Wednesday, December 3, 2014

Poverty and Wealth, Simplified

When you come down to it, poverty is about not having control, and wealth is about having it.

Poor people are subject to the vicissitudes of life.  They don’t have a buffer.  Each negative shock, large or small—getting sick, having your hours reduced at work (or losing your job altogether), having your car or refrigerator break down—is a crisis.  It’s hard to plan ahead and life is ruled by events beyond one’s control.

Rich people have as much control as the unalterable facts of life allow.  They can’t eliminate illness, but they can minimize the risk, finance the best possible care, and have plenty of resources to tide them over until they are on their feet again.  Their standard of living is immune to the short run ups and downs of money-making, and everything they own can be replaced.  Their span of control can extend beyond their own consumption to include charities, foundations, civic organizations, and even political parties.

Economists assume that the sole motive for economic life is consumption.  In the standard formulation, wealth is a transitory condition whose purpose is to enable future consumption (income smoothing) or, at most, to confer the consumption-like benefits of the bequest motive.  Control as such plays no role.  Similarly, it doesn't matter for a poor person whether they finance a good, like health care, out of their own savings or if it’s provided by a public program like Medicaid.  Whether they can control their access is irrelevant.

I’m not a psychologist, but my understanding of the research literature is that a sense of control is essential to well-being.  In a market economy, wealth is the basis for control.

Now it’s true that a program like Medicaid, by spelling out as explicitly as possible the rights of beneficiaries, can confer a form of control: if you've been denied a benefit, you can invoke your rights and hold the government to its obligations.  This is a matter of degree: how the rights are defined, how accessible the appeal system is, how fairly it operates.  For most people, a well-designed public program that minimizes capriciousness and error is a more promising vehicle for control than out-of-reach wealth.  But if you've got it, wealth is better.

This is why rich people, in general, oppose the use of taxes that would take their money and purchase such things as health, a cleaner environment, or education.  They aren't against these things—far from it.  They are happy not only to pay their own bills but also make donations to hospitals, universities or the Nature Conservancy.  But the question is, who controls how the money is spent and who gets the benefits?  The whole point of wealth is to have that control.  If you were rich and cared only about your own consumption, you could give most of it away, even as taxes.

Politically, what I’m saying is that egalitarians should be in favor of not only more equality of consumption, but also more equality of control.


Unknown said...

I think you are excessively optimistic about the charity of the rich.

Financial wealth is only useful as insurance, and opposing the cheap provision of social insurance, financed by taxes, may open opportunities to substitute private insurance schemes that effectively transfer income upward. It is the dark side of Knight's capitalist entrepreneur, guaranteeing a fixed wage to assemble a risky, but profitable venture.

The wealthy will concentrate their "charitable" giving on status seeking support of their own consumption, such as operas and symphony orchestras or monumental architecture.

The excess savings of the wealthy owners of factors earning economic rents, if insufficiently taxed, will tend to flow into creating usurious financial innovations, which siphon off the incomes of the poor: credit cards, payday lending, student loans, charter schools, for-profit health insurance, complex and corrupt financing of public infrastructure investment.

Potential pareto improvements?! Well, we cannot make interpersonal utility comparisons and surely if the payday loan is voluntary . . .

Anonymous said...

I'm not a psychologist either, just as i am not a poet (though i just don't know it---thats a great poem, in case you didnt know). (an in law was the poet laureate in her town).

foucault wrote a book 'discipline and punish' i think. its sortuh about control. there are also control freaks, type a's, etc.

i've come across some wealthy people who donate to the environment (henry paulson i hear is donating 4Billion$ to the Peregrine fund (my favorite bird actually, and for a brief period there was one in the the hemlock tree outside my room, and that was in a city too---NYC had some peregrine falcons nesting on the skyscrapers, and some nested on a church on mass ave not far from me---the street people hung out there before they cut down the trees. )

they are less interested in giving to 'natural areas' including national parks when poorer people and 'people of color' start using them. James Glassman (dow 36G) was talking about his travels to various wilderness areas and how beautiful they were. Others spend 1,000,000$ to go to africa to shoot animals. Some donate to 'good causes' using money they got from turning wilderness into parking lots somewhere else, but they can get on a plane and find a new wilderness, and burn the bridges behind them. Supposedly the poor and 'people of color' give more to charity---but sometimes this means they buy their pastor a BMW.

Alot of charity and social assistance is seen as a free lunch---but actually, quite often to get free health care or food stamps, or even lunch at a soup kitchen is almost a full time job and barely worth it ---you have to wait in lines, travel 2 hours on a bus, and sometimes get a barrage of somewhat invasive questions by some underpaid functionary who is tired of being tired of dealing with distressed people, have to go through metal detectors and such. Its all control. And often combined with some sort of pep talk about how when you get home from your 2 hour bus ride (possibly also standing room only and being harrassed by someone so out of control the bus driver has to stop and call the police) you should get serious and be self-sufficient---eg find a new control system like employment at walmart (though you may still need food stamps and a trip to get medicaid or something).

Of course, the control system has is good sides. One can get an entire army of psychological consultants, physical therapists, self help gurus, employment counselors, managment scientists, etc. who will spend hours with you suggesting you look at the 'help wanted' ads (maybe you could fix up or clean up their house for example while they are on vacation). Maybe get a pell grant so you can get certified to join the other rhinoceruses (eugene ionesco). if you cant beat it, join it (i think they promoted this in germany at one time).

or you can move to where i live (sortuh) DC--- 'damage control'. As pointed out in early fables i wrote awhile ago, its a job, and my lot (language, ontology, topology). Ask ISIS (greek godess) what the doormouse (or mat) said.

It would be nice to be an egalitarian, but i hear utilities are incomparable (unless maybe you use gauge theory), there is no cardinal ordering---though to be honest i think approximations exist. (eg all animals are equal, but some are more equal than others' (TM)).

JW Mason said...

This is exactly right.

If anything, I would go even further, and say that in rich countries, variation in income and consumption almost only matters insofar as it affects hierarchies of status and power.

Which is also why I have no patience with market socialists. The purpose of socialism isn't to increase the production of stuff, it's to increase human freedom.

Peter T said...

Of course it's about control. Almost all wealth is actually a claim on income, which is in turn socially derived (the product of some elaborate social engineering). The more control, the greater can be the share claimed. And if, as at present, it becomes more difficult to extract one's share relatively painlessly, then even more control is called for.

Thornton Hall said...

Actually, your point is this:

Economists use tools radically ill-suited to their purpose, assuming, that is, that they are not lying when they claim to be interested in the well-being of humans.