Three More Articles On Poverty, And Why They Disagree With Each Other

[Posts are decreased in quantity and quality because I’m on vacation; normal schedule to return next week]

Wealth, Health, and Child Development is a study of Swedish lottery winners which finds that winning the lottery doesn’t make them or their children any healthier, better educated, or more prosocial. It fits in with a large literature of studies showing the same – for example, I discussed here the Cherokee land lottery, where the families of Georgians who were randomly given a gift of lots of lucrative land were no better off a generation later. And let’s not forget that the best evidence suggests poverty traps don’t exist.

Why Do The Poor Make Such Poor Decisions also involves the Cherokee, but comes to the opposite conclusion. The main study discussed follows an impoverished group of Cherokee Indians as a casino opened on their land. The casino was very successful and the profits were distributed among the (relatively small) Indian tribe, meaning each Cherokee family got about $6,000 extra. Some researchers had been studying the Cherokee before for other reasons, and found that the boost in incomes decreased behavioral problems in teenagers, juvenile crime, and improved school performance. I don’t see huge evidence that anybody’s checked to what degree this persists into adulthood, but it’s already gotten past the early childhood period where these things tend to fade out. And even if the decreased crime is just in adolescence, adolescent crime can still have a really negative impact on people’s lives. I don’t really trust a lot of the studies listed here, but the main Cherokee one seems pretty solid.

Can America’s Poor Save A Large Share Of Their Incomes? by Scott Sumner is sadly Cherokee-less. It describes a Chinese immigrant to the US who has the same sort low-paying job as many poor Americans but manages to save > $1000/month. It mentions my observation a little while ago that it was strange that the poor are earning 10x (in real value) what they did in 1900, poor people in 1900 survived just fine, but poor people today don’t find themselves with ten times the money they need to survive. Sumner suggests that it is economically possible for poor people today to save much of their income, but that they don’t because they’re not the kind of people who do that kind of thing. When the sort of people who do do that kind of thing find themselves poor – like Chinese immigrants – they tend to be poor very temporarily and have no trouble getting out of poverty even with the same jobs as everyone else.

These articles sort of contradict each other. The first contradicts the second – does giving people money improve life outcomes, or doesn’t it? And the second sort of contradicts the third – if poor people’s budget will expand to fit the money available, such that 2010’s $15000 leaves people just as desperate as 1900’s $1500, what does it matter if some people get an extra $6000?

The contradiction between the first and second reminds me of Tucker-Drob on IQ. He resolves a long-standing debate on whether intelligence is more heritable in poor than in rich individuals by finding this was true in the US but not in Europe. This suggests that American poverty can genuinely lower IQ (and presumably all the other good things associated with IQ like responsibility and prosocial behavior), but European poverty can’t. The study didn’t find this to be related to the US’ greater racial diversity, but it might have to do with the worse social safety net or just changes in the level and nature of poverty. Take this seriously, and it reconciles the first and second article. Getting more money might not help long-term outcomes in Sweden, but in certain kinds of extreme poverty in America – like the type you might find on an Indian reservation – maybe it would.

The third article is more complicated. The second article says:

What, then, is the cause of mental health problems among the poor? Nature or culture? Both, was Costello’s conclusion, because the stress of poverty puts people genetically predisposed to develop an illness or disorder at an elevated risk.

Maybe with the right genes it might be easier to rise out of poverty; I guess the stories of famous entrepreneurs who did exactly that already suggest that. With the wrong genes, it might be much harder but – at least in America, at least if given large amounts of money – still possible.

Also, regarding that Chinese immigrant – I, too, have worked a $20,000/year job and managed to save a lot of money while doing so. I think my “secret” was not having a car, debts, drugs, or dependents; it seems the Chinese guy’s secret is the same. Exactly how easy this strategy is for the average person is left as an exercise for the reader, but I’m impressed with how culturally malleable it seems to be. If we’re worse at this kind of thing today than in 1900, maybe the extra is just compensating for those sorts of problems.

I think this can be considered me slightly changing my opinion stated here to be more optimistic about the possibility of alleviating the most extreme poverty. But it still seems like money transfers are the way to go.