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Why Do People Stay Poor? [pdf]

sticerd.lse.ac.uk

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Re: Why Do People Stay Poor? [pdf]

#251

Post by jl2718 »

schrodinger wrote: post #238
ip26 wrote: post #228

Earlier quoted context omitted.

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.

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.

Re: Why Do People Stay Poor? [pdf]

#252

Post by econcon »

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…

>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.

Re: Why Do People Stay Poor? [pdf]

#253

Post by petra »

imtringued wrote: post #103
q845712 wrote: post #91

Earlier quoted context omitted.

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 ou…

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.

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

Re: Why Do People Stay Poor? [pdf]

#254

Post by petra »

Anon1096 wrote: post #235
petra wrote: post #173

Earlier quoted context omitted.

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

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

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.

Re: Why Do People Stay Poor? [pdf]

#255

Post by DubiousPusher »

JamesBarney wrote: post #239
DubiousPusher wrote: post #141

Earlier quoted context omitted.

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…

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.

Re: Why Do People Stay Poor? [pdf]

#256

Post by AlexTWithBeard »

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…

> 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.

Re: Why Do People Stay Poor? [pdf]

#257

Post by missedthecue »

quercusgrisea wrote: post #241
missedthecue wrote: post #225

Earlier quoted context omitted.

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?

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

Re: Why Do People Stay Poor? [pdf]

#258

Post by aspenmayer »

Anon1096 wrote: post #235
petra wrote: post #173

Earlier quoted context omitted.

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

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.

Re: Why Do People Stay Poor? [pdf]

#259

Post by nicbou »

benibela wrote: post #157
starclerk wrote: post #144

Earlier quoted context omitted.

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.

Re: Why Do People Stay Poor? [pdf]

#260

Post by twblalock »

tptacek wrote: post #248
twblalock wrote: post #156

Earlier quoted context omitted.

I'd bet a significant number of people, upon turning 18, would learn that their trust fund had been emptied out by their parents.

Assume that happens, and that no effective countermeasures are derived. How are poor families worse off for having the option in the first place? It's not like Booker is proposing to take the money from some other service offered to the poor: Booker proposed paying for it by increasing taxes on capital gains, which poor people weren't paying to begin with.

That's not really the point.

Who do you think would be more likely, and more in need, to raid their children's trust funds? This would be yet another program where the poor don't get what was promised to them and the rich do just fine. Rich kids would get their $250k, and poor kids would find out exactly how their parents were able to pay the rent the whole time they were growing up.

If you want to help poor kids you need to make sure nobody else can take the money you give them, even though everyone around them has a very strong incentive to take that money. Otherwise you aren’t actually helping who you intend to help.

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