Why Do People Stay Poor? [pdf]

Without making the jump from washing plates&#x2F;factory work to software I don&#x27;t know how I would have escaped(still haven&#x27;t) considering my pay increased 4 times. Just brutal when you trade hours for money directly at a low rate, I was doing 70hrs washing plates before and it was nothing ha.<p>Edit: there is the thought of living within your means, personally with a roommate I could live on $10-$20K a year which you can make doing labor jobs but not a lot saving. I&#x27;m lucky being single&#x2F;having no direct responsibility eg. children.<p>It is my opinion though that if you want to&#x2F;have internet&#x2F;time then you can alter your life for the better, but yeah can&#x27;t just say &quot;learn to code&quot;. But other options available. I see the point about opportunity because I had a friend to crash on his couch when I was technically homeless that is helpful&#x2F;bare min opportunity.<p>My jump was not fast, it took at least 2 years not including the 3 years before that of self-study&#x2F;personal interest. I freelanced on the side while working as a dishwasher before first in office&#x2F;full time job.

Easy answer: because expenses are higher for poor people.<p>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.<p>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 pay rent. And then they have to spend more money on gas (or bus fare, or a taxi, or time and energy walking, or ...) to get to the store again sooner.<p>Instead of the employer providing any supplies that are needed, the lower class have to buy their own uniforms or tools.<p>Instead of a 5% interest rate on their loan, they have a 25% interest rate.<p>Because they don&#x27;t make enough money to set some aside as savings, they have to pay late fees or NSF fees or overdraft fees.

<i>The reason that the rich were so rich, Vimes thought, was because they managed to spend less money.<p>Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.<p>But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that&#x27;d still be keeping his feet dry in ten years&#x27; time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and _would still have wet feet_.&quot;<p>This was the Captain Samuel Vimes &#x27;Boots&#x27; theory of socioeconomic unfairness.</i>

I&#x27;m not going to comment about the article without reading it carefully; but just in case there are any aspiring data analysts online there is a chart that is interesting even without knowing anything about the data...<p>On page 64 (65 as the PDF numbers it), chart (b) &quot;Distribution of savings rate&quot; has an awkward little peak on the left hand side of the chart. It is very difficult to tell from inspection whether that is a real feature of the underlying data or if it is an artefact naive kernel density estimation.<p>If you ever see that pattern in your graphs, do consider trying logKDE [0] rather than ordinary Kernel Density Estimation a la geom_density() in ggplot. It also isn&#x27;t perfect but the result is usually a bit better for things that approximate an exponential distribution.<p>[0] <a href="https:&#x2F;&#x2F;cran.r-project.org&#x2F;web&#x2F;packages&#x2F;logKDE&#x2F;vignettes&#x2F;logKDE.pdf" rel="nofollow">https:&#x2F;&#x2F;cran.r-project.org&#x2F;web&#x2F;packages&#x2F;logKDE&#x2F;vignettes&#x2F;log...</a>

This is something I enjoy about our jobs up in Scandinavia - the salaries are very compressed around the mean.<p>Engineers, Lawyers, and other similar professions tend to earn 2x-3x of what the absolute minimum wage jobs earn. That&#x27;s quite the difference compared to other countries, where Engineers can earn 5x-20x.<p>People here are still motivated to seek higher education and better paid jobs, even though they could live normal lives off those lowest paid jobs that don&#x27;t require any education.

To anyone interested in the topic, I recommend reading Duflo &amp; Banerjee&#x27;s 2011 book &quot;Poor Economics&quot;. They pioneered the approach of using RCTs to test interventions in fighting poverty (for which they received the Nobel Memorial Prize together with Michael Kremer). They go into a lot of factors as to why poor people get certain economic outcomes, including but not limited to the poverty trap theory, and take a refreshingly &quot;humane&quot; &#x2F; respectful view towards the people they are dealing with.

I’m not qualified to judge the technical merits of the paper, but their conclusion seems plausible. They concluded that in an illiterate rural population, there did seem to be a threshold effect in asset levels above which it seemed much easier to progress economically. But it’s unclear to me how applicable this is to the poor in the US or other developed economies, particularly when we’re talking about a population where almost everyone can read and write, and many of them have cellphones and internet access. Part of the reason that many people (including my family) try to emigrate from developing countries to more developed economies is that the same person, with the same skills, can be <i>vastly</i> more productive in those economies, which is what allows that person to have a much better lifestyle. And much of the reason that high-productivity jobs are not available in those poor countries is <i>because</i> of a lack of capital. So it makes sense that giving the poor some minimal amount of capital is required, so that those same people can be more productive. But it seems unlikely to me that adding capital (increasing the assets of poor people) would have the same beneficial effect in developed economies, given the large pre-existing ‘capital stock’<p>This [article](<a href="https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;timworstall&#x2F;2014&#x2F;08&#x2F;27&#x2F;by-global-standards-there-are-no-american-poor-all-in-the-us-are-middle-class-or-better&#x2F;#1c00d8035cb5" rel="nofollow">https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;timworstall&#x2F;2014&#x2F;08&#x2F;27&#x2F;by-globa...</a>) describes what american poverty levels would be if we used the same measure as we do in developing countries and makes the point that by those measures there <i>are</i> no poor people in the US, just “lower middle class”. That doesn’t mean we shouldn’t try and improve the lives of people at the lower end of the income distribution, but we should at least understand that when we use the term <i>poverty</i> in developing and developed economies, we’re talking about something qualitatively and quantitatively <i>different</i> - so the optimal solutions are likely different too.

Studies like this boil down a hugely complex issue into variables they can control for. There are a lot more theories as to why people stay poor than the two they offer at the beginning.<p>Why don&#x27;t we study all of the people who have definitely risen from the ranks of the poor to a higher class and see what they have in common?<p>Sure, it&#x27;s not the norm. But it happens all the time. There is enough data to form an opinion.<p>I&#x27;m guessing the way people rise from the poverty is much the same as people who are average becoming wealthy. They are willing to take risks (i.e., leave your neighborhood, buck the trends in your family tree) and they work on being prepared and available for opportunities that may present themselves.<p>We also know there are certain behaviors that absolutely correlate to and probably perpetuate generational poverty (children out of wedlock, crime, quitting school). The people I know who have risen out of inner city poverty in the U.S. (not the same as Bangladesh I know) distanced themselves from these behaviors and from the people who considered them okay.

When you’re stressed you don’t make good decisions. You choose the fatty food, TV, booze because you want to cheer yourself up. Making ‘good decisions’ is so much easier when you have an income and you’re not avoiding creditors calls. I’ve lived through it. It was exhausting.

People stay poor because all the past unfairness never goes away. It clings to them. Real survivorship bias exists to muddy the reality of how bad it truly is to have bad things happen in early life. A lot of people can simply never recover when they were kicked so unfairly in early life contrary to their peers. I believe it’s why there used to be experiments with lsd to see if memories could be erased.

off the top of my head I think it depends on the type of poor you are.<p>Some people are poor because of their situation and some situations are more difficult to escape than others.<p>Some people are poor because of their habits and inclinations and they just don&#x27;t change those habits (for one reason or another), so they stay poor.

For the individual, the answer is Debt. And servicing repayments of debt. Eg, that on the typical mortgage you repay ~3 times what you borrowed.

Why does every econ paper these days read like a high-energy physics paper? I feel like I am reading about field theory, not econ.

Here&#x27;s a better question: how do people become rich?<p>Being poor is table stakes for being a human animal. The miracle of modern society is that billions of people aren&#x27;t poor (as high as 90% according to Hans Rosling[1]). How did we make that happen? How do we make it happen for everyone?<p>[1]<a href="https:&#x2F;&#x2F;ourworldindata.org&#x2F;grapher&#x2F;distribution-of-population-poverty-thresholds?stackMode=relative" rel="nofollow">https:&#x2F;&#x2F;ourworldindata.org&#x2F;grapher&#x2F;distribution-of-populatio...</a>

Off topic, but I would recognize \documentclass{article} anywhere.

&gt;&gt; The threshold above which people no longer regress into poverty is 9,309 BDT (504 USD PPP)<p>Am I understanding PPP correctly--this is a value equivalent to what $500 buys in the US?<p>That&#x27;s surprising because the paper states this is above the amount available for conventional microfinance; I didn&#x27;t realize it was indeed that &quot;micro&quot;.

&gt; Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated at baseline and that the gains arising from eliminating misallocation would far exceed the costs. Our findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.<p>Balboni, C, Bandiera, O, Burgess, R, Ghatak, M and Heil, A. 2020. &#x27;Why do people stay poor?&#x27;. London, Centre for Economic Policy Research.<p><a href="https:&#x2F;&#x2F;cepr.org&#x2F;active&#x2F;publications&#x2F;discussion_papers&#x2F;dp.php?dpno=14534" rel="nofollow">https:&#x2F;&#x2F;cepr.org&#x2F;active&#x2F;publications&#x2F;discussion_papers&#x2F;dp.ph...</a>

Wealth, in it’s most fundamental form, is a mindset.

TLDR;<p>&quot;We have shown that poverty traps exist. People are poor because of a lack of opportunity. It is not their intrinsic characteristics that trap people in poverty but rather their circumstances. Poverty is not an innate condition. This has implications for how we think of development policy and for the value of eliminating global poverty.&quot;

does anyone read Piketty?

The paper says:<p>&gt; The question is whether the bimodality is symptomatic of a poverty trap, namely whether poor people do casual jobs and hold nearly no productive assets because they do not have the talent to do anything else or whether the fact that they are poor prevents them from acquiring the assets needed to climb the occupational ladder.<p>The cause&#x2F;effect inversion, of talent&#x2F;ability =&gt; asset acquisition, is always worrying. We might benefit, as a society, if we confront the IQ problem honestly and head-on, in order to have a more complete&#x2F;accurate policy picture especially because it seems reasonable that wealth transfers should be optimised to enable higher productivity.<p>Consider: &quot;The Bell Curve Review:IQ Best Indicates Poverty&quot;(Benjamin, 2018), in which:<p>&gt; I find that IQ is more correlated with poverty than socio-economic-status in every regression, regardless of what is included in the regression, by a factor of 3.<p>Also: Hsu(2015) <a href="https:&#x2F;&#x2F;infoproc.blogspot.com&#x2F;2015&#x2F;04&#x2F;income-weath-and-iq.html" rel="nofollow">https:&#x2F;&#x2F;infoproc.blogspot.com&#x2F;2015&#x2F;04&#x2F;income-weath-and-iq.ht...</a><p>&gt; Income mobility is strongly affected by IQ. In fact, IQ is a much stronger predictor variable than race for escaping the bottom quintile of income.

This reminds me of the study of how long people tend to hold onto a FRN.<p><a href="https:&#x2F;&#x2F;moneymaven.io&#x2F;blackwealthchannel&#x2F;community-building&#x2F;asians-keep-a-dollar-in-their-community-120-times-longer-than-african-americans-2ZvNTGNxpkClloXlXK_wMQ" rel="nofollow">https:&#x2F;&#x2F;moneymaven.io&#x2F;blackwealthchannel&#x2F;community-building&#x2F;...</a>

Simply, because of banksters, rotten owners of manipulated &#x27;financial system&#x27; - the rothschilds &amp; their bitch€s, institutions, and so on. Killuminati. That system is very easy to manipulate (for them, not for us)... They&#x27;ve created the most powerful currency ever. No, not USD, but the DEBT. With this, they can do everything today, as they owe also governments and the rest. They can create &#x27;crisis&#x27; just like that, usually to rob working people of valuable assets (that comes from real work, not from usury), to cover their worthless (melting since &#x27;71) &quot;money&quot;. And tell the people that&#x27;s their fault. Again and again. Decade by decade. The sad thing is that so many people still believes in that whole rotten, satanic system; only some people have their minds open enough to understand this, to know that&#x27;s our sad reality (it&#x27;s not about what we believe in, but what we SEE); the others are blind, &#x27;too busy&#x27; or &#x27;too lazy&#x27; even to think, so it&#x27;s easier to call it &#x27;conspiracy, theories, etc&#x27;. Today, if mainstream f<i></i><i></i>ng media call something as &#x27;conspiracy&#x27;, you should think about that twice and analyze why. Same about pseudo &quot;law&quot;, that concerns us, but doesn&#x27;t apply to them... Which promotes deviation, but banishes almost everything that is actually good for us.<p>That why people do stay poor - because of corrupt puppet governments owned by these &#x27;elites&#x27;... The humanity should have much bigger, much better, beautiful achievements so far! But that&#x27;s impossible in this system, which makes the people focusing mainly on bullshit, instead of things, that really matters! What people can do? Well, nothing special, just WAKE UP and start to think! The more the better. This is what the system fears: awake, thinking people. People who have the potential to be free... The system needs slaves! That&#x27;s why the world looks what it looks like, that&#x27;s why people suffer - needlessly! Thank you &amp; good luck (we all need it).

A sterling argument could be made that Capitalism as a concept requires a permanent underclass of low income workers. for example, Guardiola-Rivera believes that poverty and inequality are political issues that can only be solved when the poor organise and come up with a solution to liberate themselves.<p>Rising income inequality is breeding more inequality in educational opportunity, which results in greater inequality in educational attainment. That, in turn, undermines the intergenerational mobility upon which Americans have always prided themselves and perpetuates income inequality from generation to generation. This dynamic all but guarantees a permanent underclass.

I also know some people who have a poor mentality. That is, they consistently refuse to seek out better-paying opportunities despite abundant mental ability in the name of &quot;happiness,&quot; complain that their series of low-paying roles deserve more money, and advocate for hard socialism to enable redistribution to make that possible. The problem, you see, is all the other people.

This seems to be &quot;Why do people stay in poverty?&quot; &quot;Poor&quot; has a different meaning depending on who you ask. For example, students are popularly considered &quot;poor&quot;. Some people would consider themselves &quot;poor&quot; if they can&#x27;t afford a car. Some people consider themselves &quot;poor&quot; because they are not millionaires.

This is why Booker&#x2F;West-style baby bonds could have a significant chance to alleviate structural poverty. Beyond a certain threshold (and I think we’re past that in the US) equality of opportunity (better education, etc.) won’t make up for starting out poor. What people need is seed capital.<p>For a fraction of the cost of universal healthcare, we could endow each child born in the US with a $250,000 trust fund at birth. That would be game changing.

Wealth is mean-reverting along genetic lines. I.e if your removed ancestors were poor, but your immediate ancestors were rich, chances are you or your descendants will revert to being poor. Together with available data conditioned on factors like geography and ethnic background, by far the most likely hypothesis is that expected wealth is mediated by factors like intelligence and time preference, which are strongly genetically heritable.

Because we decided to place as many things in the market as possible, so necessities of life like housing and food can only be got via labor for the employer class who underpay (that&#x27;s where profit comes from) and if they don&#x27;t like you you can&#x27;t even access that low pay and become homeless and either starve, live off charity, or eat extremely unhealthily which reduces your capacity to be useful to the employer class over time.<p>Redefining basic necessities as human rights and placing them outside the market will do so much to reduce poverty it will blow peoples&#x27; minds. However, this will of course come at the expense of the privileges of the powerful so such things are opposed.<p>It&#x27;s helpful to think of this as a design question. Do we design a UI that many users fail at or is the problem the system design?

I&#x27;ll probably read the whole thing at some point, but I&#x27;d say that it&#x27;s due to the <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Mediocrity_principle" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Mediocrity_principle</a>, basically &quot;don&#x27;t assume you&#x27;re special&quot;. Or &quot;don&#x27;t assume any one sample of a thing is special&quot;, from the start.<p>And since the natural state of humanity is poverty (after all we all started as hunter-gatherers), breaking out of it on your own is extraordinary. I wouldn&#x27;t be surprised that the first communities to break out of poverty had 1 extraordinary individual that lifted their entire family&#x2F;clan&#x2F;tribe. Then through social osmosis more people in their vicinity were lifted, provided they cooperated&#x2F;were open enough to the new thing that made their neighbors rich&#x2F;were not discriminated for a million reasons&#x2F;...).<p>Look at the Industrial Revolution. It basically spread geographically from the UK and is also spread socially to UK off-shoots, first.