Falling (rising) incomes and personal irresponsibility, on recent Charles Murray debates

by on February 8, 2012 at 6:25 pm in Economics, Education | Permalink

Let’s turn the mike over to Alex, our Alex, the Alex, etc., the one who writes for MarginalRevolution:

The rags to riches to rags story of a poor, unemployed fellow who wins the lottery, blows the cash, and ends up just as poor and unemployed as he began is a common trope.  (Here is a classic in the genre). In a paper just published in the Review of Economics and Statistics (gated, free version here), Hankins, Hoekstra and Skiba argue that the rags to riches to rags story has a systematic component.

The authors link records of lottery winners to bankruptcy records. The use of the lottery is a great randomization device, although obviously it restricts the sample to people who play the lottery.

The central finding is this: people who win large amounts are just as likely to end up bankrupt as people who win small amounts…

Here is more, hat tip goes to Slocum.

Addendum: Floccina writes in the comments: “Former professional athletes are also an interesting case.”  Are the economic variables really driving the dysfunctional social norms, or vice versa, or most likely quite a bit of both?

KLO February 8, 2012 at 6:59 pm

According to the abstract:

“A comparison of Florida Lottery winners who randomly received $50,000 to $150,000 to small winners indicates that such transfers only postpone bankruptcy rather than prevent it, a result inconsistent with the negative shock model of bankruptcy.”

Could it be that $50,000 to $150,000 is not enough money to do any more than postpone the inevitable for people who are in debt and likely to declare bankruptcy? Perhaps if our winners won larger amounts the outcome would have been different.

Also, because people die, would not postponing bankruptcy tend to reduce the amount of bankruptcy among lottery winners? Perhaps the mortality effect is too small, but in my limited experience people who play the lottery tend to engage in high-risk behaviors that frequently lead to an early death.

CBBB February 8, 2012 at 7:27 pm

Those aren’t exactly huge amounts – a person could easily owe more then that in a mortgage + student loans.

nazgulnarsil February 8, 2012 at 8:01 pm

people with a mortgage and student loans are middle class. honestly that people are missing the point here is saddening but not surprising.

CBBB February 8, 2012 at 8:06 pm

What? I don’t know what other people think but when I talk about poverty I’m talking about sub-$60,000 a year income. A mortgage and student loans hardly implies middle class in my books.

Nate February 8, 2012 at 8:17 pm

Aaaaannnnddd thanks for showing everyone why you’re bitter and unemployed. Poe’s Law in effect of course.

CBBB February 8, 2012 at 8:20 pm

Poe’s Law – I hadn’t heard of that. Any way I don’t feel anything I’ve said is extreme.

hawk30 February 8, 2012 at 8:23 pm

Nice. Over 50% of the country is poor by your definition. Try sub-$15,000 for poverty.

CBBB February 8, 2012 at 8:23 pm

Yeah I know the majority of people are poor – that’s the reality. Sub-15K I can’t even imagine that’s just an abyss to me.

hawk30 February 8, 2012 at 8:53 pm

I hope you’re at least a grateful prick.

CBBB February 8, 2012 at 8:58 pm

What do you mean? I’m in abyss myself basically.

will February 8, 2012 at 9:00 pm

Apparently I live in poverty.

Sent from my Iphone.

anonymous February 8, 2012 at 9:06 pm

In all fairness to CBBB, many of the historical references to middle class talks about the people who are pretty well off. From the wiki:

The modern sociological usage of the term “middle class”, however, dates to the 1911 UK Registrar-General’s report, in which the statistician T.H.C. Stevenson identified the middle class as that falling between the upper class and the working class. Included as belonging to the middle class are professionals, managers, and senior civil servants. The chief defining characteristic of membership in the middle class is possession of significant human capital.

If one is still speaking in that vein, then even 100K as the lower bound for middle class seems reasonable.

CBBB February 8, 2012 at 9:06 pm

Look there’s a good reason I set the bar that “high” and in many ways the bar might still be too low. Especially if you have a family and a house you’re just using that money for mostly food, housing, basic clothing and day-to-day expenses. It’s subsistence – I mean there’s barely a reason to live on that amount of money, you’re just going in a steady-state.

Floccina February 8, 2012 at 9:12 pm

$60,000 in upper middle class to me, rich by world or historic standards. My wife and I wer in the $15,000 category for a long time and I never though of myself as poor.

CBBB February 8, 2012 at 9:13 pm

I don’t take comfort in world-historical comparisons

hawk30 February 8, 2012 at 9:14 pm

This must be trolling.

You should demand your money back from whatever institution it was that committed the malpractice that was your education.

CBBB February 8, 2012 at 9:20 pm

I would LOVE to get my money back

Floccina February 8, 2012 at 9:21 pm

CBBB you might benefit from looking at this: http://ymoyl.wordpress.com/ It might help you learn to enjoy life more.

Major February 8, 2012 at 9:49 pm

when I talk about poverty I’m talking about sub-$60,000 a year income

Another reason not to take you seriously.

FYI February 8, 2012 at 11:30 pm

CBBB you should move to South America. Or Africa. Or Asia. You should just move man, get a real perspective about life.

CBBB February 8, 2012 at 11:35 pm

I spent almost 2 years living in Asia actually

Kevin February 8, 2012 at 11:56 pm

“when I talk about poverty I’m talking about sub-$60,000 a year income.”

-10 serious points.

FYI February 9, 2012 at 12:10 am

Looks like you didn’t learn your lesson. Go back, but now go to a poorer country. There are plenty of those.

will February 9, 2012 at 4:37 am

CBBB might be referring to family income. For a family of four, that’s poor, but not poverty. They’d receive no federal assistance.

$66k/year places an individual in the 75th percentile of income in the US. It’s definitely middle class.

“It’s subsistence – I mean there’s barely a reason to live on that amount of money, you’re just going in a steady-state.” This statement makes everyone angry. You need to adjust your definition of “middle”. If the average (median or mode) family can afford a home and raise a family without significant material wants, that’s a much better world than we live in. Is that a life not worth living? You’re an asshole.

Andrew' February 9, 2012 at 4:56 am

How would you design an experiment to get a large number of data points to explore whether people are good with the money.

So far we have the lotto and…the economy.

Any better ideas?

Ricardo February 9, 2012 at 5:11 am

Regarding whether $60,000 is “poor” or not, it depends entirely on where you live. If you live in San Antonio, Texas, I believe this is a fairly comfortable level of income for a family of four where the median price of a house is $130,000. On the other hand, it would be extremely difficult for a family of four to live on $60,000 per year in the Bay Area. A 30-year mortgage anywhere near the Bay is completely out of the reach for a family at this income level and they would wind up spending a substantial chunk of income on rent.

dead serious February 9, 2012 at 8:46 am

Quality of life re: income is relative to location. Making $66k and trying to live in NYC would be difficult, and even if possible would leave you feeling poor. In Alabama, you’re living high off (on?) the hog.

dead serious February 9, 2012 at 8:46 am

And I obviously should have read all comments before posting.

CBBB February 9, 2012 at 11:17 am

Such Rage about this comment, I think it’s a totally reasonable metric – and this was for a single person. A family I’d peg more at 100K. Judging from the reaction maybe it would be a good thing if we raised the poverty line substantially – it would make people feel angry and hence hasten the coming of the revolution.

Andrew' February 9, 2012 at 5:15 am

CBBB,

Why do keep projecting this hatred of the poor onto people who’ve expressed no such thing?

Andrew' February 9, 2012 at 5:16 am

Basically, I’d love to help the poor, I just don’t want to help them in ways I think wouldn’t work for the goals I think I and they should have, such as giving them money that I think they will hand directly to shysters.

Abersouth February 8, 2012 at 7:12 pm

I do love Steve Martin in The Jerk.

seth February 8, 2012 at 7:21 pm

I think what this paper is clearly saying is that a government should not give 50-150k to people from lower income classes at random. Genius! Doesn’t say anything interesting about any past or future policy anybody I know is considering.
Seth

Claudia February 8, 2012 at 9:17 pm

Seth, a good portion of the tax and transfer policy debate actually revolves around this issue. How much good would some extra money do the poor…would it protect them from negative events like bankruptcy? I agree that transferring money is not enough…but neither is advertising the virtues of will power. One regulatory idea I have wondered about is the equivalent of “drivers licenses” for credit cards and mortgages. Seems like not just a lack of willpower but a true misunderstanding of credit products got several people in trouble recently.

Sebastian February 9, 2012 at 1:43 am

some extra money, that’s not perceived as random rainfall and comes in small-ish increments is very, very different from winning a lottery.
You also have to read this in conjunction with the literature on why people play the lottery – a major motivation for this – highly irrational – expenditure is that it allows people to dream. Now if your dreams come (seemingly) true, you may simply overestimate how much money you have actually won and go overboard.

Gordon February 8, 2012 at 7:24 pm

Part of each lottery winner’s prize should be required to be spent on a financial seminar taught by Elizabeth Warren.

Andrew' February 8, 2012 at 8:00 pm

I’d rather swallow my tongue.

dead serious February 8, 2012 at 8:12 pm

That can be arranged.

Andrew' February 9, 2012 at 4:58 am

Probably not. E. Warren doesn’t want to talk to me. I can guarantee that.

Andrew' February 9, 2012 at 5:02 am

If you promised me I could get a lecture from mother goose, I can also guarantee I’d never play the lotto.

Bender Bending Rodriguez February 10, 2012 at 12:33 am

+1

CBBB February 8, 2012 at 7:28 pm

I don’t understand what your point is

Slocum February 8, 2012 at 7:53 pm

The point is that the claim in the ‘good parenting’ article from earlier was that poor people are really just like middle-class people except that the poor people are caught in a situation where they have many current worries that sap their “limited reserves of self-control, and attention and other psychic resources”, and that running low on these resources is what makes them worse parents and gives them the poor impulse control that leads to a variety of bad life decisions. The implication is that if you could just relieve those current worries, then their limited reserves would no longer be wasted on juggling bills, and — freed from these concerns — they would then act like middle-class people in their parenting (and in other domains).

The lottery results at least suggest that this is not the case — a random lottery win apparently doesn’t restore reserves of mental resources sufficient to set them on the path to prudent, middle-class, long-term thinking and good impulse control. Of course, it’s only one study, but I really don’t know of any studies at all that really point in the other direction — studies that show that if you relieve temporary financial worries, you can radically change behaviors (by restoring the mental resources needed for self-control).

dead serious February 8, 2012 at 7:58 pm

Then I guess the microcredit story is not something you believe is beneficial.

Andrew' February 8, 2012 at 8:04 pm

Isn’t microcredit the conceptual opposite of lottery windfalls? Small installments of money management and the requirement to repay allow one to learn the skill while windfalls have an Austrian-ish wealth-effect on the (lack of) intelligence of spending.

People seeking microcredit have a plan, lottery winners are…playing the lotto.

dead serious February 8, 2012 at 8:16 pm

I agree with you, but Slocum doesn’t seem to have any awareness of these kinds of success stories.

“Of course, it’s only one study, but I really don’t know of any studies at all that really point in the other direction — studies that show that if you relieve temporary financial worries, you can radically change behaviors (by restoring the mental resources needed for self-control).”

Andrew' February 9, 2012 at 5:04 am

In the US there are so many ways to compound good money moves that microcredit isn’t really needed in the way that it is needed for places without some of those opportunities and institutions.

Selecting lotto winners is almost methodologically de-selecting people who need microcredit.

Slocum February 8, 2012 at 11:42 pm

No, I believe that microfinance has been useful (and so have payday loans for that matter), but I don’t know of any evidence that microfinance has resulted in the kind of virtuous positive feedback cycle proposed in the ‘good parenting’ article — namely that a reduction worries leads to more psychic resources which leads to better self control which then leads to fewer financial problems and fewer worries.

But none of that, BTW, is an argument against a safety net. If it is the case that some people have poor impulse control because of some combination of their genes and the culture they grew up and live in (and that is very difficult to change in adulthood), then such people are likely to need help repeatedly.

albatross February 9, 2012 at 12:25 am

Perhaps microcredit has a better impact in places where there’s not already lots of credit available? It’s quite possible for the same measure to make life better in Bangladesh and worse in Baltimore.

derek February 9, 2012 at 1:20 am

I don’t think that it has worked out as well as initially thought. There are always great stories. Much of the problems arise from social behaviours that make sense in a poor community but prevent anyone from rising out if the situation.

CBBB February 8, 2012 at 8:03 pm

Oh that’s a nonsense implication – so some people can’t handle money and hence we tar all the poor with having no discipline?

Andrew' February 8, 2012 at 8:05 pm

No, it’s that making positive financial moves is really really hard. I’ve got a garage full of stupidity.

asdf February 8, 2012 at 8:33 pm

If by “some people” you mean “the majority of a large sample size of people”, then yes.

Urstoff February 9, 2012 at 12:29 am

what are the rates of smoking or playing the lottery by income quartile?

mrpinto February 14, 2012 at 1:58 pm

There are several reasons why one might become poor, or stay poor. Lack of fiscal discipline is surely one of them and probably one of the more common of them.

And I’m talking “real” poor here, as in poverty line, as in hard to afford food and rent. Not CBBB “First World Problems” poor where your iPhone model is one generation back and sometimes you have to forgo eating out and instead consume tv dinners while spending all day surfing the internet on your laptop.

anonymous... February 9, 2012 at 12:45 am

Sometimes, it is plausibly claimed, (the stress of) being poor leads to lower self-control, less willpower, bad decision-making, etc.

But sometimes, it seems, the chain of cause and effect runs in the opposite direction.

dstraws February 8, 2012 at 7:39 pm

And people refer to this as an conservative economic blog. Clearly, this post is not representative of the deep thinking that goes on here.

CBBB February 8, 2012 at 7:45 pm

No, the deep thinking happens in the comment section – in the text under the heading “CBBB”

Mike in Qingdao February 8, 2012 at 7:57 pm

150,000 isn’t enough to catapult someone into the professional class. All it does is give a taste of that life for a short while. In that sense, it’s like giving someone 2 or 3 shots of heroin.

RM February 8, 2012 at 8:20 pm

I don’t play the lottery and perhaps my observations at inner city gas stations and liquor stores are skewed. But it seems to me that people who play the lottery are predisposed to bad spending habits. (Perhaps the papers control for this — I don’t know).

The question then becomes: how do people develop bad spending habits.

I also suspect that many people who are stressed out parents are bad spenders to begin with. The lottery buyers and stressed out parents might be the same people and studying either group would leave you with the same problem: they are both bad spenders to begin with.

A better sample would be to look at rich folks who got poor; give them a windfall and see what they do with it.

asdf February 8, 2012 at 8:36 pm

What amazes me most about people who play the lottery is the sheer amount of tickets they buy. If its just about buying “hope” they can do that with a single ticket. I watch people drop $50 or $100 on tickets while I’m in the convenience store.

CBBB February 8, 2012 at 8:41 pm

No way – I don’t know about these people dropping $100 on lottery tickets. I mean sure maybe someone with a severe mental handicap would do that but there’s no way that’s common.

maguro February 8, 2012 at 9:00 pm

I’m sure it’s not common in your social circle.

CBBB February 8, 2012 at 9:03 pm

Yeah but I mean this is basic probability – I would assume many people took at least one statistics course in school. Like I say I’m sure these people exist but it’s just not prevalent at all. Just another thing to smear the poor with.

maguro February 8, 2012 at 9:15 pm

Well, as The Most Interesting Man in the World might say, I don’t always buy stuff at inner city convenience stores, but when I do, there’s usually someone there buying a shitload of lottery tickets.

Your mileage may vary, I guess.

Mark Thorson February 8, 2012 at 9:24 pm

CBBB, I would assume that less than 1% of the general population has ever taken a statistics course.

maguro February 8, 2012 at 9:32 pm

Moreover, a statistics course won’t tell you whether people who play the lottery buy lots of tickets or not. It’s a complete non-sequitor.

asdf February 8, 2012 at 9:52 pm

CBBB,

You should take Murray’s bubble score. I bet your off the chart.

CBBB February 8, 2012 at 9:58 pm

I guess I’m in enough of a bubble to not know what a bubble score is

Sbard February 9, 2012 at 1:39 am

CBBB,

Most of the people who do this have never graduated high school. Hell, I went to high school in a great upper-middle class district and the only available statistics course was an upper level elective that only a handful of people took.

Abersouth February 8, 2012 at 9:09 pm

I have seen my father do it. Whenever a big powerball is coming around. I don’t think he has any severe mental handicaps, running his own business and all. He can afford it.

CBBB February 8, 2012 at 9:10 pm

Okay I don’t think that’s the kind of person RM is talking about

Anon February 8, 2012 at 9:32 pm
CBBB February 8, 2012 at 9:40 pm

Well they only looked at a very tiny fraction of the poor

mrpinto February 14, 2012 at 2:01 pm

CBBB, having your own private, spoiled brat definition of poor to include your middle class lifestyle is going to make communication difficult for you.

Maybe you could agree to use “poor” the way the rest of the world does and come up with a new word to describe the afflicted middle class?

Ape Man February 8, 2012 at 10:01 pm

Depends on what you mean by common. Do most lottery buyers buy more than 10 dollars worth of tickets? No. But are there large numbers of people who do? Yes. I even remember seeing studies to that effect. But regardless, everyone I know in blue collar circles either knows somebody personally who spends mega bucks (thousands of dollars a year) on the lottery or they themselves spends thousands of dollars on the lottery.

joshua February 8, 2012 at 10:20 pm

Ah the joys of making assumptions with no experience or data. I have two co-workers who regularly spend about $10 a day on lottery tickets. I don’t understand it – but I accept that people can behave irrationally or in ways that don’t fit nice economic models!

Cliff February 8, 2012 at 10:35 pm

It’s pretty common

Sbard February 9, 2012 at 1:37 am

Texas sells a $50 scratch-off ticket. Someone is clearly buying them.

The Original Frank February 8, 2012 at 8:49 pm

The main barrier to generalizing the results is that it applies to lottery participants. Not necessarily risk lovers, but certainly risk takers. Or, that they are in such dire straits, that they feel taking further risks is the best way out of their situation.

Andrew' February 9, 2012 at 4:31 am

It’s worse, it selects specifically for people who are on average make bad money decisions. So, it would be telling to determine the fraction of playing by wealth quintile.

What we should do is find poor people who DON’T play the lotto and give them money.

Tom February 8, 2012 at 9:21 pm

I bet you former NBA players can outperform them.

Andrew' February 9, 2012 at 4:24 am

…in bed.

Floccina February 8, 2012 at 9:23 pm

Former professional athletes are also an interesting case.

anonymous... February 9, 2012 at 12:59 am

Current professional athletes are an interesting case too.

The reason the NBA strike ended was because the owner could outlast the players… because many players had such poor money management skills that they were essentially living paycheck-to-paycheck, despite the paychecks being very large.

Andrew' February 9, 2012 at 4:23 am

How do I get into the pro athlete financial management business?

aaron February 9, 2012 at 8:19 am

In many cases, it seems you need to be a childhood friend of the athlete in question.

Jack Fraser February 9, 2012 at 9:59 am

From observation, it also helps to have no working knowledge of financial matters.

Phelps February 17, 2012 at 12:54 pm

Call Mark Cuban. One of the best things he did was put together essentially a lifestyle staff for each player on the Mavericks, including a financial manager. Consequently, you see a LOT fewer Mavericks draftees getting into the sort of trouble that is common in the NBA.

Halfkiwi February 9, 2012 at 9:55 am

On that note , I noticed this article, talking about former Tennis Star Arantxa-Sanchez Vicario who seems to have lost all her money and blames her parents…

http://www.dailymail.co.uk/news/article-2098256/Arantxa-Sanchez-Vicario-Tennis-star-slams-parents-taking-37m-fortune.html

CMS February 8, 2012 at 10:32 pm

A decent documentary that supports these conclusions (albeit anecdotally) is “Lucky.”

It basically follows lottery winners for several years after they have won and records the results. What I took away from it was how little anyone changed after receiving the money. At best their comfort level rose as well as those around at worst they ended up just as poor as when they started. (Spoilers ahead) A middle class family moved up to a nicer house in better area but fundamentally seemed the same. An immigrant who cared a great deal for his family proceeded to buy his family here, and back in his original country, nicer housing. A man who was bad with his money before continued to make horrible (really no other word for it) decisions until he had nothing again. A man who lived in a filthy sty of a house where he fed his cats ended up (happily) living out of a motel (so he didn’t have to worry about cleaning up after himself) where he would go out each night and feed his cats in the parking lot.

The money quote IMHO was from an AC sales manager talking about the lottery money “Money like that is like Miracle Grow for character flaws.”

asdf February 8, 2012 at 10:57 pm

Love it.

It would be interesting to see what high IQ, high class people do with windfall money. But few of them play the lottery. Inheritance sort of works but you have to figure there is a family dynamic involved.

I saw a study of what happens when business owners leave their businesses to their children and they do good about 80% of the time. The other 20% of the time they don’t. The cutoff for the 20% was those that couldn’t graduate from a top 100 college. If your rich not graduating from a top 100 college usually indicates either very low IQ or very low conscientiousness.

asdf February 8, 2012 at 10:59 pm

P.S. My personal experiences would be when I made a lot playing poker professionally and when I made some money trading stocks in the crisis. I saved the majority of it and spent some on travel and gifts for my parents.

Andrew' February 9, 2012 at 4:25 am

So, with every lotto win they should send a copy of that DVD?

Better yet, that DVD should be sold in every lotto kiosk.

Urso February 9, 2012 at 10:31 am

The inheritance comparison is actually very interesting — think of how many wealthy parents put their children’s money in some kind of a trust. Even though the children are presumably well educated and have every impetus to become good money managers, the parents believe they can’t be trusted with the cash.

I’ve often argued the NBA/NFL should take some percentage of its players’ salaries in some sort of trustlike mechanism; or structure contracts to pay less immediately but continue with deferred compensation beyond their playing years. The union of course would never accept this kind of deal. But they should.

FYI February 8, 2012 at 11:29 pm
Robert February 8, 2012 at 11:52 pm

poor people are people with ‘money problems’ just as alcoholics are people with alcohol problems. Giving a poor person money is as harmful as giving an alcoholic alcohol.

Andrew' February 9, 2012 at 4:20 am

That is not 100% true. Some people, in fact everyone successful before they demonstrated success, would do good things with more money. But the problem is you can’t tell which group someone is in based only on the observation they don’t have money. It’s why indiscriminately investing in kids (some of whom will be great successes, some of whom will be life-long criminals) is more reasonable than welfare for able-bodied middle-agers who have a track record.

asdf February 9, 2012 at 7:30 am

But kids don’t vote. Welcome to democracy.

Dan Weber February 9, 2012 at 9:39 am

But the problem is you can’t tell which group someone is in based only on the observation they don’t have money

I think you can do a pretty good test: just ask people what they would do with a million dollars.

Most people have thought about what they’d do with more money. I’d hazard to say even all people have thought about this — that even Bill Gates has idly considered what he’d do if an extra ten billion showed up in the B&MGF coffers.

The answers you get are probably a good indicator of what they would do with the money. There’s a PhD thesis in here somewhere.

Jack Fraser February 9, 2012 at 10:05 am

And if you didn’t have an answer, you ended up working at Initech.

Urso February 9, 2012 at 10:32 am

The average eight year old would respond “I’d buy a million gallons of ice cream.” Under this theory we should defund all elementary schools immediately.

mrpinto February 14, 2012 at 2:14 pm

That an 8 year old would respond in that way is MORE reason to fund elementary schools. One of the points of education is to encourage more mature decisions. You’re not giving the kids a million dollars, you’re giving the school system a million dollars in order to TEACH the kids what could be done with a million dollars.

Ricardo February 9, 2012 at 12:18 am

Labor force participation and income are known to vary during recessions and also to respond to long-term structural changes in the economy.

I don’t immediately see the connection between the study on lottery winners and determining the cause of declining labor force participation and declining real wages among working class men. Yes, it could be because working class men are more lazy and irresponsible than they were 40 years ago. It could also be because of, say, The Great Stagnation.

Or is this another case where Real Business Cycle theory proves its value in some mysterious manner?

Rahul February 9, 2012 at 12:25 am

The basic flaw is assuming they got a representative “poor person” sample just because a lottery is randomized. A habitual lottery player isn’t the best intervention subject if a welfare program had cash to hand out to lift people out of poverty.

Rahul February 9, 2012 at 12:31 am

It is also a bit unrealistic to use an extreme outcome i.e. bankruptcy to judge the results.

Its like testing whether an apple a day will protect against death by electrocution.

Andrew' February 9, 2012 at 4:16 am

That’s a flaw, but among lottery players they are randomized. It’s a stretch to make assumptions about non-lotto winners, and it’s important because lotto players are to some extent gamblers with money by definition. But it’s not an insurmountable stretch to assume that what applies to lotto players applies to some extent to non-players.

Lotto winners and sports stars are people who break the rule that money flows to people who excel at money management. That rule remains unfalsified by these observations.

Ricardo February 9, 2012 at 4:55 am

I’ve never heard of that rule before. Allow me to offer an alternate rule: watch someone speak in public and watch the same person flirt with the opposite or same sex (depending on preferences, of course). A person who excels at both is likely to make lots of money — and if they aren’t making lots of money, it’s almost certainly due to laziness. Someone who is bad at both had better be extremely smart and hard-working to make up for this deficiency.

Being good at managing money is important so that you don’t die poor but is not enough by itself to guarantee money flowing in one’s direction. Having kids in America is an easy way to make the money flow in the opposite direction, as well.

Andrew' February 9, 2012 at 5:14 am

In business, that rule is captured in the concept of “profit.” With individuals it’s more subtle. Your rule is interesting too. It sounds like you are describing salesmanship. But there are plenty of people who make a lot of money but it slips through their fingers and have lots of debt because of poor money management. I’ve heard it referred to as money offense versus money defense and the best approach seems to be to have balance between the two. So, you are talking about the people who are good at talking the people with bad money defense out of their money.

Floccina February 9, 2012 at 11:06 am

Here is some data:
http://stoppredatorygambling.org/category/research-center/lotteries-who-really-plays/

It is my impression that most poor people play the lottery but in a quick Google search I could not see a definitive answer.

Matt February 9, 2012 at 3:37 am

The central finding is this: people who win large amounts are just as likely to end up bankrupt as people who win small amounts…

But not as much as people who don’t win anything? And the absolute rate is probably much lower than people who didn’t win anything?

So there is a likely fairly low threshold over which having more money does not make you more able or likely to future plan or remain financially secure.

A comparison of Florida Lottery winners who randomly received $50,000 to $150,000 to small winners indicates that such transfers only postpone bankruptcy rather than prevent it

Well, in the long run, people without investment knowledge or a low income will just spend the money (probably not on luxuries or things people (rightly) moralise, but food, shelter, medicine, gas and electric), so it’s not surprising that such transfers only postpone bankruptcy – teach a man to fish, &c.

Narg February 9, 2012 at 5:12 am

You’re missing the point – this can be seen as the well-known “house money” effect. When you earn money easily you spend it easily, everybody knows that in social psychology, and implying from it that the poor deserve to be poor is dishonest.
Highly educated people are just as prone to this effect.

DPG February 9, 2012 at 10:00 am

What would this imply for transfer payments from government?

MP February 9, 2012 at 6:16 am

People keep pointing out that lottery players likely have poor money management skills, but isn’t that exactly the point? “Dysfunctional social norms” lead to eventual bankruptcy. These disfunctional norms are not aleviated by a significant (if not overwhelming) improvement in wealth. Ergo, evidence that economic variables are not driving the dysfunctional social norms.

Sure, this doesn’t prove that the social norms solely drive economic variables either. And there’s a chicken-and-egg issue. Maybe the lottery players are bad with money because they grew up poor. Because their parents were bad with money. Because they grew up poor. Because…. “Most likely a bit of both” sounds right to me.

Thomas Hutcheson February 9, 2012 at 7:19 am

“Are the economic variables really driving the dysfunctional social norms, or vice versa, or most likely quite a bit of both?”

Obviously the latter. So why isn’t the dabate about about whether this or that policy aimed at promoting a marginal increase in “pesonal responsibility” or income stability are cost effective or not?

The Anti-Gnostic February 9, 2012 at 3:20 pm

The takeaway is, a guranteed minimum income would not affect the wealth distribution. Ergo, the problem for the poor is not lack of money.

Not that I wouldn’t object to just giving everybody $25K/yr and firing all the welfare bureaucrats.

Wade February 9, 2012 at 6:32 pm

If you don’t understand the real odds, then playing the lottery can make perfect sense. At the rate that most poor people can save, they will never be able to afford nice things, and they know it. However, if they play the lottery and win, they stand a chance of getting out from under the burden of debt in their lifetime.
The unfortunate thing is that the odds of winning the lottery are essentially the same whether you buy tickets or not. This fact is distorted by constantly putting the faces of lottery winners in front of statistics illiterates, and by paying out very small amounts to many people to give the impression that big winners occur more often than they actually do.

GiT February 9, 2012 at 11:47 pm

Comments on this entry are closed.

Previous post:

Next post: