Poverty and Success

Perhaps the most unpopular opinion I hold is that—in spite of the myriad obstacles to success instigated by the state—success is still achievable by a significant percentage of the population (>95%) and poverty is a result of one’s own choices in a similar percentage of cases.

I am not suggesting that everyone’s idea of success necessarily requires financial wealth or that poverty (a lack of financial wealth) is always an undesirable state of existence. Some people do indeed choose to prioritize other goals above wealth, and that is certainly their right. I also acknowledge that there are some people (<5%) in any population who, due to severe disability or state maleficence (typically through the so-called “criminal justice system“), have limited or no ability to achieve financial success.

Caveats aside, my basic thesis is that greater than 95 percent of people are capable of and have the opportunity to achieve financial success, but that many (and even a majority) do not take advantage of their opportunities. There are numerous decisions, reasons, and alternative priorities that explain this phenomenon and the following are far from an exhaustive list.

  1. Not taking advantage of educational opportunities. In the U.S. and most developed countries, basic education is available to all at no charge and higher education is available inexpensively or even at no charge to those who can demonstrate financial hardship. In addition, the information age has led to an unprecedented increase in the quantity and quality of educational materials available at little or even no charge. Nearly anyone can learn to do anything if they are willing to put in the effort. Those who choose to live their lives in ignorance have almost always chosen that path.
  2. Having children (they cannot afford) too young. This is another huge predictor of one’s likelihood of achieving financial success. Having children represents nearly a quarter-million dollars’ worth of expenses taken on which will have to be paid in a span of fewer than two decades. Why do people make this foolish choice? If your finances would not support the purchase of a Lamborghini Huracán, they also don’t support you having a child. Wait or abstain!
  3. An unwillingness to relocate. Here we see another significant problem that plagues the perpetually poor. Sometimes opportunity doesn’t knock on your door. Sometimes you have to go hunt for it. Cost of living is also a major factor here. The Apartment List National Rent Report found that the median rent for a two-bedroom apartment in New York City was $2,523. It was even higher at $2,621 in San Jose, CA. Compare that to Phoenix, AZ or Houston, TX where the averages were $1,061 and $1,024 respectively.

It is not just rent either; today, the average cost for a gallon of gas in San Jose, CA, is $3.27 while in Houston, TX, it’s $1.93. Play with a Cost Of Living Calculator and observe the difference. Right now, the cost of living is 44.33% lower in Houston than in the San Francisco area and 56.82% lower than in the Manhattan area. Why do poor people stay in expensive cities?

What about finding a job? The lowest unemployment in the country right now is in the Ames, IA Metropolitan Statistical Area (MSA) at just 1.4 percent. That’s less than half the 3.6 percent unemployment rate in the New York MSA, and yet the cost of living in Ames, IA, is 59.19% lower than in Manhattan. If you are working full time earning $20 an hour (well above the minimum wage) in New York, you could move to Ames, IA, and take a job making $8.50 an hour and you would be better off ($8.17/hr. is the breakeven point.) Oh, and gas at Sam’s Club in Ames is going for $1.86 a gallon today.

So what is my point with all this information? My point is that if people would make smarter decisions—particularly about their education, when they have children, and where they live—they would have a far greater chance of achieving financial success. I’m not suggesting that it is always easy or that there are not obstacles to overcome, but I am suggesting that it is not nearly as difficult as some people claim. Poverty is not the fault of billionaires or of “greedy capitalists” or of some systemic injustice that keeps “po’ folks” down. Poverty is the natural and predictable result of ongoing poor choices, and until people realize this and start taking responsibility for their own culpability in their financial situations, we will continue to hear the growing chorus of complainers demanding political intervention to redistribute money from those who earned it to those who did not.

With few exceptions, it is fair to say that poor people make poor choices.

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Reflections from my Panama Cruise, II

Our ports were Falmouth (Jamaica), Cartagena (Colombia), Gatun Lake (Panama), Limón (Costa Rica), and Grand Cayman.  Reactions to each:

7. Falmouth had the most lavish port shopping area; I’d compare it to Reston, Virginia.  The area beyond, though thinly inhabited, was fairly poor, but with quite a few middle-class homes mixed in.  Our tour guide said that many Jamaicans spend years building their own homes so they can live rent-free (but not property-tax-free) for life.  The many promising but half-built homes I saw seemed to confirm this.  All this made me wonder: If the American poor were allowed to build rent-free shacks on public lands, how many would?

8. Cartagena’s skyline sparkles; it’s so uniformly new I’d compare it to the Gold Coast of Jersey City.  The old town, however, looks markedly worse, with more than a few people sleeping on the streets and in the parks.  A major public fountain was full of garbage.  (Trash cans were a little hard to find, but not nearly enough to explain the severity of the littering).  I was excited to see the Palace of the Inquisition, but the Naval Museum was far better.  Using my sons as translators, I asked our cabbie a lot of questions about Venezuelan refugees.  He was quite sympathetic to the incomers, and loathed Maduro.  (“Is he Satan?” I inquired.  “No, Satan is scared of Maduro!”)  My ability to distinguish Colombians from Venezuelans is near-zero, but the cabbie told us that refugees with money live in the city; the rest live on the streets or in refugee camps outside of town.

9. Panama was the highlight of our trip.  Until we sailed through, I only vaguely understood how the Canal worked.  Indeed, only after we were through did I discover that our ship was well over the old Panamax limit; we had sailed through the all-new Third Lock.  Our tour guide amusingly asked us if we’d been following all the Canal news.  When we furrowed our brows, he joked, “That’s right, you haven’t.  When the U.S. handed over the Canal, everyone predicted disaster.  So no news is good news!”  Panama City was even more eye-popping than Cartagena, and the Miraflores museum was top-shelf.  The most economically gripping display explained that the U.S. always ran the Canal on a cost basis (whatever that means for a project that opened in 1914), but Panama vowed to run it for profit.  I suspect most economists would fret over the static efficiency losses, but would the Third Lock have ever been built without the carrot of profit?  Both are state enterprises, of course, but it’s probably far easier for a state-owned firm to operate like a business when almost all of the customers are foreigners.  At the end of the day trip, we drove through the port city of Colón, where the poverty (and especially the trash) were disturbing.  In Colón, the cruise line wouldn’t even allow passengers to walk the town for fear of what might happen.

10. Jamaica’s GDP per-capita is way lower than Costa Rica’s: roughly $5,000 versus $12,000.  But Limón had the worst poverty I’ve ever witnessed; seriously, the best house I saw in Limón looked worse than the worst house I’ve seen in Fairfax.  The best building on my tour route was clearly the McDonald’s.  A tour guide later told my sons that the locals are happy to bask inside this consumerist enclave for hours – and the restaurant permits this as long as you make a small purchase.  Why the disparity between the statistics and my experience?  A little googling informed me that I was in one of the poorest regions of the country, so that fits.  In any case, our tour group drove on a dirt mountain road for about 45 minutes until we reached the Veragua Rainforest.  Aside from Americans, the eco-tourists’ most common nationality is… German.  They’re so green it’s like a religious pilgrimage for them, though I can only imagine what the fastidious Germans think about the piles of litter in town.  As an economist, my main thought was that Limón desperately needs more multinational businesses to manage the inhabitants to prosperity.  That includes agro-business; while rain forest tourism is one vital industry, they could replace 80% of it with cash crops and the tourists would hardly notice.  Last thought: Our tour guide told us that many Nicaraguans migrate to Limón in search of a better life; I shudder to think what they’re leaving behind.

11. Grand Cayman naturally looks great.  But with roughly $1T offshore accounts, I expected skyscrapers.  Instead, the island struck me as a cross between Key West and Lake Arrowhead.

12. Big Picture: Everywhere I went, the voice of Michael Clemens spoke in the background.  The world is bursting with human talent.  They’re doing great things all over the world – the Third World included.  Pre-assimilation runs rampant.  But as long as migration barriers stay in place, everyone who chose the wrong parents is working with two arms and a leg tied behind their backs.

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On Income Inequality III

I am not totally opposed to the ideal of economic egalitarianism. I don’t want poverty to exist, and I do want those with means to bring about its eradication in an ethical, efficient, and lasting way. Where many (most?) egalitarians error is their mistaken belief that government force is one of the ways, or even the best way, to make that happen. It’s not. Government force can only flatten wealth distribution downward, and less wealth overall cannot bring people out of poverty. On the contrary, private property and free markets, ie. capitalism, have shown theoretically and in practice to do exactly what economic egalitarians desire to achieve and is actually possible among real human beings. There is no better alternative, truly. And that’s today’s two cents.

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Rainwater’s Motivated Reasoning

Lee Rainwater was one of the most prominent liberal sociologists of the Great Society era.  He spent 23 years at Harvard; here‘s the Harvard Gazette‘s memorial to his work.  To be honest, though, I never heard of him until last week.  Yet after I stumbled upon his 1966 Daedalus article, “The Crucible of Identity: The Negro Lower-Class Family,” I was surprised that any academic would so candidly admit to motivated reasoning.  When I discovered that he was an intellectual leader of his generation, I was stunned.

Here’s what stunned me; Rainwater’s in blockquotes, I’m not.  He starts off promisingly enough:

The first responsibility of the social scientist can be phrased in much the same way: “Tell it like it is.” His second responsibility is to try to understand why “it” is that way, and to explore the implications of what and why for more constructive solutions to human problems.

Then he runs right off the rails:

Social research on the situation of the Negro American has been informed by four main goals: (1) to describe the disadvantaged position of Negroes, (2) to disprove the racist ideology which sustains the caste system, (3) to demonstrate that responsibility for the disadvantages Negroes suffer lies squarely upon the white caste which derives economic, prestige, and psychic benefits from the operation of the system, and (4) to suggest that in reality whites would be better rather than worse off if the whole jerry-built caste structure were to be dismantled.

If you wanted to “tell it like it is,” of course, your goal would not be to “disprove” any ideology, but to fairly evaluate it.  Similarly, your goal would not be to “demonstrate” that responsibility lies squarely upon anyone, but to accurately apportion responsibility.  In any case, it’s hard to understand how both (3) and (4) could be true.  If whites would be better-off if the system were dismantled, how can the “white caste… derive economic, prestige, and psychic benefits from the operation of the system”?  I suppose you could treat “the white caste” as the subset of whites who profit, but then the claim is almost tautologous.  Or you could be really defensive and say, “He means ‘gross benefits,’ not ‘net benefits.’”

Are Rainwater’s words really so damning to his own intellectual tradition?  Well, imagine I wrote:

Social research on the situation of the American immigrant has been informed by four main goals: (1) to describe the disadvantaged position of immigrants, (2) to disprove the nativist ideology which sustains the caste system, (3) to demonstrate that responsibility for the disadvantages immigrants suffer lies squarely upon the native caste which derives economic, prestige, and psychic benefits from the operation of the system, and (4) to suggest that in reality natives would be better rather than worse off if the whole jerry-built caste structure were to be dismantled.

Would any judicious reader trust my work on immigration after this declaration?  No.  Why not?  Because I’m talking like a trial lawyer who wants to win a case.  The whole point of research, in contrast, is to stay open to the possibility that you’re wrong.  Sure, you’ve got suspicions.  But you’re supposed to not only verify your suspicions, but energetically look for counter-evidence!  Furthermore, you’re supposed to not just follow these standards yourself, but monitor your intellectual teammates.  The fact that your intellectual subculture wants X to be true urges self-scrutiny, not self-congratulation.

Speaking of that, how’s this for self-congratulation?

The successful accomplishment of these intellectual goals has been a towering achievement, in which the social scientists of the 1920’s, ’30’s, and ’40’s can take great pride; that white society has proved so recalcitrant to utilizing this intellectual accomplishment is one of the great tragedies of our time, and provides the stimulus for further social research on “the white problem.”

What’s most striking about Rainwater’s article, however, is that he provides a wealth of empirical evidence against his own point (3).  Indeed, most of the article is standard “culture of poverty” sociology, documenting high levels of irresponsible and criminal behavior among the underclass.  How then does Rainwater reconcile his theory with the facts?  Again, by the power of motivated reasoning.

Yet the implicit paradigm of much of the research on Negro Americans has been an overly simplistic one concentrating on two terms of an argument:

White cupidity———–> Negro suffering.

As an intellectual shorthand, and even more as a civil rights slogan, this simple model is both justified and essential. But, as a guide to greater understanding of the Negro situation as human adaptation to human situations, the paradigm is totally inadequate because it fails to specify fully enough the process by which Negroes adapt to their situations as they do, and the limitations one kind of adaptation places on possibilities for subsequent adaptations. A reassessment of previous social research, combined with examination of current social research on Negro ghetto communities, suggests a more complex, but hopefully more vertical, model:

White cupidity creates

Structural Conditions Highly Inimical to Basic Social Adaptation (low-income availability, poor education, poor services, stigmatization)

to which Negroes adapt by

Social and Personal Responses which serve to sustain the individual in his punishing world but also generate aggressiveness toward the self and others

which results in

Suffering directly inflicted by Negroes on themselves and on others.

In short, whites, by their greater power, create situations in which Negroes do the dirty work of caste victimization for them. [original punctuation]

Notice: As an ethnographer of black poverty, Rainwater offers little or no data on “white cupidity.”  Furthermore, a straightforward reading of his own evidence is that irresponsible and criminal behavior is, as usual, maladaptive.  All he directly documents is the final clause – the intra-racial “dirty work of caste victimization.”  Only motivated reasoning allows Rainwater to casually interpret these facts as proof of that the “white caste” is to blame for anything.

You could naturally protest that Rainwater is right for the wrong reasons.  Maybe so, but this protest misses the meta point.  Namely: If a brilliant, eminent, and mainstream scholar of the 1960s could be right for such wrong reasons, the brilliant, eminent, and mainstream scholars of today could easily be mired in their own brand of motivated reasoning.  Indeed, so could you.  Or me.  There’s no easy remedy, but the first step is being hyper-aware that we have a problem.

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Banfield on the Hyperbole of Urban Bankruptcy

As I never stop telling you, politics is nothing but an ocean of hyperbole!  But seriously, folks, I just came across a fine debunking of political hyperbole while reading Edward Banfield‘s 1974 classic, The Unheavenly City Revisited.

A great part of the wealth of our country is in the cities.  When a mayor says that his city is on the verge of bankruptcy, he means that when the time comes to run for reelection he wants to be able to claim credit for straightening out a mess that was left to him by his predecessor.  What he means when he says that his city must have state or federal aid to finance some improvements is (1) the taxpayers of the city (or some important group of them) would rather go without the improvements than pay for it themselves); or (2) although they would pay for it themselves if they had to, they would much prefer to have some other taxpayers pay for it.  Rarely if ever does a mayor who makes such a statement mean (1) that for the city to pay for the improvement would necessarily force some taxpayers into poverty; or (2) that the city could not raise the money even if it were willing to force some of its taxpayers into poverty.  In short, the “revenue crisis” mainly reflects the fact that people hate to pay taxes and that they think that by crying poverty they can shift some of the bill to someone else.

[…]

That we have not yet been willing to pay the price of solving, or alleviating such “problems” even when the price is a very small one suggests that they are not really critical.  Indeed, one might say that, by definition, a critical problem is one that people are willing to pay a considerable price to have solved.

Whenever I hear about governments’ fiscal woes, my go-to remedy is austerity.  But I still furrow my brow when e.g. Californians tell me that higher taxes can’t balance their budgets.  Most obviously, if unimproved land still has market value, governments clearly have yet to exhaust their tax base.

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Fight for 15% More Low-Skilled Jobs

As you’ve probably heard, activists around the country have been fighting to raise the minimum wage to $15 an hour.  While the they focus on legal minimum wages, activists also welcome private employers’ decision to voluntarily raise hourly pay to $15.  When you read about desperate American poverty, however, the activists really seem like they’re barking up the wrong tree.  Most notably, Kathryn Edin and H. Luke Shaefer’s $2.00 a Day: Living on Almost Nothing in America shows that the truly poor have great trouble finding and keeping even the lowest-skilled jobs in the formal sector.  Question: If employers hesitate to hire the ultra-poor for $7.25 an hour, why on Earth would they hire them for $15?

“No one can live on $7.25 an hour,” you say?  Well, it sure beats living on $2.00 a day.  And when Edin and Shaefer’s subjects fail to find a job, that’s precisely what they have to do:

[W]orkers at the very bottom continued to experience double-digit unemployment through 2012, well after the recession was officially over.  For low-level positions, there are often many more applicants than there are jobs.  Companies such as Walmart might have hundreds of applications to choose from, and it is not uncommon for many of these applicants to have some post-high school education, making it that much harder for a young woman of color with a GED and little previous work experience to make the cut.

How do these companies wade through so many applications?  How would you do it?

What should an evidence-based poverty activist do?  Well, the main problem is lack of jobs rather than low-paid jobs.  So why not actually focus on the main problem?

Edin and Shaefer strongly endorse job subsidies and extra public sector employment.  While such programs have notorious flaws, at least they create job opportunities rather than destroying them.  (Sadly, despite the preceding quote, Edin and Shaefer also enthusiastically endorse an even higher minimum wage, even though its hard to deny that the ultra-poor would greatly benefit from the opportunity to work for half or even a quarter of the current floor).

But there’s an even simpler remedy available – a remedy that requires no change in government policy whatever.  Namely: Instead of pressuring companies to raise wages, activists should instead pressure them to hire more low-skilled workers.  Why not abandon the “Fight for $15” in favor of the “Fight for 15% More Low-Skilled Jobs”?  If activists can pressure Amazon into raising wages, why can’t they pressure Amazon into expanding the bottom rung of the ladder of opportunity?

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