Why are some people poor?

[tothemax6]

To contribute my (mostly to the macroeconomics of poverty).
The current model I have for 'why are people poor' is structured as follows:

1. High time preferences
2. Government interference
3. Genetics

(in that order).
1) High time preferences (the desire for present consumption over increased future consumption) is the biggie. If Somalia, for instance, was repopulated overnight with very-low-time-preference individuals (like Tysonboss), the resulting change in economic growth would be enormous.
People with low time preferences invest - they set up farms, they conduct research, they save up for education for their children, they work harder etc.
People with high time preferences spend away their money as soon as they get it - on drugs, booze, prostitutes. They engage in high-risk ventures with high returns (drug dealing and trafficking, theft, robbery, hijacking, kidnapping for ransom). They form gangs and conduct raids etc.
2) Government interference. That is to say "deviations from a free market". Despite the collapse of 'applied socialism', there is still no lack of support for the left, in spite of them not changing their tune one bit. When a government interferes with private trade, when it expropriates property by force and then re-appropriates it and calls this 'fair', when it disincentives earning and production with punishment for being rich, when it subsidizes laziness and high-time preferences and low earnings with welfare and benefits, when it takes control of the nations money and spends it and prints it and says 'this is for the common good', - it does what the left wants - "simultaneously claim progress whilst enforcing regression at the highest rate possible".
3) To claim that genetic spreads between populations have no effect on the nature of those populations, despite sustained empirical evidence to the contrary, may be very well be completely indefensible and disconnected from reality. It is however the prevailing 'allowed' opinion. But nevertheless, it does contribute to distributions in quality of life, albeit not any where near to the extent that the first two issues contribute.


Hence, according to my model, the cure to poverty is as follows:
The populace elects a government which restricts and focuses its role to "fighting crime, enforcing contracts, and defending the nation from external threats, ONLY and NOTHING ELSE".
This results in several things happening - criminals (who have the lowest time preferences of all) are steadily removed from society. Investment becomes safer, because increased law and order increases certainty in the safety of property rights and the strength of contracts, and hence investment rates increase. This results in increased farming, research and development increases (hence an increase in average tech level), saved funds allows for more medicine when it is needed, water extraction projects commence, roads start being built to profit from increasing trade etc etc etc.
Pipe dream.

 

[explod]

Just spotted this topic and my answer has probably been covered but here goes:-

Rich and Poor are devided first by:

1. wealth of parents and family

2. education and through that the ability to make their own decisions

3. or very hard work and a spirit to overcome all odds and rise to the top from
Boganville.

4. and some are lucky

The poor are the labor resources of the rich and are kept there via vehicles such as religion and many forms of mass entertainment.

just my

merry Christmas to you all,

And that is another great fairy tale to make the rich richer and the poor poorer

 

[Julia]

Wise old Polish saying:
"Jesteśmy biedni bo jesteśmy głupi!
Jesteśmy głupi bo jesteśmy biedni!!"

Translates roughly to:

We are poor because we are stupid!
We are stupid because we are poor!!

To say this is to ignore that the most intelligent people can be overcome by life events such as serious illness, precluding the capacity to work.
Another group which is frequently on the poverty line are the women fleeing domestic violence, or for that matter even retired people whose only asset if they separate is the low value family home, which when sold does not realise enough for either of them to buy another house.

I just think we need to take into account some of the social problems which have to do with people finding themselves in poverty. One of the greatest of these is mental illness which sees so many homeless.

 

[So_Cynical]

To contribute my (mostly to the macroeconomics of poverty).
The current model I have for 'why are people poor' is structured as follows:

1. High time preferences
2. Government interference
3. Genetics

(in that order).
1) High time preferences (the desire for present consumption over increased future consumption) is the biggie. If Somalia, for instance, was repopulated overnight with very-low-time-preference individuals (like Tysonboss), the resulting change in economic growth would be enormous.
People with low time preferences invest - they set up farms, they conduct research, they save up for education for their children, they work harder etc.
People with high time preferences spend away their money as soon as they get it - on drugs, booze, prostitutes. They engage in high-risk ventures with high returns (drug dealing and trafficking, theft, robbery, hijacking, kidnapping for ransom). They form gangs and conduct raids etc.

I've had some experience in Africa (not Somalia) with Africans and i can tell you that your "High time preferences" theory is not really applicable there...in general Africans don't save/work hard/plan for the future etc because.

There governments and institutions are unstable and unreliable thus the population in general doesn't trust them so wont invest, they don't work hard because in general there's no reward for that, no overtime rates etc...they don't plan for the future because they live a hand to mouth existence, they eat everything in the cupboard today because some one mite take it from them tomorrow.

 

[Tyler Durden]

I'm surprised no one has mentioned the book Rich Dad, Poor Dad by Robert Kiyosaki. Putting aside his marketing and used car salesman-like persuasiveness, I agree with him that the main reason why a lot of people aren't wealthy is because of the lack of financial education.

Someone made this point near the beginning of this thread - why do schools not teach kids about money? What good is algebra ten years down the track? Wouldn't teaching a subject on money be MUCH more useful given that it's relevant to EVERYTHING?

Kiyosaki argues that because of this lack of financial education, people get stuck in the rat race, working harder and harder to earn the next paycheck, oblivious to their wealth being de-valued by taxes, inflation and debt, which just traps them deeper into the rat race.

On the other hand, people who are financially educated understand the concept of passive income, and are thus in a much better position to get out of the rat race.

If you're going to read just one book next year (or find a present for someone), I'd recommend this book. I don't recommend his subsequent books because they are fairly repetitive of this one and they try too hard to sell you his products.

And no, I don't have an interest in anything related to him nor do I benefit from sales of his books/products.

 

[Vicki]

Hi Tyler,
I've read it...over
ten years ago.

He had economic predictions for around 2007-08..
Appears he was pretty accurate.

Vicki


It was because of him that I invested wisely in real estate......Before I made the ultimate f!@@k-up...
PLANET WEALTH!!! yes you deserve it, you Gr##k C***t

 

[doctorj]

To contribute my (mostly to the macroeconomics of poverty).
The current model I have for 'why are people poor' is structured as follows:

1. High time preferences
2. Government interference
3. Genetics

Interesting theory. I'm not sure there's a single answer and there's definately no silver bullet. I spend most my year in the former soviet bloc and from what I've seen there the issues I've noticed are:

1. Lack of trust in government - From one government to the next, nobody really knows what will or won't change. Also, as you said, people and companies suffer a lot from governments interfering with the normal order of commerce. So no one, other than the government and the well connected few invest. No investment, no international know-how and no stability means no jobs, no infrastructure and no hope of a better life

2. Lack of financial intermediation - people tend to barter, trade or store money under the mattress. If they happen to know about banks, they certainly don't trust them (because in the past they keep failing or the money gets taken by the govt). So no saving, no borrowing (so they keep working on the farm manually, rather than using machines or buying fertilizer etc) and no concept of long term planning. For example, in Russia, when the financial crisis hit there it had a pretty heavy impact and a lot of people lost their jobs. The Joeski Averageski didn't cut back on the finer things in life or put something aside for tougher times incase they also lost their job - in fact, sales of new cars, luxury goods etc actually sky rocketed. The philosophy was that you might as well spend it while you have it, because tomorrow the government might take it off you or something... Lack of financial intermediation also has other impacts - shallow or non-existant local capital markets, no pensions, no insurance (farm burns down, people starve or rely on family to bail them out...), low money velocity etc etc etc

3. Outlook in life - For generations, people have known only one way. It's almost fatalistic, in the sense that when things are good, they know they will go very bad soon, because they always have. Things are the way they are and will forever be so....

 

[noirua]

People are poor because they are locked into poverty by birth or in a job that they blindly go to or there is, or appears to be, no way out. This can often happen if a person lives in an outback town. This was me once though I took advice, not directly, but by over hearing others conversations and one I remember "don't hang around, just go", it was the look in the eyes of the stranger that had a kind of urgency being relayed to all who listened.
I listened many years later to a person I worked with. He just left his family and left a note at the Post Office and sent some money every month returning several years later. This seems a harsh thing to do, but I understood that this just had to be done; he had to go.

 

[tothemax6]

I've had some experience in Africa (not Somalia) with Africans and i can tell you that your "High time preferences" theory is not really applicable there...in general Africans don't save/work hard/plan for the future etc because.

There governments and institutions are unstable and unreliable thus the population in general doesn't trust them so wont invest, they don't work hard because in general there's no reward for that, no overtime rates etc...they don't plan for the future because they live a hand to mouth existence, they eat everything in the cupboard today because some one mite take it from them tomorrow.

Well I addressed that in my solution, since the first two factors are strongly connected.

[/LIST]
Interesting theory. I'm not sure there's a single answer and there's definately no silver bullet. I spend most my year in the former soviet bloc and from what I've seen there the issues I've noticed are:

1. Lack of trust in government - From one government to the next, nobody really knows what will or won't change. Also, as you said, people and companies suffer a lot from governments interfering with the normal order of commerce. So no one, other than the government and the well connected few invest. No investment, no international know-how and no stability means no jobs, no infrastructure and no hope of a better life

2. Lack of financial intermediation - people tend to barter, trade or store money under the mattress. If they happen to know about banks, they certainly don't trust them (because in the past they keep failing or the money gets taken by the govt). So no saving, no borrowing (so they keep working on the farm manually, rather than using machines or buying fertilizer etc) and no concept of long term planning. For example, in Russia, when the financial crisis hit there it had a pretty heavy impact and a lot of people lost their jobs. The Joeski Averageski didn't cut back on the finer things in life or put something aside for tougher times incase they also lost their job - in fact, sales of new cars, luxury goods etc actually sky rocketed. The philosophy was that you might as well spend it while you have it, because tomorrow the government might take it off you or something... Lack of financial intermediation also has other impacts - shallow or non-existant local capital markets, no pensions, no insurance (farm burns down, people starve or rely on family to bail them out...), low money velocity etc etc etc

3. Outlook in life - For generations, people have known only one way. It's almost fatalistic, in the sense that when things are good, they know they will go very bad soon, because they always have. Things are the way they are and will forever be so....

Again, as I addressed in my solution, the first two factors I mentioned are strongly connected. Indeed, socialist systems are renowned for supporting high-time-preferences and punishing low-time-preferences. All low-time-preference individuals who lived in communist countries had only one goal - get out.

 

[gav]

Here's an article I read today made me think of this thread. It claims that property rights are the reason the poor stay poor.

http://reason.com/archives/2010/12/09/why-do-the-poor-stay-poor

 

[Vicki]

GULLABILITY?

A lot of r/e wealth has been created in just the last 10-15 yrs. or so.

I think a lot of 'scamsters' have tried their best at getting people to part with it, with one scheme or another....Stock market & derivatives appear to be their 'snake-oil' of choice...A mixture of part truths & out right dangerous assumptions or hidden truths.

Planet wealth, Onedaywealth, 21st C.A., Henry Kaye & just a few days ago, Fermosa systems etc.


Buyer beware.

Vicki
p.s. What puzzles me is that these people who willingly mislead others [to their own peril], don't seem to realise we live on an Island, with a small population?

 

[Good Vibes]

I just think we need to take into account some of the social problems which have to do with people finding themselves in poverty. One of the greatest of these is mental illness which sees so many homeless.

Julia you show much compassion towards those who are economically powerless.

We must also consider "The Working Poor" in seeking answers to why people are poor.

 

[motorway]

Here's an article I read today made me think of this thread. It claims that property rights are the reason the poor stay poor.

http://reason.com/archives/2010/12/09/why-do-the-poor-stay-poor

The Birth of Plenty, an inquiry into the origins of modern prosperity

You might enjoy this book ..


http://www.efficientfrontier.com/ef/404/CH1.HTM

Motorway

 

[Good Vibes]

Here's an article I read today made me think of this thread. It claims that property rights are the reason the poor stay poor.

http://reason.com/archives/2010/12/09/why-do-the-poor-stay-poor

But in western society so many problems center on inability to keep up with mortgage repayments. The poor Peruvians would be faced with same problems...eventually.

 

[gooner]

Hmmm, my $20 investment in the $20m Lotto draw failed to produce a result, yet again. Maybe these high risk/high return ventures are not for me.......

But the wife and me did get to talking about what we would do with a spare $5m or so were our numbers to come up. And apart from the usual giving to family/giving to charity, the question was whether we would move to the next (much wealthier) suburb. We love where we live and have great neighbours. But the next suburb is full of old sandstone 19th century mansions on the water and I love old houses. The outcome was that we would probably stay where we are because if we moved, we would probably have some d'head CEO as a neighbour who would complain about our children playing, who would sue you rather than say hello and who would not be what I would call "a neighbour".

What has this to do with people being poor? I think many people including myself realise that money is not a goal in itself and that once you get a certain amount, any extra does not bring any extra happiness. Therefore, why bother working 12 hours a day where you never see your wife or kids? For what? A bigger house and a Mercedes? Neither give you a hug when you come in the door every night. And the reality is that most people who get rich, don't given their kids a hug every night, because they are "too busy making money for their children". Obviously I am not talking about poverty but many people are quite comfortable with what they have - I know lots of people where I work that don't want promotions because they do not want the stress and extra hours that come with it .

At the end of the day, wealth is about your relationships and happiness first. Money corrupts absolutely............

 

[Julia]

. The outcome was that we would probably stay where we are because if we moved, we would probably have some d'head CEO as a neighbour who would complain about our children playing, who would sue you rather than say hello and who would not be what I would call "a neighbour".

Quite a generalisation there, gooner. If you've not actually lived amongst such people, what's your basis for assuming they'd be any less friendly than your current neighbours?

What has this to do with people being poor? I think many people including myself realise that money is not a goal in itself and that once you get a certain amount, any extra does not bring any extra happiness.

Yes, agree absolutely. For some people making more and more money becomes an obsession. For others, it's the drive to keep achieving, with the money being a side issue.

And the reality is that most people who get rich, don't given their kids a hug every night, because they are "too busy making money for their children".

Again, what's your basis for this assumption? You could assume quite to the contrary, i.e. that people who are wealthy are able to pay others to do basic household maintenance etc, so that they in fact have more time to spend with their family.

Obviously I am not talking about poverty but many people are quite comfortable with what they have - I know lots of people where I work that don't want promotions because they do not want the stress and extra hours that come with it .

Sure, and that's absolutely their right to make such a choice.

Just don't think an automatic assumption that wealthy people are uncaring about their families or don't make the time to show them affection is very logical.

 

[gooner]

Quite a generalisation there, gooner. If you've not actually lived amongst such people, what's your basis for assuming they'd be any less friendly than your current neighbours?


Yes, agree absolutely. For some people making more and more money becomes an obsession. For others, it's the drive to keep achieving, with the money being a side issue.



Again, what's your basis for this assumption? You could assume quite to the contrary, i.e. that people who are wealthy are able to pay others to do basic household maintenance etc, so that they in fact have more time to spend with their family.



Sure, and that's absolutely their right to make such a choice.

Just don't think an automatic assumption that wealthy people are uncaring about their families or don't make the time to show them affection is very logical.

Julia

We know a few people who live there who say that their neighbours are a complete pain which is enough evidence for me.

As to the long hours, I have seen it in many of the jobs that I have done - there is really a culture of work being priority and not worrying about the family.

 

[J&M]

No one needs to be poor they just don't have the balls or inclinations to do the hard
work

I left the UK in 74 went to NZ with a pregnant wife and about 200 pounds in my pocket
I did have a job to go to. I have always liked to travel but this was a big move
I never knew how big a move was till I started work on wages. I would have been about 24. The company started cutting asbestos sheets with no masks ext
This had just been banned in the UK. So I called the union and they called the health dept. I was nominated as shop steward and we want out on strike for a few days
It came back to the health dept asking that masks & plastic clothing be supplied and that the sheets be cut off site. This was later in the award that we got paid extra for the wearing on the masks and clothing

I was not making enough money so moved to Aust. I worked as a carpenter
and eventually got work as a sub contractor. work was hard and the hours long
Set my then wife up in a hairdressing salon which went well. So we leased a shop in a med size shopping centre. This I supported with my earnings as a subbie. The shop was not going so well and almost went broke. We entered into a deed of arrangement with our creditors. We cut back on staff and I did some promotion work. The shop did pick up after about 6 months we finally paid our bills and the shop was doing ok. Then my wife left me for a jeweller at the centre we had just brought a house. She got the shop I got the house and paying maintenance for our daughter

I was single for about 4 years almost lost the house as the rates went up I could not find work. I had to refinance the house at a highest rate but they gave me the equity money in the house to make the payments. I did find work and was able to refinance the house again with a bank at a lower rate. Work was very good and paying of the house

I then met my second wife I was still working as subbie. On one job the Builders took me on as his Forman and offered me a partnership at no cost to me. The money was average
So I got my own Builders Licence. I was making very good money and my accountant put me into this scheme which he called the “round robin” cost to set up $12000 sent money to Hong Kong and the New Zealand and came back as superannuation I paid very limited tax
And built a house on an island in Moreton Bay with the tax money I did not pay

Then my second wife left me. This I lost half of everything. Then the tax dept came looking for tax returns as this scheme was not approved by them. There were some big high profile people in the scheme including lawyers who were looking to take on the tax dept
I could see this a no win for me my bill was 250k as well as the money I had lost in the round robin scheme after lots ot talking I agreed to pay the amount by monthly instalments over a few years

My building work turned into Underpinning houses I saw an opportunity and took it
Taught myself with help from Engineers. Brought houses that needed underpinning and the owners could not afford it. Also brought a property “farmhouse” at Stanthorpe “wine country” which is rented out to tourists, This is now paid off and doing ok
The house are now underpinned and rented out. I am now married again

Last year I got into shares read the Eureka report and followed some of David H buys
Some have gone down same are ok. I found this site by looking for a forum

I guess a came up from the school of had knocks but never doubted that I would be ok money wise. Luck: you make your own luck and life is all about choices and weather you take them or not. Just my 2C

 

[againsthegrain]

had just brought a house

where did he bring it from?

 

[IB12]

People are poor because they are born in Bangladesh and Nigeria.
The majority of people in Bangladesh and Nigeria will always be poor.