Saturday, August 11, 2007

The Mechanics of Money

I was considering a Bible verse the other day, where Jesus warned His disciples that the poor would always be with them. As one of those people who considers Scripture to be trustworthy, I found that statement just a bit odd. For thousands of years, people have been trying to eliminate poverty, and with good reason; moral people hate to see folks suffer, and poverty is a most cruel burden on people. Also, even those people who do not carry much love for their fellow man, understand that people enduring poverty are not able to contribute effectively to society and the commonwealth. There has been, therefore, a prolonged significant effort to raise the living conditions in almost every country. Even tyrants have come to understand that starvation and deprivation drive the people to drastic measures. Yet, for all the many ideas and programs, people continue to live in poverty in every nation on the globe. The poor, indeed, are always with us.

Modern Economics, however, is finally able to show some of why this happens. There is a minimum level for survival, consisting of a certain degree of food, shelter, clothing, hygiene, and medical care. We can call this a subsistence level. The significance of poverty is that the poverty level determined in most modern calculations is at a higher standard of living than mere subsistence. This is not due to some soft-hearted notion that luxury is a need, but rather that there is a point of means, below which a person cannot maintain provision for the future. That is, a single catastrophic event such as an accident, serious illness or natural disaster could kill this person, not to the degree of probability that a normal person would die, but at a much greater mechanism of probability. Hurricane Katrina is a good example of this effect; Hurricanes do not arrive without warning, and those people who had the means to evacuate in their own vehicles and to property in safer areas did so on their own power; the people who did not evacuate were largely those people who did not understand the threat sufficiently to plan for protection (intellectual poverty), or they lacked the means to evacuate, and had no choice but to try to ride out the storm where they were. The significance of this phenomenon, is that poverty exists as a combination of monetary limits, environmental factors, personal psychology and education. Throughout History, people who have climbed from poverty to the Middle Class and above, have done so by changing two of those planes of existence; education and psychology. Monetary limits turn out to be minor in the long-term scheme; people can and do overcome hard financial times if they have the education and the confidence, work ethic, and determination, but those who do not have those elements do not rise out of poverty, even when substantial financial support is provided, as LBJ’s “War on Poverty” proved.

For many people, the environmental factors turn out to be the wild card. Many children are optimistic and confident, and it appears that their success is simply a matter of effort and time, yet this turns out not to be true all of the time. On this point both Democrats and Republicans have the same goal, though widely different strategies for improving the opportunities for poor individuals to succeed financially. The question seems in many cases to turn on the peer groups chosen; far too many young people pursue convenience, luxury, and entertainment rather than investment and savings, and as a result they become dependent on their job for a prolonged portion of their lives, in many cases never building the foundation to start their own company or enjoy substantial returns on investments. Personal financial success in the United States often comes down to a simple equation based on a balance of savings and sound investments.

No comments: