Why Do People Stay Poor? [pdf] • Hacker News Board

Re: Why Do People Stay Poor? [pdf]

#221

Post by CarbyAu » Thu, Jul 30, 2020, 1:33 AM UTC

redorb wrote: post #165

jfrunyon wrote: post #143

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 pa…

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)

Agreed.

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.

Re: Why Do People Stay Poor? [pdf]

#222

Post by Balgair » Thu, Jul 30, 2020, 1:41 AM UTC

jfrunyon wrote: post #143

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 pa…

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...

Re: Why Do People Stay Poor? [pdf]

#223

Post by refurb » Thu, Jul 30, 2020, 1:54 AM UTC

Sohcahtoa82 wrote: post #207

refurb wrote: post #178

Earlier quoted context omitted.

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…

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.

Re: Why Do People Stay Poor? [pdf]

#224

Post by thereticent » Thu, Jul 30, 2020, 2:14 AM UTC

Balgair wrote: post #222

jfrunyon wrote: post #143

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 pa…

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…

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.

Re: Why Do People Stay Poor? [pdf]

#225

Post by missedthecue » Thu, Jul 30, 2020, 2:21 AM UTC

quercusgrisea wrote: post #213

missedthecue wrote: post #206

Earlier quoted context omitted.

"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…

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.

Re: Why Do People Stay Poor? [pdf]

#226

Post by drbojingle » Thu, Jul 30, 2020, 2:23 AM UTC

noch wrote: post #123

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 alw…

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"?

Re: Why Do People Stay Poor? [pdf]

#227

Post by missedthecue » Thu, Jul 30, 2020, 2:24 AM UTC

arcticbull wrote: post #219

missedthecue wrote: post #208

Earlier quoted context omitted.

>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…

>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.

Re: Why Do People Stay Poor? [pdf]

#228

Post by ip26 » Thu, Jul 30, 2020, 2:30 AM UTC

CarbyAu wrote: post #221

redorb wrote: post #165

Earlier quoted context omitted.

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)

Agreed. 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…

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.

Re: Why Do People Stay Poor? [pdf]

#229

Post by ip26 » Thu, Jul 30, 2020, 2:35 AM UTC

refurb wrote: post #102

hprotagonist wrote: post #77

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…

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 tri…

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

Re: Why Do People Stay Poor? [pdf]

#230

Post by quickthrowman » Thu, Jul 30, 2020, 2:38 AM UTC

refurb wrote: post #178

quickthrowman wrote: post #128

Earlier quoted context omitted.

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?

> 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.