Paradigms Of Poverty

 If you put three economists in a room together one liberal, one conservative, and one libertarian and discussed minority poverty and its causes, how would the discussion unfold? After many years of reading about this topic from various sources, I have come to believe that the break down would look something like this.

The liberal economist would focus more on external causes - institutional racism, racism in general, and the overall affects society has on those in poverty. The solutions to poverty should be immediate and tend to be monetary in nature - so you get welfare, government programs, and lower taxes for the poor.

The conservative economist would focus more on internal causes - the breakdown of the family, the divorce rate, drugs, and overall cultural influences. The solutions to poverty should be long term and tend to focus more on changing the culture - so you get things like Bush's faith based initiatives, changes in the welfare system so that it doesn't reward divorce and occasionally something as creative as this.

Thomas Sowell summarizes the conservative economist well when he wrote:

The greatest dilemma in attempts to raise ethnic minority income is that those methods which have historically proved successful — self-reliance, work skills, education, business, experience — are all slow developing, while those methods which are direct and immediate — job quotas, charity, subsidies, preferential treatment — tend to undermine self-reliance and pride of achievement in the long run.

With this in mind, it is easy to see why many conservatives dislike affirmative action.

Up until now the conservative and liberal economist both had a place for government in solving the problems of poverty - whether the problem was internal or external, racial or cultural, government played a role. The libertarian, on the other hand, would have none of this. The libertarian solution to poverty would involve much less (many would argue none at all) government assistance. Though the solution (significantly limited or no government interference) is the same among libertarians, they have strong disagreements among themselves as to why that solution is optimal.

Soft libertarians will argue along the same lines as conservatives, stating that government interference is innately inferior to a free market at solving problems since no matter how you structure the assistance, it will always have a negative affect on culture and promote destructive behavior. So in the end, government assistance is like a dog chasing its tail only that with each spin of the dog the poverty gets worse and the costs more expensive. In addition, a soft libertarian sees a strong state and a strong family as incompatible. If you increase one, you will reduce the other.

For example, Arnold Kling, writes:

Most Western nations have created a cycle of dependency with respect to single motherhood. Government programs, such as welfare payments or taxpayer-funded child care, are developed to "support" single mothers. This in turn encourages more single motherhood. This enlarges the constituency for such support programs, leading politicians to broaden such programs.

He quotes approvingly, this post from Phillip Swagel on social security:

"It is convenient for us who are young to forget about old people if their financial needs are taken care of...But elderly people want and need attention from their children and grandchildren...This, then, is the ultimate trouble with the government spending other people's money for the support of one part of the family. Other people's money relieves us from some of the personal responsibility for the other members of our family. Parents are less accountable for instilling good work habits, encouraging work effort...Young people are less accountable for the care of particular old people, since they are forcibly taxed to support old people in general." (p. 116-117)

Since the family is better suited to deal with these problems than an impersonal state, in the long run this results in a reduction in efficiency and increase, not decrease, in poverty. It is this aspect of government interference that soft libertarians are attune to. For examples of solutions to poverty proposed by soft libertarians read this, this and this.

Hard libertarians, on the other hand, are in a category all on their own. Like libertarians in general, they share the belief that government has a very limited role to play in solving poverty but they take it one step further - in addition to cultural forces, they include IQ. From my reading of the literature, this breaks down into two somewhat independent parts. The first is the strong correlation IQ has with success. The second is the link between IQ and race.

The first point, the strong correlation of IQ with success, seems to be generally accepted. For example, Greg Mankiw, professor of economics at Harvard comments on a paper discussing this very thing:

Among a group of adopted sons, which is a better predictor of high education and high earnings?

(a) Having highly educated biological parents.
(b) Having highly educated adoptive parents.

According to results in a new study of Swedish data from Anders Björklund, Markus Jäntti, and Gary Solon, the answer is (a).

The results in this paper seem broadly consistent with those of Dartmouth economist Bruce Sacerdote, who examines a completely different data set in which adopted children were assigned randomly to parents.

In both papers, nature is stronger than nurture for determining the educational attainment of adopted children, although both nature and nurture have some role. And in both papers, nature completely dominates over nurture for determining income.

Nobody is arguing that IQ is everything, only that it is the strongest predictor of income, much more so than any other single data point you can provide. Hard libertarians will take this one step further and connect it to race, arguing that poverty in the United States, to a large degree, mirrors differences in IQ. For example, why are blacks and latinos disproportionately represented at the lower income levels? Hard libertarians would argue that it's because blacks and latinos are disproportionately represented at the lower end of the IQ spectrum. For more on this and how it influences the role of government programs, see this, this, this, this, this, this, this and this.

The last link discusses what impact IQ should have on government programs. The link states:

Does it matter that IQ matters? Of course! An investment in education that looks extremely profitable if you don't control for IQ could easily be a big waste of money. The reason: If you don't control for IQ, you are giving education a lot more credit than it deserves. To say "Let's focus on the things we can change" dodges the hard truth: After you adjust for what you can't change, the things that you can change may give you very little bang for your buck.

Thus, IQ is highly policy-relevant after all. The left-wing ideologues who damn anyone who even thinks the letters "IQ" are actually on to something: IQ research does turn out to be a rationale for "right-wing" laissez-faire policies. The more IQ matters, the more likely it becomes that existing government policies are a waste of money - and that you would get a bigger payoff by doing less - or maybe nothing at all.

There are several arguments, convincing IMHO, one can make against hard libertarians (Thomas Sowell, most notably, making the strongest one, see here) though admittedly I have not spent much time looking closely at the disagreements (yet). My point here is not to say who is right and who is wrong, to defend one and criticize the other, only to outline, as best as I can, what the differences are in assumptions between the various schools of thought. For even when you get all of the economics correct, the initial preferences are still very different and shape a good portion of the debate. (Originally published: (11/30/2007)

Poverty In The United States

My longest friendship was with Edgar, a friend I met in the 6th grade. He was, like me, a child of immigrant parents and he spoke primarily Spanish. He loved to joke, tell stories, and that favorite of past times, sit around with your closest friends and make fun of each other.

Unfortunately, he was also one who tended toward the criminal side of life. Since we first met, he was always getting into trouble for something, be it ditching class, smoking weed, fighting, stealing stereos, stealing cars and other things - but nothing that would make him a bad friend. He wouldn't steal from his friends, I have never in my life seen him lose his temper, he was a friend who would watch your back and who you could trust.

I remember riding my bike from Compton to his parents apartment in Gardena and later to their new spot in South Los Angeles. He introduced me to a lot of new people. Everywhere he moved, within months, he would know many people in the neighborhood. Like me, he was someone who couldn't stay in the house and met new people easily. We both would ride our bikes anywhere, on a whim. To swapmeets, malls, hang outs, anywhere our bikes would take us. Also, as crazy luck would have it, he had two cousins that were from the Mexican gang that claimed my neighborhood in Compton. Eventually, he too would join that gang and become one of its lifetime members.

Like my mom, he had a family that would give him almost free reign to do as he pleased. There were no restrictions, even at an early age, we had no curfew, no limits on where or what city we can ride our bikes to, and little supervision outside of the home. His step dad, who had spent some time in prison and I knew only casually, would sometimes pick us up if we needed it. One time, I think I was about 13 years old at the time, his step dad picked us up and instead of taking us immediately home, drove deeper into LA to a place I had never been before. He left us in the car reassuring us he would be back shortly. Hours passed, well into the night, and we were still parked. He had an old Monte Carlo with really wide back seats, so Edgar and I fell asleep in the car, waiting for him to get back. Then out of nowhere, he comes back to the car, asks Edgar to get in the back seat with me, and brings with him a, what looked like, neighborhood cluck head. A cluck head is someone who is so addicted to drugs, primarily crack cocaine and has done so much of it, that they are visually drug addicts. The people you meet in high crime neighborhoods late at night with really red eyes, dry lips, missing teeth and always begging you for change, those are cluck heads. As soon as they got into the car, he drives a few blocks more and she gets out only to return a few minutes later. Edgar and I are both still in the back seat but I don't say a word and Edgar looks like he went right back to sleep. A few minutes go by and I hear them smoking something, I hear the burning of foil paper, the sight of a lighter, and eventually realize that they are smoking crack cocaine together. After doing this for some time, he eventually leaves the area and takes us home. Years later, the same step dad would be hospitalized after jumping out of his second story window while high on PCP, he believed he could fly and nobody could convince him otherwise.

The longest friendship from Compton I had was with (lil) Sid, he lived a few houses from my house. Though he was a few years younger than me, we hung out alot. He would come to my house and we would play nintendo, baseball, and craps in the front of my house. Thinking back to those early years, I remember most his temper, whenever he would lose big he would have to go back home because he would get so frustrated with himself, sometimes in tears of anger. As the years passed Sid got older (and bigger, grew up to be one big guy) and, sadly, ended up joining the neighborhood crip gang. Though he was black, a member of a crip gang, and had a circle of friends different than mine, we continued to stay really close friends.

Sid didn't know his father and his mother was a neighborhood walker, at all hours of the day and night she would be walking all around the neighborhood, to peoples houses, to the liquor store, to the adjacent streets, all over. Sids mom was also, though not at the level of a crack head, a crack cocaine user. Though I knew before, I remember hanging out with a local drug dealer when she showed up to buy crack. She looked at me straight in the eyes and told me never to mention this to her son. I promised her that I would not, and never did - though I am sure he already knew.

My neighbors in Compton were local crips. The mom was as addicted to crack cocaine as you can get. She had missing teeth, a temper like no other, a clumsy walk, always had a cigaratte or beer in her hand and if you met her elsewhere you could easily confuse her for homeless (nonetheless, I grew up with her as a friend and neighbor, and to this day when I see her we hug and respect each other). She has three sons, the older one of which was getting into trouble since I first moved into Compton (he is now serving life in prison).

These friends and family upbringings I write about are not that rare in Compton. Almost all of my friends families I had while living in Compton have something in common with these families. Very few of them, especially my black friends, have married parents, the ones that did had a dad that beats their mom, others one that is a drug and/or alcoholic, others a dad that is currently in prison or an ex-con former gangmember (like Edgars step dad) - some have prostitute moms, some have parents that sell drugs and push them to sell drugs. I remember walking into a friends house and seeing his mom sniffing cocaine right off the living room table. It didn't bother her either, we just walked right passed her into my friends room. She was a neighborhood drug dealer and her son would later follow in her footsteps, all with his moms approval and backing. In fact, all drug dealers I knew in Compton had atleast tacit approval from their parents - several had outright encouragement.

Poverty in the United States is not primarily material, it is not primarily nutritional, it is not even primarily a lack of opportunity, though some of that still remains - poverty in the United States is primarily with the family. As the must read political scientist James Q. Wilson wrote, "There are many families with competent single moms, but they are outnumbered by the families that are harmed by the absence of a husband. From the ranks of the latter come high rates of crime and imprisonment, heavy rates of drug use, poor school performance, and a willingness to loot unguarded stores....In my opinion, the condition of the black family is the key to the persistence of a large and criminal lower class."

It is not money, or nutrition, or greater opportunity that the poor in the United States primarily need, it is a family structure that is conducive to learning, to upward mobility, and to a crime free life. When you have a large amount of friends and family - dads, brothers, uncles, and neighbors either in gangs or intimately tied to the gang culture, and a world filled with drugs, and crime, it is hard to see a way out and it is hard to learn the virtues necessary to get out. Virtues like hard work, discipline, self control, and responsibility are hard if not impossible to learn in these environments and much of government assistant is wasted or counterproductive in these situations.

As far as Edgar and Sid go, Edgar was in jail the last couple of years I lived in Compton, and the last time I saw him was when I was in my last year of college, I picked him up from jail and took him to his parents house. At this point his parents had had enough with him and refused to let him in. He promised he is a changed man and begged them to give him one last chance but they wouldn't budge. I dropped him off with some of his homies, and that is the last I saw of him. Shortly after, he would land in prison again, this time his last and he is not set to come out for a very long time. Sid, on the other hand, started to do good. After I moved out of Compton I would occasionally come back to visit and last I heard he said he was finally leaving Compton in search of a better life in Long Beach. Unfortunately, that was the last I saw of him. In another Compton visit I spotted his mom and eagerly asked her about Sid, with the impression that he is doing well in Long Beach. She informed me that he had been shot and killed in LA, and with tears already in her eyes, I asked no further questions and expressed my condolences. May he Rest In Peace. (Originally published 2/13/2007)

In Praise Of Personal Interest

One of the many things I dislike about Chicano Studies as a major is its over emphasis on "nonprofit activism" vs "personal interest". In the status circles of Chicano Studies students, you are admired more for your desire to 'build a community outreach center for disadvantaged children' than for say, getting an engineering degree and 'making the big bucks'. Obama's recent graduation speech at Wesleyan University reminded me of that. My strong dislike stems from the belief, based on three reasons, that the emphasis is counterproductive and winds up harming more than helping.

First, it is the wrong message to give to the poorest members of society who have very little to fall back on. If an upper middle class white kid decides to go into nonprofits that kid is accepting a lower standard of living than the one she grew up with but it is far different than a kid from a low income background. Even without financial assistance from the parents, the upper-middle class kid knows that if some financial disaster results, her parents can step in and help. Then there is inheritance, vacation assistance, and other perks that come with having upper middle class parents.

On the other hand, a kid from the ghetto is taking an enormous risk by accepting a low salary. They are, in effect, "putting all their eggs in one basket". And unless they are the lucky ones, they are doomed to rear their next generation of children in the very same environment they were raised in (I was shocked to hear of a Phd in Chicano Studies buying a house in Compton...you have to have a Phd in Chicano Studies to consider that progress). As I tell my family and friends who are entering the college age, "Leave the charity to the rich kids".

Second, it is inefficient. Minorities in education, in community outreach, and in most other nonprofits are literally "a dime a dozen". Another minority, because of diminishing returns, is not likely to make much of a difference. Factor in the effectivity of community outreach (very low) and the contributions that minorities in education add, and you are looking at near insignificant levels of added value.

Contrast that to the number of minorities in the for profit fields like engineering, chemistry, and technology. They are a scarcity and companies are thirsty for more. In short, you are likely to do more good for yourself and for the community as one additional engineer than as one additional member of a community outreach program.

Third, and most importantly, the two are not mutually exclusive. Making more money gives you more choices. If charity is your goal, you are likely to do more good by making alot of money than being just another 'worker bee'. When I explain this to my friends I use the analogy of Warren Buffet. I ask my friends, imagine if someone had convinced Warren Buffet to abandon what his talents are especially good at and pursue a career in nonprofits, or teaching, or politics? Now, billions later, he can do much more for charity organizations by funding the most efficient ones then by simply being another 'worker bee'.

In other words, again if charity is your goal, with extra money you can provide valuable resources, fund efficient charities, be a stronger role model to the next generation (three people in my family want to be engineers now, just because of my experience), provide a better future for your children, assist your family out, or, just as importantly, be a testament to those around you that hard work and dedication pay off, that there is a way out of the ghetto.


Lastly, unlike nonprofits, even if altruism is not your goal, capitalism works in such a way that when pursuing personal interest "you are led, as if by an invisible hand, to do things that improve the lives of others". So I say to the next generation of students, please, ignore your Chicano Studies peers, ignore Obama, and ignore anybody who tells you that making money is somehow less respectable. Your children, your family, and maybe even some charity organizations will thank you. (7/22/2008)

Beverly Hills As The USA

Imagine that you lived in Beverly Hills, among the richest people in the United States. Some of your friends were the kids of executives at Fortune 500 companies. Others were the kids of famous Doctors, Lawyers, and some were the kids of hedge fund managers. While all relatively rich, assume there was quite a range of wealth from really rich, to filthy rich.

Further assume, that one day, a bleeding heart liberal starts feeling bad for the really rich. Her complaints are along the lines of: "The really rich can't eat out at the $500/plate restaurants, they have to settle for the $100/plate restaurants, or, god forbid, make sandwiches at home". Her complaints continue: "The really rich can't afford the Lamborghini's or Ferrari's, they have to get by with the - GASP! - BMW's and Mercedes Benz's". Worst yet, "the really rich actually have to live in mansions with no ocean view, or golf courses". Most heartbreaking of all, "the really rich have to actually prioritize their lifestyle and set a budget. They can't go to Europe on a moments notice, they can't eat out everyday".

Now further assume that said bleeding heart liberal decided to set up an "alleviate suffering" fund that took away from the filthy rich to give to the really rich. Such a fund would help equalize Beverly Hills and "bring people together". But instead of making this fund voluntary, the bleeding heart liberal wanted to enforce this through the city. She wanted to make it a city tax that merely takes from the filthy rich and gives to the really rich. Her arguments, again, are to "alleviate suffering".
What would your reaction be if you were suddenly transplanted to that society and debate? Would you support the "Beverly Hills tax"? I am not one of those that believes there are absolutely no circumstances that justify forcibly taking the wages of one to give to another. But such circumstances have to be met with atleast reasonable justification. Yet simply moving money around amongst the worlds richest people does not seem to me like an acceptable justification.


Such is the image that comes to mind whenever I have a discussion with a liberal about increasing redistribution via taxes to help the USA "poor".  It's the image my dad and uncles, who immigrated to the United States in their twenties from ranch life in the poorest parts of Mexico, gave me. It is certainly how they viewed me and my cousins growing up - no matter what our circumstances, be it growing up in Compton (as I did), living off of the income of mechanics, gardeners, or window tinters - we were all blessed beyond their wildest dreams. Where they had to eat tortillas off the dirt floor, work in fields in the scorching heat where there were no "sick days" or "vacation time", even the McDonalds cashier can seem privileged. And this view isn't far from reality. Even the "poor" in the United States are among the richest in the world (see here and here). (Originally published 7/26/2012)