Monday, May 18, 2015

The Problem Of Scarcity

An Abundance of Poverty

Living in a Manila rubbish dump: This is how some people live in Manila, Philippines, in a place that once was a designated dump for rubbish in the central part of the city of 1.7 million inhabitants. “Manila is the most densely populated city in the world with 43,079 inhabitants per km2,” Wikipedia reports.  The nation’s poverty rate is around 25 per cent; and its unemployment rate around 6.6 per cent.
Photo Credit
: Lasse Bak Mejlvang; 2015

Source: BBC News & Syngenta Photography Award

It is said that the academic discipline of economics is to a large degree the study of scarcity, that is, how humans make decisions on how to best use scarce resources. The greater the degree of scarcity, the greater the necessity to make good decisions. Such is how the thinking goes, and this is essentially how governments think and operate and, to a large degree, design programs to allocate resources and redistribute wealth. At the private individual level, nowhere is this effect more pronounced than among those classes that have the least resources and the greatest scarcity: the lower classes, the poor.

An article, by Carla Finberg, in Harvard Magazine suggests that now some behavioral economists have begun to view scarcity from a different perspective, chiefly, that of examining how poverty leads to individuals making poor decisions, thus leading to poor outcomes. What this equates to is not blaming poverty on the poor, but blaming the poor for making poor decisions. It seems innocent enough, scientific in its approach, but will it lead to the necessary societal changes to eradicate poverty?

Fineberg writes in “The Science of Scarcity” (May/June 2015) the following about the work of Sendhil Mullainathan, a Harvard University professor of economics; and Eldar Shafir, Tod professor of psychology and public affairs at Princeton University:
But what’s most striking—and in some circles, controversial—about their work is not what they reveal about the effects of scarcity. It’s their assertion that scarcity affects anyone in its grip. Their argument: qualities often considered part of someone’s basic character—impulsive behavior, poor performance in school, poor financial decisions—may in fact be the products of a pervasive feeling of scarcity. And when that feeling is constant, as it is for people mired in poverty, it captures and compromises the mind.

This is one of scarcity’s most insidious effects, they argue: creating mindsets that rarely consider long-term best interests. “To put it bluntly,” says Mullainathan, “if I made you poor tomorrow, you’d probably start behaving in many of the same ways we associate with poor people.” And just like many poor people, he adds, you’d likely get stuck in the scarcity trap.
True; when people are in the giant maw of scarcity, their thought patterns change, at least initially. This is something that I know and which I have first-hand experience. Our family has been stationed around the poverty line since 2009 (called low-income cutoffs, or LICO, here in Canada), and while I and our family might not have a lot of money, I am intelligent, rational and make good decisions—despite our family’s financial limitations. Perhaps, in some cases better than others who have more resources, because “necessity is the mother of invention”; and it is important in our case to make good sensible decisions so as to “live within our means.” We have a roof over our heads, sufficient food in our fridge and pantry and all the necessities of life.

Economists ought to dig deeper: Can it be that some people will always find ways to survive because they can make appropriate and good decisions, chiefly since they have adapted well to their circumstances? Does one good decision leads to another, and so forth? More important, can lab studies sufficiently duplicate real-life experiences, even if (independent and dependent) variables are sufficiently isolated and understood? The answers are all important; and while the thinking behind this decision-making research is interesting from an academic sense, I sense that it will do little to change the poverty landscape in America. No matter the fine and noble intentions.

Here is my reasoning for saying this, although some might take exception to this. The U.S. is considered a land of abundance; and while this is undeniably true so is the fact that it also has an abundance of poverty. The U.S. Census reports that in 2013, the last year official figures are available, 45.3 million people live in poverty—equating to 14.5 per cent of its population. Note that the poverty line for a family of four (two adults, two children) is designated as $23,283. (It is almost double that amount for urban centres here in Canada, at $43,292; the poverty rate is at 14.5 per cent.

When adults do not earn enough, children suffer. Child poverty, in particular, has been increasing since the early 1990s; in Canada, the child poverty rate is 14.3 per cent, representing almost one million children. In the U.S., 16 million children live in families that are designated poor, says the National Centre for Children in Poverty at Columbia University in New York City. This equates to 22 per cent of all children in America. The cost of ignoring child poverty has been, and continues to be, great; and not only in monetary terms, says an article, by Jeff Madrick, in The New York Review of Books; in “The Cost of Child Poverty (May 8, 2015), Madrick writes:
Meanwhile, years of research have made clear the direct connection between childhood poverty and social dysfunction, ranging from poor health outcomes to higher incarceration rates. Dozens of studies have reported that poor kids are more likely to have learning disabilities, language delays, behavioral problems, and to contract diseases such as asthma and diabetes. They tend not to do as well at school and are more likely to drop out of high school, or even grade school. Women more often have babies in their teenage years. The Children’s Defense Fund says the path to prison is often paved in these years. And, most important, neurologists have found virtually incontrovertible evidence that high levels of stress experienced from birth to the age of three can actually damage brain architecture, reducing, for example, the size of the hippocampus.
Ignoring these problems is hugely costly to the US government. Harry Holzer of Georgetown University, with co-authors, showed that child poverty cost America $500 billion a year in lost productivity, higher crime rates, and raised health expenditures. Nor is it hard to find government programs that can effectively address these issues. And yet until now, there has been little interest in tackling child poverty on a large scale.
The last sentence is true, but the one before it is instructive and also true; there are good programs currently available in America, this same article says, ones which would help alleviate their poverty, and better their condition; but many do not for various reasons. This is sadly true; on an anecdotal level, I have “spoken” online to many Americans about such programs, but many said it is either too complicated or too intrusive to fill out an application—it seems that pride and dignity (or resentment) over-rides sound decision-making and material comfort.

There is also the social stigma of receiving “entitlements” from the government, a message put out and reinforced by conservatives, who equate paid work as the only “honest way” to live. The full implications of this narrative has to be fleshed out; one result of such inflexible thinking is that some individuals would rather continue to live in their miserable situation, with their children, until they found a job, or not. (It is also true that some poor people do not want to better their lives, even if an opportunity is presented to them.)

What is missing from this magical thinking, however, is the fact that millions of well-paying jobs in manufacturing have left America since the 1990s; many have been replaced by part-time or low-wage and minimum-wage jobs, which do not provide a living wage. There is a direct correlation between a good job and exiting poverty.

There are some short-term and hopeful solutions. The same article cites direct cash subsidies of between $300 and $400 a month as a way to reduce child poverty, which would cut the rate in half—a program that some academics estimate would cost the American government between $100 billion and $150 billion; this is less than one percent of U.S. GDP ($16.8 trillion). Such a program does not yet exist in the U.S., but it exists in Canada, Britain and in many other industrialized and wealthy nations.

Even so, while this would help, this is really only a short-term solution. If you genuinely want to alleviate poverty long-term, it is necessary to make political and societal changes to ensure, as an important first step, full employment, a living wage, and affordable housing. It will also necessitate less finger-pointing and more political collaboration. Until this happens, poverty will always be with us, as one well-known Galilean prophet said 2,000 years ago.

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For more, go to [HarvardMag]

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