Escaping Poverty

Alex recently loaned me a book, Hand to Mouth: Living in Bootstrap America, by Linda Tirado. The ostensible purpose of the book is to describe the daily life of people living in poverty in America, for all those middle- and upper-middle class Americans who do not really get what it is like when it is discussed abstractly in the news or in cozy college classrooms. I gather that the book was rather eye-opening for Alex, who comes from a more privileged background than me, but I have so far been rather unsurprised and, to be honest, unimpressed, by the plight of America’s working poor. Many of the situations that she describes I have been in before. That being said, I am only a few chapters in; I have not yet reached the parts about child-rearing and conflicts with landlords, for example, which are experiences that I know I do not have. Still, I have found the book interesting thus far, and what is remarkable to me is how much it seems to confirm Mullainathan and Shafir’s theory and observations in their book on behavioral economics, Scarcity: Why Having Too Little Means So Much. The theme of both Scarcity and Hand to Mouth seems to be the struggle to escape from a situation, poverty, that by its nature keeps you trapped.

Indeed, Tirado says as much in her introduction: “We know that the very act of being poor guarantees that we will never not be poor.” Now, the point of this book is “that poverty is not a ‘culture’ or a character defect; it is a shortage of money.” I’ve long regarded poverty as a symptom of high time preference. That is, poor people do not build up the capital they need to escape poverty, instead living in the moment. I have seen countless examples of this present-orientedness at work since I have started looking for it. So, I do believe that lower-class people tend to be more present-minded, while higher-class people tend to be more future-oriented, and that this mindset is what keeps people in their respective classes (see Rothbard). I think Tirado essentially admits this: “Poverty is bleak and cuts off your long-term brain. . . . I make a lot of poor financial decisions. None of them matter, in the long term. I will never not be poor.” However, I am less certain about how to explain this phenomenon. I do know whether to believe that this present-mindedness is caused by an ideological superstructure (see Marx), genetics (see Hoppe), isolation (see Sowell), or scarcity itself (see Mullainathan and Shafir). Most likely, the true cause is a combination of these factors, among others. Hand to Mouth, however, seems to come down firmly on the side of scarcity.

Now, what this book has done for me is to convey the difficulty of escaping poverty. It is very much a trap. Tirado notes that, when everything is going well, the poor have about $10 of disposable income each day. Now, at first, that seems like a lot of money. But, think harder, and you realize that if a poor person saved that $10 every day for an entire year, they would have a grand total of $3,650. Which, while a lot for someone who only makes $20k/year, is hardly enough to lift one out of poverty. And how likely is it that one would be able to save every $10? Or, as the book puts it, who’s lucky all the time? So, there does seem to be a problem here, with working your way out of poverty. What, then, is the solution?

Some might suggest that capitalism is to blame. While Tirado claims to be unopposed to capitalism, she does admit that she is opposed to “the sort of capitalism that sucks the life out of a whole bunch of the citizenry and then demands that they do better with whatever they have left.” She evidently does not understand that the economy is not a buffet where one may choose which elements of capitalism to keep and which to discard. However, what she describes is not capitalism. Capitalism has no agency with which to do anything to people. Moreover, poverty is the natural state of mankind; it is capitalism that has allowed so many of us to escape its trap already.

I think that the solution lies in that last sentence. It is capitalism which increases productivity, lowering prices and raising wages, improving people’s real standards of living. Critics will be quick to remind us that this is only true if the gains from capital go to workers, rather than the already-rich capitalists. But, of course, the already-rich capitalists spend their money, investing in new projects and buying new consumer goods, which can, in turn, send money down to the poorer classes. Another criticism, one that I feel acutely, is that this dependence on the economic growth fueled by capitalism is a long-term solution; it does not much help all the working poor today. But what alternative is there? Interference in the market economy only hinders its ability to generate greater wealth, and once we allow for any redistribution, at what arbitrary line should we end it? 

There is a problem here, the poverty of America’s working poor, and the near impossibility of escaping it given current conditions. Some of the problem might even be a systemic flaw, a product of past interventions in the economy. But I can think of only one way of solving the problem: let the free market work. We can certainly take steps to speed it up: end occupational licensing laws, drastically reduce regulation of business, end labor laws that restrict the poor’s options, stop inflating the money supply, cut taxes, etc. Ultimately, however, there is only one way to cure poverty; anything else is just shifting it around, which is an acceptance of it’s inevitability.