Tag Archives: Gap between rich and poor

Misunderstanding Motivation

13 Apr

I am increasingly fascinated by our collective ignorance of what drives our desires, actions, and visions of delight – as our basest needs are met, wealth and “utility,” the cold economic term for happiness, diverge logarithmically. And I am not the only one focusing on this. Dan Pink did a wonderful talk at RSA on the subject. David Brooks wrote a book and a piece in the New Yorker on this question as well. I can’t go a week without reading a story how wealth and happiness only partially relate at all, and rarely directly.

Our laws, legal system and public policy, of course, will lag such scientific understanding or debate. Transforming new academic positions into productive governmental positions take time. But as the simplistic economic rational actor theory – that all people will logically and predictably choose more of a good than less, and make personal choices to maximize their economic situation at the least cost – becomes more and more exposed as trite and incomplete at best, our laws and policies based upon that theory are revealed as incongruous to the facts. Our tax laws and penal code are based upon the idea that we can induce, encourage, and incentivize behavior (Nudge it, perhaps) based upon cash pay outs or punishments, carrots and sticks, because Americans are rational actors. Let me give two seemingly unrelated examples where that is clearly not the case: NPR and marijuana.   

Lost in the debate about federal funding of NPR, as Republican politicians seemingly wish to exact revenge for some perceived slight, and Libertarians and budget cutters seek to remove the government from educating and informing the public via radio at all, is that if the economic rational actor theory was wholly accurate, NPR should not exist at all. Corporate NPR gets little of its funding from the federal government, but they are merely the news organization that produces the programming. The individual NPR station in towns and cities and rural areas across the country receive the greatest percentage of their funding from individual listeners. But it is in no one’s personal economic interest to donate their money to a radio station. Listening to the news is free, and as far as any individual can tell, the news will appear whether I give money or not. Why pay for an item when I can have it for no cost? That is not economically rational. As a tax break, I get a maximum of 35 cents back to my dollar donated – the rational economic choice is to keep the dollar.  Business donations make up the second major chunk of funding, but there too advertising dollars would be better spent. Why spend $1000 to get a ten second mention on NPR when I can have a full ad in another outlet or venue? Radio host Michael Medved speaks for many conservatives when he says he would donate money to NPR the day federal money dries up. Why? Because just like the motivation to donate to NPR, the debate about governmental funding of it is about a lot more than the economics.

Similarly, laws and public policy fail to account for, control, or incentive the use (or disuse) of marijuana. If man were a rational actor, the punishment for smoking pot would effectively discourage its use. But despite nearly 900,000 arrests a year, or roughly one in 25 who smoke regularly, marijuana remains the third most used recreational drug behind alcohol and tobacco. Roughly one third of Americans have smoked it at some point, and 25 million a year partake. Smoking pot is like speeding, jaywalking and drinking underage – technically illegal behavior that is widely socially accepted and now little influenced by the law. Thirty percent of Americans live in a jurisdiction with lax marijuana laws, and academic studies in those areas (plus Holland and other western nations that have taken similar steps) have shown that Doritos stay on the shelves and productivity does not decline. In other words, everyone who wants to smoke pot is smoking it, the world hasn’t ended, and our rational actor public policy needs to catch up with our understanding of human nature.

Wealthiness, Unhappiness and the Meaningless “Gap”

2 Feb

It is hard to have a conversation about national policy in today’s America without someone referencing the supposed nine-hundred-pound-elephant in the room, through a six-degrees of Kevin Bacon game that goes something like this, on cable news talking head shows, NPR roundtables, and bloggy debates: “You know, Bill, we’ll never tackle [insert policy issue here] without reducing the amount of money in politics, fueled by the ever-widening gap between rich and poor. It’s, like, the biggest gap ever.”

Ah, the “ever widening gap.” I spend exactly zero time worrying about this meaningless statistic. Those that do use it either as lazy shorthand to express our nation’s economic ills, or to advocate for simplistic wealth redistribution to fix the aforementioned issue. If easing the daily plight of those in poverty was your actual goal, you would focus on the quality of life and standard of living of our poor.

Instead, we beat up the most convenient punching bag – the rich. Despite the regular breathless streams of invectives (with a hint of envy?) directed toward the Liberal version of the evil “Other,” more even handed reports on the super elites (like this one from The Economist) paint more nuanced portraits. Here is a brief snapshot – over the past century, the elites have become meritocratic and global. Only 16% of “high net worth” individuals (the 24.4 million people worldwide who are worth more than $1M) inherited their money. 47% are entrepreneurs, and 23% got rich by working for someone else. They are 0.5% of the world’s population, but 41% are Americans, 10% are Japanese, and only 3% are Chinese.

They have less political power than you think – if money could buy votes directly, Mitt Romney, Steve Forbes, Ross Perot, Meg Whitman and John McCain would all have been elected. $1 Billion was spent on the 2008 President election, a big number but only $3 per American, roughly enough to send everyone five postcards in the mail. The rich also don’t trust “the system” that most think they control – 71% say they don’t regulators to stop the next financial crisis, that removed 20% of the total wealth from this group.

They embody half the “gap between rich and poor,” but that gap is moldable and changing rapidly. The Gini coefficient measure inequality – a score of 0 indicates everyone is equal, a score of 1 indicates that all wealth is in one individual’s hands. The US’s Gini score is 0.38, and has only risen from a low of 0.34. Germany’s has risen to 0.3, China’s to 0.4. The global score is 0.61, and has been falling for twenty years. More of a threat to the world’s poor than the rich’s money is their mating choices. The meritocratic rich are increasingly educated and intelligent, and choose similar spouses. Cleverness is clustering, and cleverness predicts wealth. 

Fortunately for society at large, because most are self made, the rich are focusing on change, starting philanthropy early, and plan to be workaholics into old age. Bill Gates started his foundation when he was 39, and will run it (barring health problems) longer than he ran Microsoft. Zuckerberg gave $100M to Newark schools when he was 26. Which leads us back to the fundamental point – in liberal democracies, the powerful (politicians, businessmen, entrepreneurs) derive that influence from the masses – the voter, the consumer. As The Economist puts it: ” . . . the powerful get on by pleasing others. In short, they work for us.”

What is the state of the “us” that owns “them?” That bag is mixed. On one hand, it has never been a better time to be poor in the Western World. In the not too distant past (and currently in most other countries) the gap between rich and poor meant the ability to safely store food. Now our poor have one $200 refrigerator, instead of four $2000 stainless steel ones. Our poor also have Medicaid and public transportation, less desirable than private insurance and a personal vehicle, but better than walking to the next village and home remedies like opium. The great equalizer, knowledge, is more widely available via the internet than at any point in human history. The overall standard of living of the poor in the United States, Canada, and Western Europe has never been better, and rising almost yearly.

In addition, the statistics that fuel the gap debate obscure the status and living conditions of some of those downtrodden. 30% of Denmark and Sweden have debts greater than their assets, often student loans. This means that for statistical purposes, they are lower than flat broke African tribesmen, who have and owe nothing. Yet these educated but indebted Westerners (and their counterparts in the US) by and large don’t go hungry at night. Among other indignities the first world poor must endure is moving back in with parents, and buying Cricket cell phones instead of iPhone’s at the Apple Store.

Well-off British students demand poor, uneducated taxpayers chip in for a share of their college tuition, so they have a better chance of joining the global elites.

The standard of living of the poor in 2010 is in many key ways (medical care, nutrition, transportation) better than that of the rich in 1910. Yet undeniably our poor, and much of the rest of the country, are mostly miserable. Which is why there is a growing movement to improve happiness, not economic circumstances alone. Such goals are problematic – most of us do not know what will make us happy, or even what caused happiness in the past (see video below). Governments, such as the UK, are adding happiness indexes to reports and policy dictums, but not without controversy. After $15,000 income per person in a nation, happiness and economic circumstances do not rise equally. Should a government try to Nudge an individual into making choices that should, statistically, make them and society happier, once they pass that threshold? What if they refuse to make the “better” choice, even when educated and prodded?

Dan Buettner, in his book Thrive, uses the oft cited example of Denmark (Gini score of 0.247), whose national happiness level is off the chart, but whose GDP is not. And while he references the small gap as an enabler, it is clearly the culture, not the money, that produces the happiness itself: self fulfillment, shortened work week, high socialization. Most Americans similarly have basic monetary needs met, but we’re much more miserable than poorer Denmark. Why? Because economic equality is not the end goal – the ubiquity of cars and TVs, or the elimination of the rich – did not produce the Danish happiness. American attitudes and culture must change more than a gap statistic, and research shows we put economics over happiness regularly.  

The most famous and expansive example of government moving past economics is Bhutan (Gini score .32), benevolent dictatorship, scrapping their Gross National Product (GDP) index for Gross National Happiness (GNH). The GNH is broken down into nine components: psychological well-being, ecology, health, education, culture, living standards, time use, community vitality and good governance. Does such a focus work? It is certainly taken extremely seriously, extensively measured, and debated worldwide, though perhaps not easily represented in a single defining statistic.

If we want to focus on increasing national and/or global happiness, and leave behind tired un-illuminating gap statistics, we need to decouple happiness from economics, or even traditional “progress”, and start thinking like this: