The Peripatetic Philosopher muses:

Poverty

Part One

James R. Fisher, Jr., Ph.D.

© June 14, 2015

In proportion as nations get more corrupt, more disgrace will attach to poverty, and more respect to wealth.  These are two questions that would completely reverse this order of things: “What keeps some people poor and what has made some others rich?”  The true answer to these queries would often make the poor man more proud of his poverty than the rich man is of his wealth, and the rich man more justly ashamed of his wealth, than the poor man unjustly of his poverty.

Caleb C. Colton (1780 – 1832), English clergyman

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.

An old Chinese Proverb.

THE QUESTION OF POVERTY – A PERSONAL NOTE

The question of poverty has always interested man.  Perhaps because like mortality, poverty is something he doesn’t know quite what to make of it. 

Personally, I’ve known people with incomes of $2 million or more who ultimately nearly lost everything because they “thought they were rich!” 

Man has never been too bright when it comes to the slippery slope of wealth much less  understanding of its lack.  Consequently, those at the other end of the scale, the so-called “chronic poor” never climb out of poverty even when given a generous hand by the government.  Instead, they become more economically dependent.    

Given this propensity, why do politicians throw trillions of dollars at poverty, which doesn’t seem to stick to anything?  In fact, often it acts in an iatrogenic fashion driving people deeper into poverty rather than relieving them from poverty.   Why is that?

Academics develop metric mathematical models and win Nobel Prizes in Economics, proving the veracity of their models in laboratory confinements but seldom with much staying power outside of this environment.   Why?

If poverty is a man made proclivity of one thing we can be certain, the “cycle of poverty” of economic disruption, corruption and destabilization will invariably be identified with world wars, pestilence, spikes in population, collective malfeasance, mass movements of people, shifts in dominant ideologies, and natural disasters.  Natural disasters are then likely to be associated with global warming.  Why? 

The answers are never found in macroeconomics or, indeed, in mass psychology but in microeconomics and the individual maturation of people over time.  People as individuals are the key to everything.   Discover that key and everything else falls into place.  Everything!

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By the accident of my birth, being born after the Great Depression of 1929, I became a member of the smallest generation in a century in the United States.  This meant there were fewer of us to compete with each other. 

At the same time, World War Two lifted the United States and the world out of the Great Depression as there was full mobilization on the part of the Allies and the Axis Powers. 

Out of that world war Europe and much of Asia was decimated and more than 60 million people perished, worldwide.  This represented 3 percent of the world population of 2 billion as of 1939.  The United States lost over 400,000 in WWII.

World War II was a global war that lasted from 1939 to 1945.  The combination of the Great Depression and WWII produced a sharp decline in births across the globe. 

The United States untouched by the devastation of WWII was primed to be the world’s supplier of goods and services once hostilities concluded. 

Those in the United States coming from humble circumstances but diligent students, many being the first to earn a college degree in their family’s history, had the world at their feet for the taking.

Were they frugal as well as diligent, these Great Depression offspring had a relative easy existence over a lifespan with never a whiff of poverty.   


It was however a bland and circumspect era with old fashion morals and mores still reassuringly in place.   Such issues as identity crisis and self-esteem were luxuries this generation could not afford in the shadow of the Great Depression and WWII.  This was also my era.

    

When I was six-years-old, and discovered I had a family, a mother and a father, a brother I never knew, only a sister who was the whole world to me, I had a mind altering experience that has stayed with me all my life.  I mention it here to emphasize the importance of parents in the scheme of things and the individual whatever era or situation.  With parental candor, anything is possible.  Anything!

It was that first Christmas we were together as a family.  My da sat me down and told me, “Jimmie, we bought your sister a doll, but we have no toys for you.  We couldn’t afford to buy anything else.”

He talked to me that way, a six-year-old child, indeed, like a young adult, and perhaps for that reason material things have mattered little to me all my life.  I went to school at St. Patrick’s where my classmates showed off their Christmas gifts and talked about their new toys.  I lied about mine. 

My da’s education ended at the seventh grade.  He brought us together as a family when he joined the nation’s Works Project Administration (WPA) workforce.  A stint as a laborer at a chemical plant followed, then Japan bombed Pearl Harbor on December 7, 1941 and the USA entered WWII.

He then joined the Chicago & Northwestern Railroad as a passenger brakeman, where he worked during that war and for the remainder of his short life, dying at the age of 50 of multiple myeloma.

When he was dying, I was given emergency leave from the United States Navy flying from Europe, and allowed by our family’s physician to administer morphine when requested, and to bathe his shrunken body from his five-foot seven inch frame and 150 pounds to the 60 pounds that he now was.   

The man never complained but accepted his fate with courage and dignity.  In his short life, he never got ahead of the curve, never was solvent always owed creditors.  When I checked his railroad pension, I was stunned how little money he had made during his entire railroad career that represented half his lifetime.    

The son had grown nine inches taller than the father, spent nine years in university education earning multiple degrees, and would earn more in a few months than that father earned in a lifetime. 

The son would also have two sons and two daughters, but would never approach the father’s dignity, physical courage, humility or candor.  What is poverty against such wealth?

POVERTY AND WEALTH

The United States and other wealthy nations are as obsessed with poverty as fixated on wealth.  They have spent trillions of dollars to lift the world’s poorest out of penury with largely disappointing results. 

We had FDR’s “New Deal,” Truman’s “Fair Deal,” Kennedy’s “New Frontier,” and Johnson’s “New Society,” each president declaring “war on poverty,” only to have the forces of war (WWII, Korean War, Vietnam), pestilence, disease, spikes in population, political and economic hubris, and mass migrations of people fueling disruption, corruption, and destabilization as an index of chronic poverty.

According to the US Census Bureau, 14.7 percent of Americans were poor in 1966 and 14.5 percent in 2013 despite all the concerted economic attention to poverty.

Worldwide in 1981, 2.6 billion people subsisted on less than $2 a day; in 2013, 2.2 billion did. 

Pockets of poverty appear indigenous to the sub-Saharan region, South Asia, and Latin America.  In these same areas, illiteracy is high as are birth rates and political instability.   And if that were not enough, there is civil disruption, corruption, destabilization and malfeasance by those in power who not only fail to address the problems of poverty but are inclined to exploit poverty to their advantage. 

Peter Turchin writes in “War and Peace and War: the Rise and Fall of Empires” (2007):

“Today, the top one per cent of incomes in the United States accounts for one fifth of US earnings. The top one per cent of fortunes holds two-fifths of the total wealth. Just one rich family, the six heirs of the brothers Sam and James Walton, founders of Walmart, are worth more than the bottom 40 per cent of the American population combined ($115 billion in 2012).”

Sam Walton came out of WWII a G.I. veteran who thought he had a better idea than the customary “Five and Dime” store and turned the business into a worldwide megacorporation.  He started small (using G.I. Bill loans) in small towns and priced merchandise to appeal to people strapped for cash.  Walmart to this day appeals to such a clientele.    

You would think, Turchin says, that we have a pretty good idea why the richest people in the US are pulling away from the rest, but we don’t.  As the Congressional Budget Office concluded in 2011: the precise reasons for the rapid growth in income at the top are not well understood.

In “Wealth and Democracy” (2002), Kevin Phillips examined the changing patterns of wealth inequality in the US. He looked at the net wealth of the nation’s median household and compared it with the size of the largest fortunes in the US.

The ratio of the two figures provided a rough measure of wealth inequality, and that’s what he tracked, touching down every decade or so from the turn of the 19th century to the present. 

In doing so, he found a striking pattern; repeated back-and-forth swings in demographic, economic, social, and political structures.  Stated another way, culture or mindset has a lot to do with how individuals behave collectively.

From 1800 to the 1920s, inequality increased more than a hundredfold. Then came the reversal: from the 1920s to 1980, it shrank back to levels not seen since the mid-19th century. Over that time, the top fortunes hardly grew (from one to two billion dollars; a decline in real terms). Yet the wealth of a typical family increased by a multiple of 40.  

From 1980 to the present, the wealth gap has been on another steep, if erratic, rise. Commentators have called the period from 1920s to 1970s The Great Compression.

The past 30 years are known as the Great Divergence (1984 – 2014).  Once the 19th century is brought into the picture, movement does not appear isolated but more like a rhythm. 

In other words, when looked at over time, the development of wealth inequality in the US appears to be cyclical. And if it’s cyclical, can we predict what happens next?  Economists think so.

DISTRIBUTION OF WEALTH OVER TWO CENTURIES

Inverse relationship between well-being and inequality in American history. The peaks and valleys of inequality (in purple) represent the ratio of the largest fortunes to the median wealth of households (the Phillips curve). The blue-shaded curve combines four measures of well-being: economic (the fraction of economic growth that is paid to workers as wages), health (life expectancy and the average height of native-born population), and social optimism (the average age of first marriage, with early marriages indicating social optimism and delayed marriages indicating social pessimism).

Turchin and Sergey Nefedov in “Secular Cycles” (2009) apply the Phillips approach to England, France and Russia throughout both the medieval and early modern periods, and also to ancient Rome. All of these societies went through recurring secular cycles. 


Over two to three centuries, we see repeated back-and-forth swings in demographic, economic, social, and political structures. And the cycles of inequality are an integral part of the overall motion.

Cycles in the real world are chaotic, because complex systems such as human societies have many parts that are constantly moving and influencing each other. Despite this complexity, these authors’ historical research on Rome, England, France, Russia and now the US shows complex interactions add up to a general rhythm.

Upward trends in variables (e.g., economic inequality) alternate with downward trends. Those who have faith in this mathematical modeling believe they can tell us why certain trends periodically reverse themselves. Understanding such trend-reversals is at the core of the new discipline of mathematical modelling.  To these mathematical economists these patterns are real.   


Obviously, the United States is a very different society from ancient Rome or medieval England cut off from them by the Industrial Revolution and by innumerable advances in technology. Even so, historically based mathematical models find economists confident they shed light on what has been happening in the US over the past three decades. Turchin says:

“First, we need to think about jobs. Unless other forces intervene, an overabundance of labor will tend to drive down its price, which naturally means that workers and their families have less to live on.”

The reader may shrug, and say that is simply common sense.  If so, why is such sense so uncommon to the problem solving?

One of the most important forces affecting the labor supply in the US has been immigration, and it turns out that immigration, as measured by the proportion of the population who were born abroad, has changed in a cyclical manner just like inequality. In fact, the periods of high immigration coincided with the periods of stagnating wages.

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