Pathologies of the rich

Posted: 7 February 2011 in Uncategorized
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George Grosz, “Toads of Property” (1920)

Poverty continues to haunt U.S. capitalism. So, how do we explain the persistence and growth of poverty in the midst of extraordinary wealth?

First, it was the rediscovery of the “culture of poverty.” Now, it’s the pathological behavior of the poor. Both are attempts to blame the victims.

James Kwak draws attention to a recent study by Bryan Caplan and Scott Beaulier (Word document), who utilize behavioral economics to explain the perverse effects of the welfare state. Their focus is on what they consider to be the pathological behavior of poor people.

Potential welfare recipients’ deviations from neoclassical assumptions tend to be especially pronounced.  If the average American falls short of the neoclassical ideal, the average recipient of government assistance does not even come close. To justify this generalization, we draw on the large literature on “pathological” behavior among the poor.  Many pathologies can be readily understood as extreme versions of the anomalies emphasized in the behavioral literature.  The experimental literature finds, for example, that the average experimental subject underestimates future costs of immediate satisfaction; and even when they recognize these costs, self-control problems may keep them from changing their behavior (Thaler, 1992).  But the average experimental subject’s deviations seem mild compared to those typical of the poor.  Many activities — from over-eating, drinking, smoking, and drug abuse to crime and unprotected sex — combine immediate gratification with delayed costs.  We argue that it is no coincidence that the poor are much more prone to engage in such activities than the rest of the population.

Kwak does a good job debunking many of the presumptions and assertions of the authors. What he doesn’t do is suggest the alternative: focusing on the pathological behavior of the rich.

Like the “culture of poverty,” the study of the pathology of the rich would focus on the irrational behaviors of those who are at the top of the distribution of income and wealth. For example, behavorial economists might study how the rich underestimate the future costs of immediate satisfaction (especially the costs incurred by the employees of their corporations and by the taxpayers who were forced to bail them out) and their self-control problems (such as attempting to achieve more income and to accumulate more wealth even when they have plenty to buy everything they need).

If behavioral economists conducted such a study, they might then conclude that it is no coincidence that the rich are much more prone to engage in such activities than the rest of the population.

Comments
  1. Magpie says:

    Okay David, these are my comments on this “paper”:

    Recently, a “behavioural economics” paper [1], by Beaulier and Caplan, has caused some stir around the economic blogosphere [2], [3], [4].

    Understandably so:

    “Critics often argue that government poverty programs perversely make the poor worse off by encouraging (…) ‘social pathologies.’ (…) The current paper argues that (…) existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree.”

    These “social pathologies” make “government poverty programs” counterproductive.

    According to Beaulier and Caplan, the following is a list of general deviations, present in superlative degree among the poor:

    1. Judgmental biases (including self-serving bias -the tendency to see themselves as better than they really are- and biased risk estimates -which might explain why the poor have a penchant for crime-, all of which could be explained by lower IQ).
    2. Self-control problems (a set of anomalies superficially similar, but in some unexplained way distinct from laziness and short-sightedness).

    Although several of the links above are critical of the paper, the most comprehensive criticism I could find, by James Kwak [5], states (before undertaking the analysis of unstated alternative explanations to the “social pathologies” mentioned in the paper):

    “But what Caplan and Beaulier really mean to say is this: (…) the poor are more irrational than ‘normal’ people.”

    It strikes me that James’s criticism, however valid and demolishing, should have gone farther in the opening questions. By jumping straight into the alternative explanations, James overlooked some fatal flaws in the Beaulier/Caplan paper.

    For starters, the paper is a survey of 74 articles and books on the subject of cognition and social consequences. One would expect that, given the subject matter, many of the works cited came from the psychological scholarly literature, social psychology or sociology.

    Not so. Only 4 papers cited were published in psychology or social sciences journals, plus one remarkable book.

    “The Bell Curve”, by Herrnstein and Murray, is the book. To the best of my knowledge, Herrnstein is the main exception to this “psychological” partial omission.

    And this predilection for Herrnstein shows in the text: the argument around the importance of IQ is highly dependent on this work (with 8 references or direct quotations). Further, as seen above, lower IQ is advanced by Beaulier and Caplan as cause of judgmental biases (and indirectly of anomalies like criminality among the poor).

    “The Bell Curve” has been subject of intense controversy since its publication in 1994, to the extreme that by 1996 the American Psychological Association was forced to publish a non-research paper, rather pedagogical in nature and addressed to the general public “Intelligence: Knowns and Unknowns”, at its flagship journal, American Psychologist: [6]

    “Concepts of ‘intelligence’ are attempts to clarify and organize this complex set of phenomena. Although considerable clarity has been achieved in some areas, no such conceptualization has yet answered all the important questions and none commands universal assent. Indeed, when two dozen prominent theorists were recently asked to define intelligence, they gave two dozen somewhat different definitions”.

    Obviously, where two dozen prominent psychologists failed, it’s entirely reasonable to expect two economists turned into amateur psychologists to succeed in defining intelligence, to deal with its effects, to propose social policy, and all that with next to no base in psychology! Bravo!

    I will not dwell any deeper in “The Bell Curve” and its infamous “genetic factors”, except to say that Beaulier and Caplan (that astutely avoided mentioning them in the text) must explain how they see those genetic factors in their “theory”: are they referring to poor blacks only, or all poor people regardless of race? What about wealthy blacks and poor whites?

    As I grow weary of this crap (which, as James Kwak said, is indeed offensive), let me quickly deal with two additional observations, related to James’s comment that these anomalies were detected studying university students:

    First additional observation

    I know of at least two instances of biased perception affecting equally the poor and the wealthy (and one of them should be well-known to Caplan):

    “Income plays little role; if anything, the wealthy think less like economists, not more.” Bryan Caplan. “What Makes People Think Like Economists?” [7]

    “Eveyone thinks they are middle-class.” [8]

    If all these anomalies have a biological base, why on earth will these two equally affect both tails of the distribution, while those mentioned by Beaulier and Caplan affect one tail only?

    Second additional observation

    The self-perception bias identified by Kruger and Dunning and mentioned by Beaulier and Caplan as self-serving bias (the tendency to see oneself as better than one really is) not only was first identified by studying university students, but also has generated interest in the field of management science (which seems also overlooked by Beaulier and Caplan). And managers are usually not poor:

    Some bosses live in a fool’s paradise [9]
    Self-delusion rife among managers [10]

    I wonder if a similar study will ever be conducted on economics professors.

    REFERENCES:
    [1] http://econfaculty.gmu.edu/bcaplan/perfinal.doc
    [2] http://modeledbehavior.com/2011/02/01/behavioral-economics-and-the-welfare-state/
    [3] http://rortybomb.wordpress.com/2011/02/03/does-behavioral-economics-undermine-the-welfare-state/
    [4] http://baselinescenario.com/2011/02/06/does-behavioral-economics-undermine-the-welfare-state
    [5] https://anticap.wordpress.com/2011/02/07/pathologies-of-the-rich/
    [6] http://www.gifted.uconn.edu/siegle/research/Correlation/Intelligence.pdf
    [7] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=280102
    [8] http://previousleigh.wordpress.com/2010/04/12/everyone-thinks-theyre-middle-class/
    [9] http://blogs.hbr.org/sutton/2010/06/some_bosses_live_in_a_fools_pa.html
    [10] http://www.management-issues.com/2010/8/11/research/self-delusion-rife-among-managers.asp

  2. Magpie says:

    David,

    I’ve read this piece of crap, masquerading as science. And I agree with you: James Kwak did a good job debunking the assumptions.

    However, as you say, he didn’t go far enough. I took the trouble of carefully going through the References (to argue within the boundaries established by Beaulier and Caplan, themselves, so I did
    not even try to judge this rubbish through a Marxist perspective).

    Out of 74 works cited, only 4 articles came from the psychology scholarly literature (not one from sociology or social psychology or any other field that one might suspect relevant to the discussion).

    And the “argument” underpinning the differential IQ came entirely from The Bell Curve (which makes the 5th work dealing on psychology!). They cited Herrnstein and Murray 8 times in the text!

    On these, let’s say, shaky foundations, Beaulier and Caplan not only consider they have solved a fundamental problem that has eluded psychology for generations (namely, what is intelligence), but have disentangled causes and effects and proposed policy guidelines!

    This paper (which was published, by the way) should pass to history next to the Sokal hoax paper.

    For what they are worth, my full comments are here:
    Dodgy Scholarship
    http://aussiemagpie.blogspot.com/2011/02/dodgy-scholarship.html

  3. […] of them, of course, wants to examine what I have called the pathologies of the rich for our current predicament. Like the “culture of wealth,” the pathology of the rich would […]

  4. […] it was the rediscovery of the “culture of poverty.” Then, it was the “pathological behavior” of the poor. Now, the focus appears to have shifted to the “perverse incentives” […]

  5. […] add that, when poor people make mistakes, it only affects them and their children. But one of the pathologies of the rich is that their mistakes affect large numbers of people, especially when their desire to acquire as […]

  6. […] often argued on this blog that (e.g., here and here), instead of studying the so-called culture of poverty, we should focus instead on the […]

  7. It’s awesome for me to have a website, which is helpful designed for my know-how.
    thanks admin

  8. […] Fisman et al. do is to turn their attention to the pathologies of the rich and the fact that “elite Americans are not just middle-class people with more […]

  9. […] Fisman et al. do is to turn their attention to the pathologies of the rich and the fact that “elite Americans are not just middle-class people with more […]

  10. […] decisions they make do, in fact, have social ramifications. That’s why, back in 2011, I suggested we switch our focus from the “culture of poverty” to the pathologies of the […]

  11. […] individual decisions they make do, in fact, have social ramifications. That’s why, back in 2011, I suggested we switch our focus from the “culture of poverty” to the pathologies of the […]

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