Wednesday, August 29, 2007

What would Joe Sixpack do?

One of the great shared assumptions of the American middle class is that America is a land of opportunity: work hard, save your money, and you've got an excellent chance to have a better life than your parents did. This assumption drives much immigration to the US, past and present. It also drives much American social policy: if you can't get ahead in the land of opportunity, then either you aren't working hard (the conservative view) or you have somehow been deprived of a fair chance (the liberal view), or some combination of both (the moderate view). Among people who share this assumption, working hard is clearly the rational, self-interested thing to do.

Long term poverty is therefore a paradox. Poor people will see a larger improvement in their lives from each extra dollar, and therefore should be even more motivated to save and work hard. Yet study after study shows that poor people are less likely to finish school, more likely to make poor financial choices, more likely to develop crippling addictions. From a conventional economic point of view, this is clearly irrational behavior, which can only be explained by some combination of laziness, poor role models, lack of accurate information, and dependence on government handouts. (Liberals and conservatives are likely to pick different mixes of these characteristics.)

But what if you assume that poor people are as rational as anyone else? Steven Pearlstein explains that a rational model of the behaviors seen in very poor communities might reach a very different conclusion. If the chance of building a better life appears to be zero, then maybe blowing that $100 bill on a night out isn't so irrational after all. Sure, saving it might help pay this month's rent, but it won't help with next month or the month after that. Enjoy it now and it won't get stolen, either.

A rational person model has important implications for social policy, as it implies that trying to "fix" the apparently irrational behavior of people in poor communities is pointless. Rather, the goal of social policy should be to try to align the rational decisions of poor people with those of the middle class. That probably means closing the gap: encouraging poor people to believe that the middle class is accessible to them.

It's an interesting article. Pearlstein makes a far more rigorous argument than most people on either end of the current political debate. Agree or disagree, he at least offers a new way to think about the issues.

1 comment:

Bluegrass Mama said...

As the chasm between the haves and have-nots continues to grow, this approach may become more and more difficult to achieve.