The Flawed War on Poverty

All wars are wasteful and have uncertain outcomes. The war on poverty is no exception. Take the big picture view of this in the United States. In 1966 when President Johnson declared war on poverty, the Census Bureau placed our poverty rate at 14.7%. In 2013 the rate was 14.3%. The rate fluctuates as economic conditions vary, but never reliably decreasing and never by more than a few percent at most. ISSweb0109_345.gif.cmsThere are disputes about how to count our investment in this effort, but it certainly has been in the trillions of dollars. To be fair, many people have been helped, but no one could justifiably claim that the war has been successful by any measure.

Many reasons have been offered to explain this failure. Skeptics point to waste, fraud and incompetency, while proponents of the effort say it was always grudging and limited so that promising approaches withered. Both are probably right to some degree but I suspect a more fundamental issue is at play that would have insidiously undermined even the best of efforts.

We misunderstand those whom we are trying to help. Some of this arises from idealized hopes and some from misplaced analogies. We hope that people will grasp opportunities and spontaneously reform habits of a lifetime, while we believe that poor people are just potentially successful people who are down on their luck. Some will no doubt fit this prescription but the vast majority won’t. The consequence is frustration for everyone involved.

Now that is my analysis and observation and I don’t claim any special expertise. But listen to Dr. Richard Thaler, professor of behavioral science and economics at the University of Chicago Booth School of Business and author of the new book “Misbehaving: The Making of Behavioral Economics.” He summarizes his findings in this way, “The daunting realization is that we don’t know what the hell we’re doing in most fields of life, especially the ones that involve people.”

As Dr. Thaler demonstrates, determining what makes and keeps people poor isn’t a trivial challenge. If all it took was to bombard them with money and advice, the problem would have been solved long ago. His field of behavioral economics documents the ways in which humans fall short of perfect rationality. In theory, people consider all relevant information and then make informed judgments about risk, reward and the best choices they can afford. Nothing could be farther from the truth. Dr. Thaler’s research shows that people in all walks of life:

  • Love to gamble regardless of the odds of winning
  • Value future risks and rewards much less than current gains and losses
  • Lack motivation to pursue their own best interests unless it can be done effortlessly
  • Procrastinate, putting off just about anything they can get away with
  • Put money into arbitrary mental buckets, violating the known notion of fungibility
  • Want the comfort of knowing that they are doing what their friends and neighbors do
  • Are impatient to their own detriment

For those who are financially secure, these frailties of the human mind don’t usually hurt too much. If you are poor, however, even minor mental mistakes can have severe consequences. A middle-class American who takes a flyer on the lottery isn’t risking much and enjoys the thrill of anticipated riches. If you are gambling your rent money, it is a very different story. People who are successful are usually surrounded by others who are likewise successful and who provide role models and mentors. There are exceptions, as there are to every rule, but this plays a major role in differentiating those who succeed and those who fall behind. Anti-poverty efforts have often attempted to supply appropriate role models, but these are undermined by the entire milieu in which the poor survive and live.

I don’t want to be unduly pessimistic, but unless we recognize and respond to reality, no well-meaning anti-poverty measures have much hope of succeeding.