Born Poor? Santa Fe economist Samuel Bowles says you better get used to it

http://sfreporter.com/stories/born_poor/5339/all

by nkurz • 16 years ago

36 51 16 years ago

He's an interesting guy, he used to teach econ over at UMass Amherst when I was studying it there.

One of his colleagues/research partners has a good evolutionary game theory book available for free on his website for anyone interested:

http://people.umass.edu/gintis/

It's called "Game Theory Evolving"

evgen• 16 years ago

Unfortunately, the book is not available but only a few pages from each chapter. Too bad, it looked interesting...

mtalantikite2• 16 years ago

Oh, sorry about that -- he used to have all of it up there last I looked through it. Or maybe that was because we were students and it was at a course page rather than his personal page.

emilind3• 16 years ago

It's a great book, and of all the game theory books I've seen it's the easiest and most enjoyable to read (not that it's easy).

MarkPNeyer• 16 years ago

The article repeatedly contrasts Bowles with Friedman, but Friedman also supported a 'Negative Income Tax':

http://en.wikipedia.org/wiki/Negative_income_tax

emilind3• 16 years ago

A demogrant and a NIT are different ideas.

isleyaardvark3• 16 years ago

The article makes some interesting points but there seems to be a flawed use of statistics. Particularly the part about "the percentage likelihood that a bottom 10 percenter will ever make it to the top 10 percent. For 99 out of 100 people, rags never lead to riches." Well, what would you expect? There's going to be a pure mathematical limit to that sort of movement, nevermind issues of income mobility.

To take an absurd example, say there's a 50/50 chance of going from rags to riches. That would mean half of the bottom 10%, 5% of the population would move up to the top 10% of the population. And somehow the middle 80% don't manage that feat. You would expect the probability of going from the bottom to the very top would be low. Instead, the article tries to paint a negative picture. It points out there's a 32% chance a child born in the bottom 10% will stay in the bottom 10%, when you could just as well point out that child has a 68% chance of moving out of the bottom 10%. Bringing in statistics about how many of them move from that percentile to the highest percentile obscures rather than clarifies the issue of income mobility.

Then there's his universal welfare idea, which at $250,000 per person and a quick back-of-the-envelope calculation would only cost about 56 trillion dollars. Plus another 2 trillion or so per year with population growth.

That said it's worth reading, the “individual development accounts” idea is definitely interesting.

nazgulnarsil3• 16 years ago

trying to paint those statistics as negative is hilarious on the articles part. we have insane mobility compared to any other society at any time in human history.

eru2• 16 years ago

While our situation is quite good (and in absolute term probably the best ever), I doubt that we (=US 2010?) have "insane mobility" --- measured in actual turnover between quantiles of wealth from one generation to the next.

Does anybody have some sources? (I'd guess it would be interesting to look at societies in great turmoil (e.g. England after 1066, French Revolution, Communist revolution in China) or societies with more equality of wealth than the US (e.g. Scandinavian countries). They may well have more mobility (at least in a purely technical sense).)

pln• 16 years ago

Untrue, compared to both previous decades in the US, and other nations today.

gjm113• 16 years ago

I think your comment on the $250k proposal is wrong.

The US has a population of, let's say, 300M. In any year, let's say 1/60 of that many -- 5M -- are just turning 18, which is when Bowles proposes handing out the money. (He's not proposing to give that much to everyone all at once.) So the annual cost is $250k times 5M, or about $1T. There's no $56T up-front cost.

Now, $1T/year is an awful lot: it's about 1/4 of what the US government currently spends in a typical year. It's about what the US government currently spends on "defense". It's hard to see where the money could come from. On the other hand, it would completely obliterate poverty in the US. On the other other hand, it's very convenient for a lot of people that there is poverty in the US; without poverty, no one would work for very low salaries, which means a lot of things that are currently cheap would become more expensive. (You can generally recognize countries with less income inequality because low-end goods and services cost more.) On the other other other hand, it does seem like it would make entrepreneurship much more widely accessible.

Bowles is a very smart guy. The idea may be crazy, but it's unlikely to be stupid.

timwiseman• 16 years ago

No, the idea is not stupid, but I think you are making some unfounded assumptions.

it would completely obliterate poverty in the US.

Not really, it would do little to help people in poverty already past 18 (unless they had children who were both just about to turn 18 and those children were generous...). Even for those that benefitted from this, to assume they would not go back to poverty you have to assume they will use it wisely (and possibly have some luck too.) If they go to college or start a business with that money, then they probably will move up and sustain themselves at least in the middle class. Probably. On the other hand, I bet a large percentage would spend it quickly and have relatively little to show for it at the end.

Even those who start a business/go to college are not gaurunteed to stay in the middle class, they just have a good shot. Many businesses fail, and then those founders would be left with little but that experience. Many people with degrees are unemployed right now.

I am not saying it is a bad idea necessarily, and I am certainly not about to dismiss it as stupid, but I do not think it will come close to wiping out poverty.

isleyaardvark3• 16 years ago

Fair enough, I assumed that initially everyone over 18 would get $250k. Now you could say that's an unrealistic assumption, but... so is the program. 19 year-olds can vote, how enthusiastic would they be for a program where they get the shaft? And the under-18s can't vote. People will expect to get something. (Consider Social Security, when that started people received benefits before they had paid a dime into the system.) Costs would inevitably balloon out of control. And that's not even considering other practical concerns. What about fraud? What about both legal and illegal immigration?

anamax• 16 years ago

> On the other hand, it would completely obliterate poverty in the US.

No, it wouldn't.

Most lottery winners end up bankrupt.

huherto• 16 years ago

Just to entertain the idea. Let's say that if you want to go to college you get the money at 18. If you want to buy a house you get the money at 20. If you want to start a business; you get 100k at 22, and 150k at 26. To ensure that you are mature enough, and have a chance to fail(and learn) once.

I know that adding rules makes things more complicated and can have unintended consequences.

yummyfajitas5• 16 years ago

Additionally, he is making the implicit assumption that low parental income causes low adult income, and therefore hard work doesn't matter. But that's nonsense.

It's also equally possible that some heritable (not necessarily genetic) trait causes both low parental and low child income.

One plausible alternative explanation: lazy parents tend to have lazy children and lazy people tend to be poor. This causes a correlation between parent and child income, in spite of the fact that hard work is the way out of poverty.

jbooth5• 16 years ago

I'm sure your plausible alternative explanation feels great to say to yourself, but that's just not how it works. If you're born in a poor family you have 10 million things going against you from day 1: quality of educational opportunity, access to credit or a buffer if you have a bad run of luck, spare capacity to actually try and get better at things because you're not trying to put dinner on the table constantly, neighborhood cultural factors, etc etc etc.

Hard work matters -- but your baseline is probably more important.

brc• 16 years ago

If you agree that much wealth is created by attitude, ideas and effort - and I think most of us will agree on that - then the outcomes of children will most certainly be similar to their parents. Parents teach us our attitude, behaviour pattern and even tend to install our 'social class' into us. This would not be a negligible factor. If parents are absent (more common in poorer people) then these factors are learnt from peers, who are probably in the same income group.

If you want to escape being poor, you have to think differently to other poor people.

There are many examples of where children from poor families group up to be rich, and do so because they do not want to be like their parents. In these cases the parents low wealth is a catalyst for building great wealth in the child.

If low wealth was a cause, then how does one explain the high number of immigrants that go on to create great wealth? Newly arrived immigrants are some of the poorest people around.

You don't need a lot of money to get rich. You just need the right knowledge, the right attitude and the right drive to succeed. Most people achieve the wealth level they set out to acheive. For the majority, it's that they only set out to acheive a modest level of wealth - they may think they want to be rich, but they aren't actually doing anything towards it.

apsec1123• 16 years ago

Where is his proof? He has this whole elaborate theory of economics and inequality worked out, and not once does he present any proof.

llimllib2• 16 years ago

I'm curious what form you expect that such a proof would take.

apsec1123• 16 years ago

To name but one example (of dozens), a study showing that countries with higher Gini coefficients are more prone to rioting, strikes and civil disorder, after accounting for income (third-world countries are obviously more prone than first-world) would qualify as proof of at least one part of the theory.

ibsulon• 16 years ago

I'd start at http://tuvalu.santafe.edu/~bowles/ and his actual papers, not what a reporter writes. :)

mynameishere• 16 years ago

You know damn well that's not useful. "Here, read through every single thing this guy wrote. The proof's gotta be there somewhere, I figure."

No, of course, there's no proof for anything in any soft science, so there's the answer. The only good experiment would have to be on a grand scale: give everyone 15K a year for free and see what happens. My guess: An increase in the velocity of money, since the whole thing is basically a devaluation.

apsec1123• 16 years ago

You can downvote me all you want, I stand by my statement. Theories about the world, if they are to be believed, require proof. This article is four thousand words long, there is more than enough space to provide some evidence if they felt like it.

chipsy• 16 years ago

"Basic income" has been pilot-studied in Africa to great success.

The reasoning is very simple: If you are living hand-to-mouth with unreliable income - so unreliable that you can essentially expect "the end of the world" to come at any time - then you cannot make any future plans around earning and saving; consuming as much as possible immediately holds more value.

But if you have a government-guaranteed income, you can build plans around that - you can pursue the risky project, you can start the startup, you can go to school, etc. One anecdote I read(this was years ago) involved a woman who built up a flock of chickens from basic income. This lifted her out of poverty, since the chickens can pay for themselves with eggs in just a few months.

teej• 16 years ago

For those more interested on the results of the pilot program in Nambia, you can read more about it in their report here: http://www.bignam.org/Publications/BIG_Assessment_report_08a...

I read through it and was pretty surprised at the findings. The increases in education and health are particularly staggering.

coliveira• 16 years ago

The big decrease in poverty in Brazil in the last few years is due to a similar policy. The government in handling a salary to people living under the poverty level. It really has been the best investment that the government ever made.

Perceval3• 16 years ago

We have a rough approximation of that in the United States with the Earned Income Tax Credit. If you have a job but make less than a certain amount, the government sends you a tax return to supplement your income up to that level.

http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit

viggity• 16 years ago

I love how he tells his staffer to buy the printed book and not the version on the kindle. The author goes on to say that the printed book is marx, the kindle book is rand. History makes it pretty clear how your economy will wind up using marx's theories.

Capitalism is the worst kind of economic structure out there, until you look at all the alternatives.

tphyahoo• 16 years ago

timtoady.

emilind3• 16 years ago

Don't everybody gonna get hung up on the $250,000 demogrant. Bowles is a super interesting thinker (same for his frequent co-author, Herb Gintis). Bowles (and Gintis) are trying to synthesize agent-based modeling, evolutionary game theory, behavioral economics, mainstream economics together with the other social sciences. It's an ambitious project and absolutely necessary.

Come to think of it, ff there's one economist who would appeal to functional programming eccentrics and polymaths it'd be Bowles. His papers are pretty readable for non-economists so if you're curious check out his homepage.

snagage• 16 years ago

I think the site might be down at the moment. Here's the link to the google cached page: http://74.125.155.132/search?q=cache:ra7632stXRsJ:sfreporter...

nandemo• 16 years ago

What’s troubling about this research is that poverty tends to persist through generations, no matter how individuals try to improve their circumstances.

"Poor" young Americans are much wealthier than their grandfathers. The claim that "the poor stay poor" is largely an artifact of defining "poor" as "bottom 10% income".

Perceval3• 16 years ago

This article is pretty embarrassing in its use of numbers/statistics.

The second number is how many jobs the state Economic Development Department claims to have created in Santa Fe last year.

As if the state's economic development department were the main driver of job creation!

Bowles argues that inequality is holding the United States back, but it's not clear that that's the case. You can see the chart of states arranged by gini coefficient, where rich dynamic centers of business like New York and California score highly. In contrast, Utah is the most equal state in the U.S., but is anyone flocking there? Does anyone want to reproduce Utah's social model throughout the rest of the country?

Then the statistics for the top and bottom 10%--both groups have an approximately 30% chance that their offspring will stay in the same percentile of income distribution. But this means that 70% of rich kids are going to fall from grace, whereas 70% of poor kids are going to grow up to do better. And that's bad?

Born Poor? Santa Fe economist Samuel Bowles says you better get used to it

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