The poor need more than a safety net

A helping hand - just cash or also values?

What could be worse than a losing lottery ticket? Almost certainly, according to one study: a winning one.

In a 2009 paper published in the Review of Economics and Statistics, economists from the University of Kentucky, University of Pittsburgh, and Vanderbilt University attempted to determine what happens when people in financial straits are given large lump payments. “The Ticket to Easy Street? The Financial consequences of Winning the Lottery” aimed to assess the most basic approach used by policymakers to assist those in financial trouble – giving hefty cash transfers.

The longitudinal study utilized a large, linked database of Florida lottery winners and bankruptcy records. The findings were stunning – big winners (those receiving $50,000 to $150,000), while less likely to go bankrupt than small winners within  two years, were actually more likely to file three to five years later. In other words, the large infusion of cash had no lasting effect, and, in fact, a corrosive one. This in spite of the fact that the median prize ($65,000) was larger than the average unsecured debt ($49,000) owed by the player: these winners should have had a fresh financial start.

Is this a significant finding to policymakers fighting intransigent poverty? Does it suggest that cash transfers are ineffective, or perhaps even an example of pathological altruism (well meaning but harmful policies)? It is often said that the lottery is a tax on those who are bad at math, so perhaps this sample is biased to select those with poor financial skills.

Wouldn’t it be great if we could conduct an experiment where a large group of people were randomly endowed with significant wealth. There would be no sample bias and those not selected would act as a control group, and they could all be observed over many years to determine multigenerational effects. A very expensive experiment to be conducted over a fifty year time frame seems extremely unlikely.

Almost unbelievably, that experiment has been done.

In 1832, the state of Georgia conducted the Cherokee Land Lottery in which winners received 160 acres of land with no strings attached. It could be farmed or sold or traded. The value received was close to the extant median level of wealth (roughly $50,000 in today’s dollars), vaulting winners immediately into a higher wealth strata. The study, “Shocking Behavior: Random Wealth in Antebellum Georgia and Human Capital Across Generations,” was performed by economists Hoyt Bleakley, University of Chicago, and Joseph P. Ferrie of Northwestern University, published in the National Bureau of Economic Research in 2010 (updated in 2013).

(“Shocking” is not used in a horror movie sense, but meaning that the economic impact of winning was a shock to the winner’s financial status, bouncing them to a new level.)

Bleakley and Ferrie’s findings were surprising: “Although winners had slightly more children than non-winners, they did not send them to school more. Sons of winners have no better adult outcomes (wealth, income, literacy) than the sons of non-winners, and winners’ grandchildren do not have higher literacy or school attendance than non-winners’ grandchildren.”

From a policymaking point of view, this is highly disappointing. Large infusions of wealth to families did not “catch fire” but rather petered out. This brings us to a key question: what is more important to enabling social mobility: financial constraints or the household’s culture and values? How can we most effectively address multigenerational stagnation?

Bleakley and Ferrie refer to a 2007 study published by Gregory Clark in which he found that the “characteristics associated with better economic outcomes – patience, hard work, ingenuity, innovativeness, education – persisted and spread within family lines…” The family’s characteristics, or values  infrastructure, is more likely to be passed on from generation to generation and is more highly correlated to mobility and success than is wealth alone. Apparently, wealth accretes from values and not vice versa.

According to the Congressional Research Service, the cash equivalent of federal means-tested spending on households in poverty is over $60,000 per year. There is no doubt that this money is useful to support these families and their children. But is it enough? Will it engender social mobility and multigenerational change? The sad truth from the aforementioned studies is that, most likely, it is not.

So, it seems, as we prescribe programs to help our poor, to enable them to rise to and through the middle class dream of America, we must pay equal mind to cultural values as we do to cash. For without these, the effects of gifted cash alone are ephemeral and, perhaps, even harmful.

There is enough harm in the world without us adding to it, however well intended.

First, do no harm

Belisarius begging for alms

“Primum non nocere,” (first, do no harm) is a fundamental law drilled into medical practitioners and emergency medical technicians around the world. The principle dictates that, when faced with an existing issue, one must carefully select an action that does not cause more harm than good, even if that means doing nothing. It is intended to make the practitioner consciously consider the harm that any given action might cause.

A core principle of medical ethics, this dictum is equally applicable to a wide range of governmental policies and husbandry (the management and conservation of resources). A prime example: for many years we had a zero-tolerance policy regarding wildfires. Smokey Bear warned us to be careful and all fires were fought to a standstill. As a result, the natural process of undergrowth thinning was thwarted resulting in larger and more dangerous “crowning” fires. Further, certain species require fire as part of their lifecycle, the Giant Sequoia being a case in point. When it was observed in the 1960s that no new Sequoias were germinating due to fire suppression, it was determined that our fire suppression policies were causing harm. A more open-minded view now has us allow fires to proceed as a natural ecological process except where human lives or property are threatened.

In the political arena, we are not nearly as enlightened. Many government policies have been shown to inflict harm on the very constituencies they were intended to help. Some famous examples include housing policy which fueled the Great Recession of 2009, college grants and subsidies which fund a roaring inflation rate of tuitions, and generous welfare benefits which have led to a spectacular breakdown of the nuclear family, especially within the urban poor. These programs were all well intentioned; it is simply that the negative consequences were not adequately factored into the political calculus.

Why might this be? In a thought-provoking paper published earlier this year (“Concepts and implications of altruism bias and pathological altruism,” Proceedings of the National Academy of Sciences, April 9, 2013), researcher Barbara Oakley describes the concept of pathological altruism, that is, behavior that is intended to help but results in foreseeable harm. At root, as should be no surprise, is our very human desire to help combined with an almost innocent neglect of potentially harmful side effects.

We are wired to be empathetic, altruistic; the desire to help is in our DNA (with the exception of a relatively rare number of sociopaths amongst us). Early human clans survived more readily when they assisted each other. Altruism, therefore, is a natural tendency reinforced by evolution and subsequently enshrined in religious values. (Christianity, as one example, extols philanthropy and is well-known for its many charities).

But when it comes to the political process, when programs to help the poor or subsidize this group or that are debated, we tend to be overtaken by the emotional need to help and neglect the cold, scientific analysis of the reverberations our actions will actually create. Further, this altruism bias causes us to demonize anyone who dares suggest such an analysis. But in the end, it is the greatest good with the least harm that must be our goal, and reasoned analysis, without recourse to ad hominem attacks, is the only way to achieve that end.

Pathological altruism can be very dangerous. Dr. Oakley refers to the tens of millions of deaths caused in the twentieth century by appeals to altruism (Stalin, Hitler, and Pol Pot all cynically garnered support for their policies in that manner). She closes by proposing that pathological altruism is of such import that it should be the subject of focused scientific research. It is hard to disagree with that.