A Fool and His Money are Soon Parted

Why poor people are poor.

A review of the book The Economic Lives of the Poor on page 67 of the Summer 2007 Wilson Quarterly points out that more than a billion people live on less than $1 per day but explains that the "extremely poor" have more choices than we who live in the rich world would think.

In Udaipur, India, ... more than a third report that the adults in their household went without food for a whole day at some point during the past year.  ... the cities' poor spend five percent of their income on alcohol and tobacco, 10 percent on religious festivals, and almost 10 percent on "sugar, salt, and other processed foods."

Spending patterns bring consequences:

Hardly any of Udaipur's poor own a radio or a television, but in countries where festivals and other public entertainments are rare, ownership rates are much higher.

In other words, when poor people spend their money on festivals, they can't spend it accumulating capital goods.

<>It's not an absence of self-control that leads to such outcomes ... Poor people often skimp on food so that they will have enough money for things they consider valuable.

There's a profound lesson here - poor people lead limited lives but they make choices.  Richer people tend to assume that poor people can't make sensible choices because poor people don't make the same choices they would.  Look at all the restrictions and rules enforced by Western welfare departments.  Lawmakers didn't trust poor people to spend money sensibly, so they give them food stamps which are supposed to be spent only for food.  Some money can only be spent on heat, some is restricted to rent, as if the poor have no sense at all.

Being treated like idiots makes people act like idiots and they become more and more dependent on government.  The bureaucracy wants people to be dependent, of course.  The welfare department needs poor people to stay in business, but we would all be much better off if welfare agencies worked to find ways poor people could earn more money in order to become independent rather than giving money to them which makes them more dependent by destroying the human spirit.

Central Broadcasting of Canada has reported on a microcredit lending program which focuses on lending poor people enough money to start earning money and lift themselves out of poverty.

Contrast this approach with poverty-fighting efforts in the US.  Instead of teaching independence, US welfare programs are designed to make poor people dependent.  Established welfare agencies hate any program that actually reduces poverty because it shrinks their market.  Even though the man who originated microcredit won the Nobel prize, you'll find articles all over the web criticizing the idea because it works although the critics make up other reasons not to like the program.

As another example, the One Laptop Per Child (OLPC) project wants to provide laptop computers to millions of poor children.  This should make education much more effective by connecting children to the Internet where they can find whatever information they need as opposed to whatever the education bureaucrats think they need.

On page 72 of the October 1 issue, Newsweek reports on a meeting between OLPC and an official at the World Bank.  Even though OLPC answered all the Bank's objections, the bank would not support the project.  "It's like they're looking for reasons to say no."

Of course the World Bank opposes OLPC.  They're already in trouble because most countries where they like to lend money are becoming so rich that they can borrow in normal financial markets and don't have to follow the Bank's advice.  This leaves no room for the World Bank to operate.  If high-paid Bank bureaucrats have a choice between reducing poverty and eliminating the need for the Bank or prolonging poverty so they can keep collecting their paychecks, which will they choose?

Welfare bureaucracies work the same way.  Some years before news articles were stored on the Internet, the press reported on a mother who wanted her daughter to escape the welfare system.  The mother had saved a few hundred dollars to send the daughter to college.  Horrified at the prospect of the daughter and the daughter's children escaping their system, the welfare bureaucracy took the mother to court.  The judge ruled that it was illegal for the mother to receive welfare benefits when she had so much money in the bank and fined her all her savings.  The daughter remained in the system, to the relief of the bureaucrats.

At about the same time, Massachusetts welfare officials were paying for welfare mothers' fertility treatments.

Making sure poor people can't get out of the welfare system is second nature to bureaucrats.  Even after President Clinton's welfare reforms of 1996, the Wyoming Department of Family Assistance had to write special regulations so that parents would not get in trouble if a child saved the child's own money for college:

A savings account established from earnings of a dependent child under age 18 who is a full-time high school student are an exempt asset when designated for higher education.

Note that the exemption applies only if the child saves for college. If the child saves to buy a car or start a business, or if the child is out of high school, the child's savings account against the parent's asset limit.  There's a bumper sticker, "I fight poverty - I work," but having welfare children learn to work is the last thing the bureaucracy wants.  Anti-poverty bureaucrats need poor people to justify their budget so they try to keep the people on their lists poor.  They'll claim that that's not their goal, but their rules, regulations, and results speak for themselves.

Mr. Clinton's reforms of 1996 got a lot of people off of welfare; that could have been done at any time if the bureaucrats had been willing to change their rules the way Mr. Clinton's law forced them to change their rules.

In addition to not encouraging poor people to stop being poor, American programs encourage poor people to make more poor people.  Welfare mothers get more money for each child they have.  While the amount would not encourage a middle-class mother to have another child, it's evident that the reward for an extra child is enough to encourage someone whose living standard is, shall we say, somewhat restricted.

The way the current system works in practice is that we have declared that every woman has the right to have as many babies as she wants, and the taxpayers will pay for all of them if there's no man around to pay.  There's no problem with a woman having as many babies as she wants if I don't have to pay the bills.

What if we changed the rules subtly to say that women could have either multiple babies or public assistance but not both?  That is, a woman who wanted taxpayer's money would have to take Norplant or some other contraceptive as a condition of getting public money; no pills, no pay.  She could have as many babies as she wanted, of course, but the taxpayers would pay for only one.

Experience shows that if we taxpayers subsidize something like ethanol or cotton planting or illegitimate babies, we get more; if we cut the subsides, we get less.  Having fewer fatherless babies would be good for society.  The best way to have fewer fatherless babies is not to pay for them.

Encouraging people to stand on their own feet and earn their own money and not encouraging them to have babies they can't support would be a great service to society, but if poor people made their own choices and become independent, what would the welfare bureaucrats do?

Will Offensicht is a staff writer for Scragged.com and an internationally published author by a different name.  Read other Scragged.com articles by Will Offensicht or other articles on Economics.
Reader Comments
When people have a general sense of hoplessness, a smoke and a drink seem to go a long way to not eleviate but distract. This happens at all economic levels. Although not wise or effective.

Also, an increase in monthly government income is not an incentive to have children - poor judgement, combined with or derived from a lack of self-worth are.

So there you have the origins of the phrase "down with dope, up with HOPE."


February 3, 2008 2:07 AM
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