubstantive comments and please don't take HN threads on generic ideological tangents. These are repetitive, therefore uninteresting, and usually turn nasty.



Poverty is the base case. It's the default state. How does prosperity increase at all?

The whole idea of having any government at all is to pull resources to collectively advance beyond the base state. Clearly this prosperity is not very equally shared, and that is the problem.

> The whole idea of having any government at all is to pull resources to collectively advance beyond the base state.

Where do you get that from?

Government has been around for millennia and it has mainly been about security - not being invaded - than economic freedom

Poverty is not a natural state.

It's artificially created and violently enforced through property law.

Poverty is not a natural state.

"Natural state" is not a very useful predicate because, even if you can define it (what hominid and what period) first you need to define poverty unambiguously.

But I'll bite. If we settle on stone age, in my very humble opinion, poverty is a natural state. Someone can argue that paleo people were happy or in harmony with nature or whatever, but then they were at the mercy of elements, diseases and wars. That's poverty to me.

It's artificially created and violently enforced through property law.

This seems a description of a lawless society. By the way, law of the jungle is the natural state. Property law is a cornerstone of civilization.

>This seems a description of a lawless society.

GP specifically mentioned property law.

>Property law is a cornerstone of civilization.

This is a dubious claim, but I believe GP is specifically referring to property rights and law under capitalism, which until quite recently in human history was not the cornerstone of civilization. Property law worked much differently in pre-capitalist societies, and through the enclosures in Western Europe and imperialism off the continent, it is by no means a stretch to declare it as originating in violence and requiring a monopololy on violence by the state to continue to exist.

'If money, according to Augier, “comes into the world with a congenital blood-stain on one cheek,” capital comes dripping from head to foot, from every pore, with blood and dirt.'

GP specifically mentioned property law.


"...capital comes dripping from head to foot, from every pore, with blood and dirt."

This is a way to look at things as useless as the "natural state" thing, and for the same reason: it's looking back, not forward. It's condemning the money and the production means as evil because of their origin, not their usefulness.

It's far more interesting to look at how societies evolve when you tweak the rules. It turns out that the results of abolishing capitalism are not pretty.

There are a number of interesting responses to the idea that poverty is the base case or default in some way here: https://www.reddit.com/r/samharris/comments/f12rl0/poverty_i...

What do we mean by default? Would we say that the default state of a child is surviving without their mother? Is a lack of breast milk or shelter the default? I can easily imagine a situation (I.e. a functioning society) in which poverty is not the default.

If poverty is defined to mean having below a certain daily wage[0], then how is that "default"? Do we mean absolute or relative poverty? Just like default settings in your favourite program presuppose the program itself, it seems poverty presupposes a system where some people make above $<poverty threshold> a day and some do not.

To say that poverty is the 'default' without also specifying to whom and in which society it is the default is either useless information, or an apparently irrelevant claim that only concerns some cases in the early stages of human pre-civilization.

[0] Beware that if you disagree with this supposition, you lose the ability to claim that statistics which use increase in daily wage indicate moving out of poverty. The case for saying that capitalism does away with poverty depends on this definition of poverty.

> I can easily imagine a situation (I.e. a functioning society) in which poverty is not the default.

You're imagining a society that has overcome the default state and maintains their progress. They haven't changed the default. A machine's default state isn't being powered, but if you power up a machine and keep feeding it power and maintain it well, you can rely on it being powered. Once you stop maintaining it, or stop providing power, it will go back to the default state of not being powered.

> Do we mean absolute or relative poverty?

Absolute if you want to get anywhere. Unless you distribute everything perfectly equal, you'll always have one half that makes less than the median.

>You're imagining a society that has overcome the default state and maintains their progress. They haven't changed the default.

They have changed the default from the perspective of an individual in that society, or if the society is large enough to encompass the majority of people, they have changed the default even more. The default state in the abstract sense is not only poverty, but the struggle against a state of non-privation through human labour.

>Unless you distribute everything perfectly equal, you'll always have one half that makes less than the median.

Nobody is denying this fact, and no serious philosopher (with the exception of Barbon in the 18th century) contends that "distributing everything perfectly equal" is possible or even desirable.

What is "poverty is the default" supposed to be telling us? What is its rhetorical function?

The default mode is what happens when you stop interfering. What happens when a society stops doing anything, does it remain in it's current state? Then that is the default state and they have truly altered it. But it doesn't, of course.

Any individual may perceive it to be the default because they've never experienced anything else, but it would be foolish to believe it to be the actual default. History has taught us over and over again that it's not, that civilization may crumble and advances can be lost. Like somebody relying on their car always working because "it never died on me before" and not maintaining it well, they will eventually find that suddenly it does.

> What is "poverty is the default" supposed to be telling us?

I believe it's an important fact, because it changes the perspective. If wealth was the default, we'd just need to take care not to do some certain things that would change it, and had it happened, we'd just need to stop doing those things for it to automatically return to the default state. If poverty is the default, it's the opposite: you need to do something to end it, and you need to keep doing it.

>The default mode is what happens when you stop interfering.

This sounds reasonable, but it seems that the 'default' state of humans is to interfere, to change their environment and process it with human labour. Accepting that, any talk of a 'default' state of life is metaphysical and removed from the actual reality of human production. The state of wealth being a default or not (in the relative sense) is contingent on the true default of human labour and appropriating nature. The state of wealth being a default or not (in the absolute sense) doesn't provide any new information. Humans need to make things to have wealth.

>If wealth was the default, we'd just need to take care not to do some certain things that would change it, and had it happened, we'd just need to stop doing those things for it to automatically return to the default state.

Why is this an important point to make? Even Marx famously claimed (in defence of his theory of value) that every society must constantly maintain itself, or it will perish within a week. Others have gone further and argued that society must constantly maintain its ideology and relations of production too, not merely the fact of production. It's unclear who denies that society needs constant maintenance and improvement, even just to stay in the same state.

> This sounds reasonable, but it seems that the 'default' state of humans is to interfere, to change their environment and process it with human labour.

I'm not so sure. There are a few (more or less) "unconctacted" tribes left that are pretty stable in their environment and haven't progressed beyond a certain state that's very close to the default mode (and which we would call poverty if compared to us). I see no reason to believe in inevitable progress.

> Humans need to make things to have wealth.

That's short and correct, and it's why I think it's important to keep in mind that poverty, not wealth and comfort, is the default. It's not that anybody denies that you have to maintain and improve, but it helps to understand what came first: the effort or the reward?

Well, when you make a controversial statement, you need to back it up. What's your solution? What can you point to that worked better?

I would say that on the spectrum of pure capitalism - mixed economies - complete socialism, mixed economies work best, as proven by real life.


Venezuela is an example of what happens when you base your entire government spending on oil exports, prices drop, you refuse to adjust your spending in response, and resort to violence to silence critics of your spending. It has little to do with social welfare policies, or capitalism really, and much more to do with the pride of Chavez and Maduro, and a failure to diversify the economy to support social welfare policies.

The U.S., in contrast, is not only the largest oil producer in the world but also the largest economy in the world, and therefore much better diversified and suited to roll out enormous social welfare policies.

It is out of academic fashion these days to blame Capitalism in papers directly. It is often arrived at very indirectly.

In the times of cavemen everyone was poor, was capitalism the root cause?

Well in the times of cavemen we also didn't have 26 people owning as much as the poorest half of the world. So while it might not have been the issue then, that doesn't mean it can't be now. Things can have multiple causes, and causes can change over time.


I haven't read the linked paper so I don't know how they'd define poor in it, but in my opinion in times of cavemen everyone was free to catch any prey to feed their families, everyone was free to pick any fruits from any trees and bushes, everyone was free to move in to any caves on any land. I'd say they had everything they needed. Nowadays I wouldn't call that poor as masses of people working several shifts to be able to pay the rent and feed their families while they are feeding others to obesity higher up in the chain.

Good luck moving into your neighbors' cave in the stone age, or picking the apples from the tree they consider their own.

You don't think that today's poor are better off than stone age humans?

In what meaningful way were they financially poor?

I don't want to defend capitalism, but I'd say that capitalism needing the exploitation of the weak is not even entirely true.

There is strong evidence that overall economic growth peaked at times (or places) where income taxes were higher and the distribution of wealth and income was more equitable. Of course there is the whole matter of causation/correlation, but this at least shows that a capitalist society can and does prosper when the highest tax bracket is over 80%, while trickle-down economics mostly failed to induce general growth.

What's the evidence you are referring to?

I was listening to Thomas Sowell recently and he made some comments that sounded quite the opposite of what you say - that lowering taxes resulted in increased revenue. It's clearly different times and places that you / he are referring to, I am interested in learning a bit more.

For example look at Plots 11.12 to 11.15 here[0], which show an inverse correlation between growth and inequality and a direct correlation between tax rates and inequality.

There are some pretty simple arguments that would justify this: one individual with 20 times the average income is going to spend less than 20 individuals with the average income.

Note that I'm not arguing for some Soviet-level of extreme equality, I'm just saying that the US in the 60s or Sweden from WW2 onward are much healthier economies than Europe during the Belle Epoque or the US nowadays.

[0] http://piketty.pse.ens.fr/files/Piketty2019GraphiquesTableau...

This is not factually correct. What happened during those years was that rich people managed to get custom laws to pay little taxes (probably corruption). The number of ad-hoc tax exemptions was ridiculous. Not too dissimilar to how nowadays middle class people pay taxes for both poor people and the super rich (who escape taxes via legal offshore companies).

High taxation is also not capitalism given they imply threat of violence (eg. incarceration); a purely capitalist society wouldn't have taxes, it would just be a stateless free market based society with only voluntary transactions.

I agree with your general assessment, but I'd disagree with your conclusion about capitalism.

The defining characteristic of capitalism is the private ownership of the means of production. As long as that ownership isn't equally distributed, that's exploitative by definition, because profits go to owners "for free" -- the owners don't have to work for those profits. This isn't really the case if ownership is equally distributed, but then how exactly would that be distinct from socialism, i.e. the collective ownership of the means of production?

So it's plausible to suspect that those peak times of growth you talk about were successful precisely because capitalism was reined in by other policies, like those higher tax brackets leading to a more equitable (and "less capitalist") distribution of wealth and income.

I disagree with your reasoning.

It appears to assume that the company or factory concerned has always existed.

There must have been some point at which said company did not exist at first, then came into being.

The person or people who started that company were likely to have begun it by;

- performing any and all research required into starting the company

- acquiring the premises (or starting from home/garage)

- doing the work themselves

- at the same time, managing the company; running the finances, sales, gaining new customers/contacts etc.

If the company thrived, they then considered additional workforce. Perhaps they replaced themselves with these new employees to take on a more managerial position. So now you have a person or people who are concentrating on the managerial/sales/contacting/financing side. And now the company has additional employees.

The company has provided employment to more than just the person or people who initially started that company.

I do not agree that is "exploitative". Nor do I agree that the profits are going to the company owners "for free" - the owners are still performing work in the company. It's only the nature of that work (i.e. the tasks which need to be performed in order to keep that company going) that are different.

You missed the point. You're focusing on the management of the company, but I was talking about ownership.

I own shares of companies both directly and indirectly. Because of this ownership, I receive a (small) part of those companies' profits. I don't have to do anything to receive that profit -- I do get it for free.

(And yes, I'm a partial owner here because I didn't spend some money I earned in the past on other things instead. But why exactly should I be rewarded for that? It's far from obvious, and the usual rationalizations all have weaknesses. Keep in mind that many people who receive such profits didn't work for them at all: they inherited the ownership.)

Exactly, my conclusion would be that totally unfettered capitalism tends to collapse either because of catastrophic economic crises, or war or revolution. As such even capitalism itself doesn't benefit from the extreme exploitation of the weak.

When the pandemic came to italy, I thought about what would be needed to survive[1] a two month[2] lockdown[3].

I had thought that in relatively rich[4] countries, providing air (minutes) for everyone would be trivial, providing water (days) easy, and providing food (weeks) something that would require something less than 5% of the population labouring under slightly altered habits[5].

However, by mid summer it has become painfully obvious that not only did some rich countries shut off water to their citizens, there has even been an infamous case of someone being deprived of air.

Now I am much less optimistic about climate change than I was last year.

[1] considering only physiological needs

[2] based on the chinese curves. It seems to have also been accurate for us.

[3] In practice, we didn't even "lock down", relying more on shared responsibility, and managed to get new cases to single digits per day. Unfortunately we're now in a (smaller, at least for the time being) second wave.

[4] For concreteness, consider those whose net worth exceeds GDP by at least a factor of 4.

[5] This was before I learned that food processing elsewhere is done in much more crowded conditions than here.

Q. Why is trickle down economics like UDP?

A. One might attempt to joke about either, but very few are likely to get it.

Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact