Our efforts to combat poverty are often based on a misconception: that the poor must pull themselves up out of the mire. But a revolutionary new theory looks at the cognitive effects of living in poverty. What does the relentless struggle to make ends meet do to people?
On November 13, 1997, a new casino opened its doors just south of North Carolinaâ€™s Great Smoky Mountains. Despite the dismal weather, a long line had formed at the entrance, and as people continued to arrive by the hundreds, the casino boss began advising folks to stay at home.
The widespread interest was hardly surprising. Harrahâ€™s Cherokee was and still is a massive luxury casino owned and operated by the Eastern Band of Cherokee Indians, and its opening marked the end of a ten-year-long political tug of war. One tribal leader had even predicted that â€œgambling would be the Cherokeeâ€™s damnation,â€ and North Carolinaâ€™s governor had tried to block the project at every turn.
Soon after the opening, it became apparent that the casino would bring the tribe not damnation, but relief. The profitsâ€Šâ€”â€Šamounting to $150 million in 2004 and growing to nearly $400 million in 2010â€Šâ€”â€Šenabled the tribe to build a new school, hospital, and fire station. However, the lionâ€™s share of the takings went directly into the pockets of the 8,000 men, women, and children of the Eastern Band Cherokee tribe. From $500 a year at the outset, their earnings from the casino quickly mounted to $6,000 in 2001, constituting a quarter to a third of the average family income.
As coincidence would have it, a Duke University professor by the name of Jane Costello had been researching the mental health of youngsters south of the Great Smoky Mountains since 1993. Every year, the 1,420 kids enrolled in her study took a psychiatric test. The cumulative results had already shown that those growing up in poverty were much more prone to behavioral problems than other children.
But the question still remained: Which was the cause, and which the effect?
At the time Costello was doing her research, it was becoming increasingly popular to attribute mental problems to individual genetic factors. If nature was the root cause, then handing over a sack of money every year would be treating the symptoms, but ignoring the disease. If, on the other hand, peopleâ€™s psychiatric problems were not the cause but the consequence of poverty, then that $6,000 might genuinely work wonders. The arrival of the casino, Costello realized, presented a unique opportunity to shed new light on this ongoing question since a quarter of the children in her study belonged to the Cherokee tribe, more than half of them living below the poverty line.
Soon after the casino opened, Costello was already noting huge improvements for her subjects. Behavioral problems among children who had been lifted out of poverty went down 40%, putting them in the same range as their peers who had never known privation. Juvenile crime rates among the Cherokee also declined, along with drug and alcohol use, while their school scores improved markedly. At school, the Cherokee kids were now on a par with the studyâ€™s non-tribal participants.
Ten years after the casinoâ€™s arrival, Costelloâ€™s findings showed that the younger the age at which children escaped poverty, the better their teenage mental health. Among her youngest age cohort, Costello observed a â€œdramatic decreaseâ€ in criminal conduct. In fact, the Cherokee children in her study were now better behaved than the control group.
On seeing the data, Costelloâ€™s first reaction was disbelief. â€œThe expectation is that social interventions have relatively small effects,â€ she later said. â€œThis one had quite large effects.â€ Professor Costello calculated that the extra $4,000 per annum resulted in an additional year of educational attainment by age 21 and reduced the chance of a criminal record at age 16 by 22%.
But the most significant improvement was in how the money helped parents, well, to parent. Before the casino opened its doors, parents worked hard through the summer but were often jobless and stressed over the winter. The new income enabled Cherokee families to put money aside and to pay bills in advance. Parents who were lifted out of poverty now reported having more time for their children.
They werenâ€™t working any less though, Costello discovered. Mothers and fathers alike were putting in just as many hours as before the casino opened. More than anything, says tribe member Vickie L. Bradley, the money helped ease the pressure on families, so the energy theyâ€™d spent worrying about money was now freed up for their children. And that â€œhelps parents be better parents,â€ Bradley explains.
What, then, is the cause of mental health problems among the poor? Nature or culture? Both, was Costelloâ€™s conclusion, because the stress of poverty puts people genetically predisposed to develop an illness or disorder at an elevated risk. But thereâ€™s a more important takeaway from this study.
Genes canâ€™t be undone. Poverty can.
Why Poor People Do Dumb Things
A world without povertyâ€Šâ€”â€Šit might be the oldest utopia around.
But anybody who takes this dream seriously must inevitably face a few tough questions. Why are the poor more likely to commit crimes? Why are they more prone to obesity? Why do they use more alcohol and drugs? In short, why do the poor make so many dumb decisions?
Harsh? Perhaps, but take a look at the statistics: The poor borrow more, save less, smoke more, exercise less, drink more, and eat less healthfully. Offer money management training and the poor are the last to sign up. When responding to job ads, the poor often write the worst applications and show up at interviews in the least professional attire.
British Prime Minister Margaret Thatcher once called poverty a â€œpersonality defect.â€ Though not many politicians would go quite so far, this view that the solution resides with the individual is not exceptional. From Australia to England and from Sweden to the United States there is an entrenched notion that poverty is something people have to overcome on their own. Sure, the government can nudge them in the right direction with incentivesâ€Šâ€”â€Šwith policies promoting awareness, with penalties, and, above all, with education. In fact, if thereâ€™s a perceived â€œsilver bulletâ€ in the fight against poverty, itâ€™s a high school diploma (or even better, a college degree).
But is that all there is to it?
What if the poor arenâ€™t actually able to help themselves? What if all the incentives, all the information and education are like water off a duckâ€™s back? And what if all those well-meant nudges only make the situation worse?
The Power of Context
These are harsh questions, but then, itâ€™s not just anybody asking them; itâ€™s Eldar Shafir, a psychologist at Princeton University. He and Sendhil Mullainathan, an economist at Harvard, recently published a revolutionary new theory on poverty. The gist?
Itâ€™s the context, stupid.
Shafir isnâ€™t modest in his aspirations. He wants nothing less than to establish a whole new field of science: the science of scarcity. But donâ€™t we have that already? Economics? â€œWe get that a lot,â€ laughed Shafir when I met with him at a hotel in Amsterdam. â€œBut my interest is in the psychology of scarcity, on which surprisingly little research has been done.â€™
To economists, everything revolves around scarcityâ€Šâ€”â€Šafter all, even the biggest spenders canâ€™t buy everything. However, the perception of scarcity is not ubiquitous. An empty schedule feels different than a jam-packed workday. And thatâ€™s not some harmless little feeling. Scarcity impinges on your mind. People behave differently when they perceive a thing to be scarce.
What that thing is doesnâ€™t much matter; whether itâ€™s too little time, money, friendship, foodâ€Šâ€”â€Šit all contributes to a â€œscarcity mentality.â€ And this has benefits. People who experience a sense of scarcity are good at managing their short-term problems. Poor people have an incredible abilityâ€Šâ€”â€Šin the short termâ€Šâ€”â€Što make ends meet, the same way that overworked CEOs can power through to close a deal.
You Canâ€™t Take a Break from Poverty
Despite all this, the drawbacks of a â€œscarcity mentalityâ€ are greater than the benefits. Scarcity narrows your focus to your immediate lack, to the meeting thatâ€™s starting in five minutes or the bills that need to be paid tomorrow. The long-term perspective goes out the window. â€œScarcity consumes you,â€ Shafir explains. â€œYouâ€™re less able to focus on other things that are also important to you.â€
Compare it to a new computer thatâ€™s running ten heavy programs at once. It gets slower and slower, making errors, and eventually it freezesâ€Šâ€”â€Šnot because itâ€™s a bad computer, but because it has to do too much at once. Poor people have an analogous problem. Theyâ€™re not making dumb decisions because theyare dumb, but because theyâ€™re living in a context in which anyone would make dumb decisions.
Questions like Whatâ€™s for dinner? and How will I make it to the end of the week?tax a crucial capacity. â€œMental bandwidth,â€ Shafir and Mullainathan call it. â€œIf you want to understand the poor, imagine yourself with your mind elsewhere,â€ they write. â€œSelf-control feels like a challenge. You are distracted and easily perturbed. And this happens every day.â€ This is how scarcityâ€Šâ€”â€Šwhether of time or of moneyâ€Šâ€”â€Šleads to unwise decisions.
Thereâ€™s a key distinction though between people with busy lives and those living in poverty: You canâ€™t take a break from poverty.
Poverty is not a lack of character. Itâ€™s a lack of cash.
So in concrete terms, just how much dumber does poverty make you?
â€œOur effects correspond to between 13 and 14 IQ points,â€ Shafir says. â€œThatâ€™s comparable to losing a nightâ€™s sleep or the effects of alcoholism.â€ Whatâ€™s remarkable is that we could have figured all this out 30 years ago. Shafir and Mullainathan werenâ€™t relying on anything so complicated as brain scans. â€œEconomists have been studying poverty for years and psychologists have been studying cognitive limitations for years,â€ Shafir explains. â€œWe just put two and two together.â€
It all started a few years ago with a series of experiments conducted at a typical American mall. Shoppers were stopped to ask what they would do if they had to pay to get their car fixed. Some were presented with a $150 repair job, others with one costing $1,500. Would they pay it all in one go, get a loan, work overtime, or put off the repairs? While the mall-goers were mulling it over, they were subjected to a series of cognitive tests. In the case of the less expensive repairs, people with a low income scored about the same as those with a high income. But faced with a $1,500 repair job, poor people scored considerably lower. The mere thought of a major financial setback impaired their cognitive ability.
Shafir and his fellow researchers corrected for all possible variables in the mall survey, but there was one factor they couldnâ€™t resolve: The rich folks and the poor folks questioned werenâ€™t the same people. Ideally, theyâ€™d be able to repeat the survey with subjects who were poor at one moment and rich the next.
Shafir found what he was looking for some 8,000 miles away in the districts of Vilupuram and Tiruvannamalai in rural India. The conditions were perfect; as it happened, the areaâ€™s sugarcane farmers collect 60% of their annual income all at once right after the harvest. This means they are flush one part of the year and poor the other.
So how did they do in the experiment?
At the time when they were comparatively poor, they scored substantially worse on the cognitive tests, not because they had become dumber people somehowâ€Šâ€”â€Šthey were still the same Indian sugarcane farmers, after allâ€Šâ€”â€Šbut purely and simply because their mental bandwidth was compromised.
How Giving Free Money Actually Saves Money
â€œFighting poverty has huge benefits that we have been blind to until now,â€ Shafir points out. In fact, he suggests, in addition to measuring our gross domestic product, maybe itâ€™s time we also started considering our gross domestic mental bandwidth. Greater mental bandwidth equates to better child-rearing, better health, more productive employeesâ€Šâ€”â€Šyou name it. â€œFighting scarcity could even reduce costs,â€ projects Shafir.
And thatâ€™s precisely what happened south of the Great Smoky Mountains. Randall Akee, an economist at the University of Los Angeles, calculated that the casino cash distributed to Cherokee kids ultimately cut expenditures. According to his conservative estimates, eliminating poverty actually generated more money than the total of all casino payments through reductions in crime, use of care facilities, and repetition of school grades.
So what can be done?
Shafir and Mullainathan have a few possible solutions up their sleeves: giving needy students a hand with all that financial aid paperwork, for instance, or providing pill boxes that light up to remind people to take their meds. This type of solution is called a â€œnudge.â€ Nudges are hugely popular with politicians, mostly because they cost next to nothing.
But, honestly, what difference can a nudge really make? The nudge epitomizes an era in which politics is concerned chiefly with combating symptoms. Nudges might serve to make poverty infinitesimally more bearable, but when you zoom out, you see that they solve exactly nothing. Going back to our computer analogy, I ask Shafir: Why keep tinkering around with the software when you could easily solve the problem by installing some extra memory instead?
Shafir responds with a blank look. â€œOh! You mean just hand out more money? Sure, that would be great,â€ he laughs. â€œBut given the evident limitations [â€¦] the brand of left-wing politics youâ€™ve got here in Amsterdam doesnâ€™t even exist in the States.â€
Granted, it would take a big program to eradicate poverty in the U.S. According to economist Matt Bruenigâ€™s calculations, it would cost $175 billion. But poverty is even more expensive. A 2013 study estimated the costs of child poverty at as much as $500 billion a year. Kids who grow up poor end up with two yearsâ€™ less education, work 450 fewer hours per year, and run three times the risk of bad health than those raised in families that are well off.
Investments in education wonâ€™t really help these kids, the researchers say. They have to get above the poverty line first. A recent meta-analysis of 201 studies on the effectiveness of financial education came to a similar conclusion: Such education makes almost no difference at all. This is not to say no one learns anythingâ€Šâ€”â€Špoor people can come out wiser, for sure. But itâ€™s not enough. â€œItâ€™s like teaching a person to swim and then throwing them in a stormy sea,â€ laments Professor Shafir.
It doesnâ€™t have to be this way. â€œPoverty is a great enemy to human happiness; it certainly destroys liberty, and it makes some virtues impracticable, and others extremely difficult,â€ said the British essayist Samuel Johnson in 1782. Unlike many of his and our contemporaries, he understood that poverty is not a lack of character.
Itâ€™s a lack of cash.
Rutger Bregman is the author of Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-hour Workweek. You can buy it on Amazon.
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